UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C.  20549

                                   FORM 10-K
(Mark One)
    |X|     ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
            EXCHANGE ACT OF 1934 [FEE REQUIRED] for the fiscal year ended
            March 31, 2001
                                       OR
    [__]       TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
               SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
               for the transition period from ____________to_________

                        Commission File Number: 0-21322

                                OUT-TAKES, INC.
                 (Name of small business issuer in its charter)

              Delaware                              95-4363944
  (State or other jurisdiction of        (I.R.S.  Employer Identification
No.)
  incorporation or organization)

 3811 Turtle Creek Blvd., Suite 350 , Dallas, Texas              75219
 (Address of principal executive offices)                     (Zip Code)

                   Issuer's telephone number: (214) 528-8200

             Securities registered under Section 12(b) of the Act:

                                      None
             Securities registered under Section 12(g) of the Act:

                          Common Stock, $.01 par value
                                (Title of Class)

Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the issuer was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
 Yes   X        No
    -----           ------
Check if there is no disclosure of delinquent filers pursuant to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained,
to the best of issuer's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K, or any
amendment to this Form 10-K. ___

The issuer's revenues for the most recent fiscal year were $547,755.

<PAGE>1

The aggregate market value of the voting stock held by non-affiliates as of
March 31, 2001 was $********.

The number of shares outstanding of the issuer's Common Stock as of March
31, 2001 was 20,788,122.

Transitional Small Business Disclosure Format (Check One): Yes      No X

 ___________________________________________________________________________

                                Out-Takes, INC.

       FORM 10-K ANNUAL REPORT FOR FISCAL YEAR ENDING MARCH 31, 2000

                               TABLE OF CONTENTS                      Page
                               -----------------                      ----
PART I                                                                    1

  ITEM 1.   DESCRIPTION OF BUSINESS                                       1

  ITEM 2.   DESCRIPTION OF PROPERTY                                       4

  ITEM 3.   LEGAL PROCEEDINGS                                             11

  ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS           12

PART II                                                                   12
  ITEM 5.   MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
            MATTERS                                                       12

  ITEM 6.   SELECTED FINANCIAL DATA                                       13
  ITEM 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
            OPERATION                                                     13

  ITEM 8.   FINANCIAL STATEMENTS                                          29
  ITEM 9.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
            ACCOUNTING AND FINANCIAL DISCLOSURE                           38

PART III                                                                  38

  ITEM 10.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND
            CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE
            EXCHANGE ACT                                                  38

  ITEM 11.  EXECUTIVE COMPENSATION                                        39

  ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
            OWNERS AND MANAGEMENT                                         39

  ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                39

<PAGE>2
PART IV                                                                   39

  ITEM 14.  EXHIBITS AND REPORTS ON FORM 8-K                              39

                                    PART I

ITEM 1.  DESCRIPTION OF BUSINESS

Except for historical financial information contained herein, the matters
discussed in this annual report may be considered forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended,
and Section 21E of the Securities Exchange Act of 1934, as amended and
subject to the safe harbor created by the Securities Litigation Reform Act
of 1995. Such statements include declarations regarding the intent, belief
or current expectations of the Company and its management. Prospective
investors are cautioned that any such forward-looking statements are not
guarantees of future performance and involve a number of risks and
uncertainties; actual results could differ materially from those indicated
by such forward-looking statements. Among the important factors that could
cause actual results to differ materially from those indicated by such
forward-looking statements are: that the information is of a preliminary
nature and may be subject to further adjustment, the possible unavailability
of financing, risks related to the development, acquisition and operation of
power plants, the impact of avoided cost pricing, energy price fluctuations
and gas price increases, the impact of curtailment, start_up risks, general
operating risks, the dependence on third parties, risks associated with the
power marketing business, changes in government regulation, the availability
of natural gas, the effects of competition, the dependence on senior
management, (xvii) volatility in the Company's stock price, fluctuations in
quarterly results and seasonality, and other risks identified from time to
time in the Company's reports and registration statements filed with the
Securities and Exchange Commission.

GENERAL

Out-Takes, Inc., a corporation incorporated in Delaware on March 18, 1992
("the Company"), up until October 26, 1998, was engaged in the sale of
photographic portraits of children, adults and family groups. On or about
August 31, 1998, the Company acquired all of the issued and outstanding
units of equity of Los Alamos Energy, LLC, which operates a 1 mega watt
power plant in Los Alamos, California, which produces electricity from
"waste gas," and shifted its business emphasis to that of electrical energy
provider.

On or about October 26, 1998, the Company leased its photo studio assets to
Colorvision International, Inc., completing the shift of its business focus
to the providing of electrical energy.




<PAGE>3

LOS ALAMOS ENERGY

Los Alamos Energy was formed in June, 1996, for the purpose of becoming a
principal electricity provider in the State of California. With the
acquisition of Los Alamos Energy, the Company is engaged in a "niche" area
of electricity production from "waste gas," natural gas which is produced in
conjunction with oil production, but for which there is no market. Normally,
waste gas is flared, or burned. The procurement of waste gas provides an
inexpensive source of fuel for the Company's generators. The Company
currently provides all of the electrical energy to the unincorporated town
of Los Alamos, California, through Pacific Gas and Electric Company (PG&E),
which is mandated by current law to purchase all the electrical energy that
the Company can produce.

On August 31, 1998, the Company entered into a Share Purchase Agreement (the
"Acquisition Agreement") whereby the Company acquired (the "Acquisition")
all of the issued and outstanding equity interests in Los Alamos Energy,
LLC, a California limited liability company ("LAE"). The purchase price to
be paid for the equity interests of LAE is Four Million Dollars
($4,000,000), which was paid by Promissory Notes (the "Notes") to the
holders of LAE equity (the "Equity Holders") calling for interest on all
outstanding amounts to accrue at the rate of ten percent (10%) per annum.
Payments of principal and accrued interest under the Notes shall be made
monthly in arrears up to the maturity date, which is the fifth anniversary
of the Notes. The Notes may be prepaid at any time without premium or
penalty.

The Acquisition Agreement provides that, in the event the Equity Holders
shall desire to do so, they may convert their indebtedness to common stock
of the Company representing in the aggregate ninety percent (90%) of the
issued and outstanding shares of such common stock as of the date of such
conversion. The Acquisition Agreement provides that it is a condition of the
conversion that the Company effect a reverse stock split of one (1) share
for every one hundred (100) shares issued and outstanding as of such date.
LAE contemplates that a significant number of persons currently holding
promissory notes and/or working interests in its electricity production
(collectively, "Interest Holders") will exercise their rights to convert
such interests into the equity of LAE, and subsequently to join in the
conversion of the Notes into common stock of the Company. Presently,
management of LAE anticipates that, prior to the conversion of the Notes and
after giving effect to the contemplated reverse stock split, the Company
will issue approximately three million (3,000,000) additional shares of
common stock, and that subsequent to completing the conversion, the Equity
Holders and Interest Holders will own, in the aggregate, approximately two
million eight hundred eighty thousand (2,880,000) shares of the Company's
common stock, representing ninety percent (90%) of the total amount of
common stock estimated to be issued and outstanding as of the date such
conversion rights are exercised. As of March 31, 2000, the holders have not
yet exercised their right to convert the note to common stock.


<PAGE>4

The indebtedness represented by the Notes is secured by (a) a Security
Agreement, granting a first lien and security interest upon all of the
assets of the Company; and (b) a pledge of the common stock of the Company
held by Photo Corporation Group Pty Limited, an Australian corporation,
which is the controlling stockholder of the Company. The stock pledge grants
the Holders specific rights under certain circumstances, including the right
to receive distributions made by the Company in respect of its common stock
and the right to vote the pledged shares, for so long as the Notes are in
force.

The purchase price to be paid by the Company for all of the issued and
outstanding equity of LAE was negotiated based upon several factors,
including, without limitation, the asset value of LAE and its projected
income from operations based, in part, upon management's estimates of its
natural gas reserves and its current contracts.

LAE is engaged in the collection and distribution of natural gas from
properties owned or leased by it in the State of California, and management
of LAE intends to position LAE to become an important independent power
producer, and to benefit as a principal provider of electricity to consumers
in California and elsewhere as deregulation is implemented. LAE will be
operated as a wholly-owned subsidiary of the Company.

THE MARKET

The power industry represents the third largest industry in the United
States, with an estimated end_user market of over $250 billion of
electricity sales in 1998 produced by an aggregate base of power generation
facilities with a capacity of approximately 750,000 megawatts. In response
to increasing customer demand for access to low_cost electricity and
enhanced services, new regulatory initiatives have been and are continuing
to be adopted at both the state and federal level to increase competition in
the domestic power generation industry. Management believes that this
increase in competition will benefit rather than harm the Company, because
the Company will be free to sell its power to any customer, rather than to
just PG&E, who is now obligated to buy all the power the Company can
produce. Management expects that with the advent of deregulation, prices for
power will increase over and above what it the Company is being paid by
PG&E. The power generation industry historically has been largely
characterized by electric utility monopolies producing electricity from old,
inefficient, high-cost generating facilities selling to a captive customer
base. Industry trends and regulatory initiatives have transformed the
existing market into a more competitive market where end users purchase
electricity from a variety of suppliers, including non-utility generators,
power marketers, public utilities and others. There is a significant need
for additional power generating capacity throughout the United States, both
to satisfy increasing demand, as well as to replace old and inefficient
generating facilities. Due to environmental and economic considerations,
management believes this new capacity will be provided predominantly by gas-

<PAGE>5
fired facilities. Management believes that these market trends will create
substantial opportunities for efficient, low-cost power producers that can
produce and sell energy to customers at competitive rates.

In addition, as a result of a variety of factors, including deregulation of
the power generation market, utilities, independent power producers and
industrial companies are disposing of power generation facilities. To date,
numerous utilities have sold or announced their intentions to sell their
power generation facilities and have focused their resources on the
transmission and distribution segments. Many independent producers operating
a limited number of power plants are also seeking to dispose of their plants
in response to competitive pressures, and industrial companies are selling
their power plants to redeploy capital in their core businesses.

STRATEGY

The Company's strategy is to expand its existing power plant to 4 mW, and to
further expand its power producing capacity by exploring acquisition
opportunities in the power market, by exploring opportunities that exist to
merge with other similarly situated small electrical power production
companies which produce electrical energy from waste gas, in order to expand
its current power production capacity, and to capture more of a market share
of this growing industry, which the Company predicts will increase with the
advent of deregulation of the power industry.

DESCRIPTION OF FACILITIES

The Company has purchased all of the natural gas reserves on the Blair Oil
and Gas Field ("the field"), which is located adjacent to the unincorporated
town of Los Alamos, California, on Rancho El Roblar, approximately 60 miles
north of Santa Barbara along US 101, and which is operated by Texaco. The
field has 15 oil wells producing approximately 500 barrels of oil per day,
and from which approximately one million cubic feet (1073 BTU) of natural
gas was being flared. The gas recoverable reserve is estimated to be
sufficient to provide electrical production for the next several years.

During 1986, the Blairs entered into an agreement with American Cogenics of
California ("ACI") to convert the waste gas into electricity, and two gas
driven, CAT G398T generator sets ("Gensets"), each respectively 550
kilowatts and 600 kilowatts, were installed, from which electricity was
generated and sold to PG&E, pursuant to a power purchase agreement, dated
November 28, 1988 (the "PG&E contract"). In early 1995, the Santa Barbara
County Air Pollution Control District ("APCD") shut down the operation due
to emissions violations.

During October, 1996, Los Alamos Energy consummated the purchase and sale
agreement with American Cogenics of California ("ACI"), dated August 28,
1996, and acquired the rights to the gas, the two Gensets, the PG&E
contract, the FERC certification, and power purchase agreement with Texaco,
and brought the equipment into APCD compliance.

<PAGE>6

When the Gensets were initially installed, there were only a few wells
producing oil and gas on the field. Since that time, production has
increased from about 150 MCFD to about 1,000 MCFD currently, providing the
potential of adding more generators to increase the Company's current
capacity from 1 mega watt (1 mW) to 4mW, at an estimated cost of $1.2
million to $1.5 million.

ATLAS POWER

Atlas Power is engaged in the business of power system and control system
engineering for owners, engineers, manufacturers and construction companies
serving the power industry.

Atlas provides electrical design, project management, acceptance testing,
startup and system studies for power plants and industrial facilities both
domestically and internationally.  Atlas offers in house electrical
engineering and on-site development.


RECENT DEVELOPMENTS

Recent Developments.
California has experienced a power crisis as demand for power far
outstripped supply. Since June 2000, wholesale power prices in California
have steadily increased to an average cost of 18.16 cents per kWh for the
seven month period of June 2000 through December 2000, as compared to an
average cost of 4.23 cents per kWh for the same period in 1999. Rolling
blackouts have occurred as a result of a broken deregulated electricity
market. During 2000, the Investor-Owned Utilities (IOUs) collected only
approximately 5.4 cents per kWh through frozen rates for the recovery of its
wholesale power costs. Many factors have contributed to the high wholesale
power prices, including:

- Economic and population growth in California.

- A lack of new power supplies to meet the growing demand.

- A substantial increase in natural gas prices. Since many power plants
serving California are natural gas fired, the natural gas prices paid by
generators in producing electricity are reflected in the price of power
charged by the generators.

- An unusually dry fall and winter in the Pacific Northwest, which reduced
the amount of available hydroelectric power from that region (typically,
California imports a portion of its power from this source).

- Uncoordinated power plant outages due to scheduled maintenance or
unplanned outages.



<PAGE>7

- The large number of power generating facilities in California nearing the
end of their useful lives, resulting in increased downtime (either for
repairs or because they have exhausted their air pollution credits and
replacement credits have become too costly to acquire on the secondary
market).

- Dysfunctional power markets that produced unjust and unreasonable price
levels.

- The tendency of frozen retail rates to eliminate the incentive for
customers to conserve energy and reduce demand.

- Continued obstacles to new power plant construction in California,
including delays in regulatory approvals to permit the California
investor-owned utilities to enter into long-term power purchase contracts as
a hedge against price fluctuations. After permission was given in August
2000, there have been further delays in regulatory approvals of
reasonableness standards for entering into bilateral contracts.

These high wholesale prices, coupled with the freeze on the utilities'
retail rates mandated by the 1996 restructuring legislation, resulted in
substantial increases in the amount of undercollections. As of December 31,
2000, the amount of undercollections recorded by Southern California Edison,
for example, was $4.5 billion.

The growing undercollections and the concerns of lenders and others that
electric utilities might not obtain regulatory approval of rate increases
sufficient to cover ongoing procurement costs and recover past costs
materially and adversely affected their liquidity, becoming particularly
pronounced in January 2001. With its revenues providing substantially less
cash flow than needed for power purchases and other ongoing costs, these
utilities soon had no unused borrowing capacity under their existing credit
facilities and were unable to arrange any additional facilities. Moreover,
they found themselves unable to issue commercial paper or otherwise access
the capital markets on reasonable terms. To conserve cash and enable them to
continue essential business operations, some utilities temporarily suspended
the payment of certain obligations for principal and interest on outstanding
debt and for purchased power, including to the PX or the ISO and to power
producers that are qualifying facilities (QFs) such as Los Alamos Energy.

The California Independent System Operator and the California Power Exchange
(the ISO and PX), both California public benefit non-profit corporations,
began operating on March 31, 1998, as provided for under AB 1890. The FERC
has jurisdiction over both the ISO and the PX. Pursuant to the FERC order of
December 15, 2000, the ISO Board of Governors, which included
representatives of market participants, was replaced with a non-stakeholder
board who are independent of market participants.



<PAGE>8
The ISO operates and controls most of the state's electric transmission
facilities (which continue to be owned and maintained by the California
utilities) and provides comparable open access to electric transmission
service. The ISO accepts balanced schedules for supply and load from
scheduling coordinators, including the PX and the Utility, and market
participants and manages the availability of electric transmission on a
statewide basis for these transactions. The ISO also purchases necessary
generation and ancillary services on a real-time basis to maintain grid
reliability. The ISO is required to ensure reliable transmission services
consistent with planning and operating reserve criteria no less stringent
than those established by the Western Systems Coordinating Council and the
North American Electric Reliability Council. Oversight of utility
distribution systems remains with the CPUC.

Beginning in May 2000, wholesale energy prices in the California markets
increased to levels well above 1999 levels. In response, on June 28, 2000,
the ISO Board of Governors reduced the price cap applicable to the ISO's
wholesale energy and ancillary services markets from $750/MWh to $500/MWh.
The ISO subsequently reduced the price cap to $250/MWh on August 1, 2000.
During this period, however, the California Power Exchange Corporation
("PX") maintained a separate price cap set at a much higher level applicable
to the "day-ahead" and "day-of" markets administered by the PX. On August
23, 2000, the FERC denied a complaint filed August 2, 2000 by San Diego Gas
& Electric Company ("SDG&E") that sought to extend the ISO's $250 price cap
to all California energy and ancillary service markets, not just the markets
administered by the ISO. However, in its order denying the relief sought by
SDG&E, the FERC instructed its staff to initiate an investigation of the
California power markets and to report its findings to the FERC and held
further hearing procedures in abeyance pending the outcome of this
investigation.

On November 1, 2000, the FERC released a Staff Report detailing the results
of the Staff investigation, together with an "Order Proposing Remedies for
California Wholesale Markets" ("November 1 Order"). In the November 1 Order,
the FERC found that the California power market structure and market rules
were seriously flawed, and that these flaws, together with short supply
relative to demand, resulted in unusually high energy prices. The November 1
Order proposed specific remedies to the identified market flaws, including:
(1) imposition of a so-called "soft" price cap at $150/MWh to be applied to
both the PX and ISO markets, which would allow bids above $150/MWh to be
accepted, but will subject such bids to certain reporting obligations
requiring sellers to provide cost data and/or identify applicable
opportunity costs and specifying that such bids may not set the overall
market clearing price, (2) elimination of the requirement that the
California utilities sell into and buy from the PX, (3) establishment of
independent non-stakeholder governing boards for the ISO and the PX, and (4)
establishment of penalty charges for scheduling deviations outside of a
prescribed range.



<PAGE>9

In the November 1 Order the FERC established October 2, 2000, the date 60
days after the filing of the SDG&E complaint, as the "refund effective
date." Under the November 1 Order, rates charged for service after that date
through December 31, 2002 will remain subject to refund if determined by the
FERC not to be just and reasonable. While the FERC concluded that the
Federal Power Act and prior court decisions interpreting that act strongly
suggested that refunds would not be permissible for charges in the period
prior to October 2, 2000, it noted that it was willing to explore proposals
for equitable relief with respect to charges made in that period. Under FERC
regulations, QF contracts are exempt from regulation under the Federal Power
Act, which is the legislation that provides the authority for the FERC to
compel refunds or frame other equitable relief with respect to the
California wholesale markets. Therefore, it is the belief of the IPPs that
any refund or other equitable remedy that the FERC may impose with respect
to the California wholesale markets will not affect the IPPs' ability to
pursue payment by the IOUs of all past due amounts as have been accumulated.

On December 14, 2000, following an announcement from the ISO that
electricity generators were refusing to sell into the California market due
to concerns about the financial stability of SCE and Pacific Gas and
Electric Company, the U.S. Secretary of Energy issued an order requiring
power generators to make arrangements to generate and deliver electricity as
required by the ISO after the ISO certifies it has been unable to secure
adequate electricity supplies in the market. After being renewed multiple
times, the order expired on February 6, 2001. However, on February 7, 2001,
a federal court judge issued a temporary restraining order requiring power
suppliers to sell to the California grid. On February 23, 2001, a federal
court judge issued a stay of litigation in the case of four power suppliers
who agreed to extend their power sales pending a hearing set for March 16,
2001. On March 16, 2001, a federal court judge put the case on hold until
March 20, 2001. On March 21, 2001, a federal court judge ordered one of the
power suppliers to continue to sell power to the California grid. The three
other power suppliers had signed an agreement with the judge voluntarily
agreeing to continue to sell power to the grid while awaiting a review of
the issue by the FERC. On April 6, 2001, the United States Ninth Circuit
Court of Appeals issued a stay order, suspending the lower court's March 21
order until a final appeals ruling can be issued.

On December 15, 2000, the FERC issued an order adopting remedies for what
the FERC characterized as the seriously flawed electric power markets in
California. Among other matters, the FERC:

- Eliminated, effective December 15, 2000, the requirement that the
California investor-owned utilities sell all of their generation into and
buy all of their energy needs from the PX, which results in over reliance on
spot market (i.e., real-time) purchases. The order encourages the utilities
to meet their purchase power needs through bilateral long-term contracts of
two years or more and to adopt a balanced portfolio of contracts to mitigate
cost exposure. To encourage the execution of bilateral contracts, the order
requires the PX's rate schedules to terminate effective at the close of
business on April 30, 2001.
<PAGE>10
- Adopted a price benchmark at $74 per MWh for assessing prices of five-
year energy supply contracts to be used by the FERC in assessing any
complaints regarding justness and reasonableness of pricing long-term
contracts.

- Permitted penalties to be imposed on market participants who do not
schedule at least 95% of their load in advance of the ISO's real-time market
(through self-scheduling, bilateral contracts, or the PX markets), to reduce
the reliance on the ISO's real-time market to meet supply. A penalty charge
will be assessed when more than 5% of a market participant's load is
scheduled into the ISO's real-time market. Penalties are to be disbursed to
other market participants who schedule their load properly. The FERC order
does not contain provisions for penalties to be imposed on generators who do
not schedule in advance.

- Established an interim $150 per MWh "soft cap" modification of the single
price auction so that bids above $150 MWh will not set the market clearing
prices paid to all bidders at or below $150 per MWh. Bids above the $150 MWh
level will trigger certain weekly reporting requirements and FERC
monitoring. These price provisions will be in effect until April 30, 2001.

- Deferred the consideration of retroactive refund issues linked to
protective orders associated with the volatile prices experienced in
California this past summer. Although the period for potential refund
liability continues until December 31, 2002, with respect to specific
transactions, refund potential on a transaction will close after 60 days
unless the FERC has issued written notification to the seller that its
transaction is still under review.

IOUs argue that the actions outlined in the order may not provide a complete
solution that ensures reliability of the state's electric supply and relief
from future price increases, particularly since the FERC order fails to
require sellers to enter into forward contracts at reasonable prices, and
fails to provide an effective price cap. In addition, the FERC order does
not address issues associated with retroactive refund and retroactive
remedial authority issues.

California IOUs currently operate in a highly regulated environment in which
it has an obligation to deliver electric service to customers in return for
an exclusive franchise within its service territory and certain obligations
of the regulatory authorities to provide just and reasonable rates. In 1994,
state lawmakers and the CPUC initiated the electric industry restructuring
process. In 1996, the California Legislature enacted comprehensive
restructuring legislation. IOUs were directed by the CPUC to divest the bulk
of its generation portfolio. Today, those generating plants are owned by
independent power companies. Along with electric industry restructuring, a
mandated multi-year freeze on the rates that IOUs could charge their
customers was mandated and transition cost recovery mechanisms allowing IOUs
to recover their stranded costs associated with generation-related assets
were implemented.

<PAGE>11

On January 19, 2001, PG&E was no longer able to continue purchasing power
for its customers because of a lack of creditworthiness and the state of
California authorized the California Department of Water Resources (DWR) to
purchase electricity for the PG&E's customers.

Until January 31, 2001, the PX provided an auction process, intended to be
competitive, to establish hourly transparent market clearing prices for
electricity in the markets operated by the PX. The PX operated two markets:
the day-ahead market where market participants purchase power for their
customers' needs on the following day and the day-of-or hour-ahead market
where market participants purchase power needed to serve their customers on
the same day. The PX set a market-clearing price for electricity by matching
all demand bids (the amount of energy that an eligible customer is willing
to purchase and the maximum price that the customer is willing to pay) with
supply bids (the price at which a seller is prepared to sell energy) ranked
from lowest to highest. The highest-accepted generation supply bid used to
serve load set the PX market-clearing price for electricity. The market-
clearing price then became the single cost for electricity throughout
California for that energy delivery hour. On January 31, 2001, the PX
suspended its day-of and day-ahead markets in response to the FERC's order
directing the PX to comply with the terms of its December 15, 2000 order and
implement a $150 per MWh "soft" price cap. The FERC ordered the PX to
recalculate all PX transactions since December 15, 2000. The PX subsequently
filed for bankruptcy protection.

Some generation providers refused to sell power into the California markets
based on their concern as to the credit quality of the California
investor-owned utilities whose rates were still frozen. The Secretary of the
U.S. Department of Energy (DOE) ordered such providers to continue selling
into the California markets on request by the ISO. On January 18, 2001, the
California Assembly passed Senate Bill 7X that appropriated $400 million and
authorized the DWR to use such funds to purchase power at no more than 5.5
cents per kWh (far less than the current wholesale market rates in early
2001) and then resell it to the Utility at cost to enable the Utility to
continue to serve its customers. The DWR was authorized to purchase power
through January 31, 2001. On February 1, 2001, the California Governor
signed Assembly Bill No. 1 (AB 1X) which was passed by the California
Legislature during a special session to take effect immediately as an
urgency statute. AB 1X authorizes the DWR to enter into contracts for the
purchase of electric power for such periods and at such prices as the DWR
deems appropriate consistent with the objectives of AB 1X to have an overall
portfolio of contracts resulting in reliable service at the least cost. AB
1X prohibits the DWR from entering into any contract after January 1, 2003.
AB 1X requires the DWR to sell power that it purchases directly to retail
end use customers, except as may be necessary to maintain system integrity.

AB 1X provides that the DWR will retain title to the power it purchases and
that payment for any sale of power by the DWR is a direct obligation of
retail end use customers to the DWR. The DWR may contract with the electric
utilities for the electric utilities to transmit and distribute the power
purchased and sold by the DWR and to provide billing, collection, and other
<PAGE>12
related services, as agent of the DWR, on terms that reasonably compensate
the utilities. AB 1X does not authorize the DWR to take ownership of
transmission, generation, or distribution assets of any electric utility. AB
1X states it shall not be construed (1) to reduce or modify any electrical
corporation's obligation to serve, or (2) to obligate the DWR for any
procurement cost obligations of the utilities that existed before January
31, 2001.

AB 1X authorizes the CPUC to set rates to cover revenue requirements of
DWR's power purchasing program, but prohibits the CPUC from increasing
electric rates for residential customers who use less power than 130% of
their existing baseline quantities, until the DWR has recovered the costs of
power it has purchased for retail customers.

The U.S. Secretary of Energy issued a temporary order on January 19, 2001,
requiring the gas suppliers to continue to make deliveries to avoid a
worsening natural gas shortage emergency. However, this order expired on
February 7, 2001, and certain companies, representing about 10% of the IOUs'
natural gas suppliers, terminated deliveries after the order expired.

On March 9, 2001, the FERC directed 13 wholesale sellers of energy to refund
$69 million or submit cost-of-service information to the FERC to justify
their prices above $273/MWh during ISO Stage 3 emergencies in January 2001.
On April 9, 2001, SCE filed opposing the order as inadequate, particularly
because the FERC is unwilling to exercise any control over the sellers'
exercise of market power during periods other than Stage 3 emergencies. On
March 16, 2001, the FERC ordered six wholesale sellers of energy to refund
an additional $55 million or submit cost-of-service information to the FERC
to justify their prices above $430/MWh during ISO Stage 3 emergencies in
February 2001. A Stage 3 emergency  refers to 1.5% or less in reserve power,
which could trigger rotating blackouts in some neighborhoods.

On March 27, 2001, the CPUC issued a decision in which it noted that
although the DWR has assumed responsibility to purchase some of the
utilities' power requirements, it has not committed to purchase all of the
utilities' net open position, i.e., the power needs of the retail electric
customers that cannot be met by utility-owned generation or power under
contract to the utilities. To the extent the DWR does not buy enough power
to cover the Utility's net open position, the ISO purchases emergency power
on the high- priced spot market to meet system reliability requirements and
the net open position. The ISO may attempt to charge the IOUs a
proportionate share of the ISO's purchases. The IOUs believe that under the
current circumstances and applicable tariffs they are not responsible for
such ISO charges.

In addition, on March 27, 2001, the CPUC adopted several other significant
decisions regarding California's current energy crisis. IOUs have announced
that these decisions are regarded in many respects as unclear or ambiguous,
and in some respects unlawful and unconstitutional. Many elements of the
decisions will be developed further in ongoing proceedings, the timing of
which is uncertain.
<PAGE>13
In an interim order adopted on March 27, 2001, the CPUC granted California
utilities a rate increase in the form of a three-cents per kilowatt-hour
(kWh) surcharge on electricity sold, effective immediately (rate
stabilization decision). However, the three-cent surcharge will not be
collected in rates until the CPUC establishes an appropriate rate design.
The CPUC proposed a tiered rate design in an assigned commissioner's ruling
and asked for comments. The assigned commissioner said the tiered rate
design is intended to encourage conservation by requiring customers to pay
more for electricity above a threshold usage level. The three-cent surcharge
will not apply to residential electricity usage below 130% of baseline rates
or to certain low-income customers.

The utilities have asked the CPUC to immediately adopt an interim rate
increase that would allow the rate change to go into effect sooner. The CPUC
stated in its interim order that the utilities are to use revenue generated
by the three-cent surcharge to pay power costs incurred after March 27,
2001, but that they must refund the surcharge to ratepayers if they do not
properly use it to pay power costs.

The CPUC also affirmed that an earlier one-cent per kWh surcharge granted on
January 4, 2001 is now permanent under California legislation AB 1X, adopted
in February 2001.

On March 27, 2001, the CPUC also ordered utilities to begin making payments
to QFs for power deliveries on a going forward basis, commencing with April
2001 deliveries. Utilities must pay QFs within 15 days of the end of the
QF's billing period, and QFs are allowed to establish 15-day billing
periods. Failure to make a payment when due will result in a fine equal to
the amount owed. The CPUC also modified the formula used in calculating
payments to most QFs by substituting natural gas index prices based on
deliveries at the Oregon border in the place of index prices at the Arizona
border. The order further revises other aspects of the payment formula to
take into account changes in intrastate gas transportation costs. The
changes apply where appropriate regardless of whether the QF uses natural
gas or other resources such as solar or wind.

At its March 27, 2000, meeting, the CPUC deferred action on a proposed order
instituting an investigation whether California's investor-owned utilities
have complied with past CPUC decisions authorizing the formation of their
holding companies and governing affiliate transactions, as well as
applicable statutes. At its meeting on April 3, 2001, the CPUC adopted the
proposed order, which reopens past CPUC decisions authorizing the utilities
to form holding companies and initiates an investigation into (1) whether
the holding companies violated requirements to give priority to the capital
needs of their respective utility subsidiaries; (2) whether "ring fencing"
actions by Edison International and PG&E Corporation and their respective
nonutility affiliates also violated the requirements to give priority to the
capital needs of their utility subsidiaries; (3) whether the payment of
dividends by the utilities violated requirements that the utilities maintain
dividend policies as though they were comparable stand-alone utility

<PAGE>14
companies; (4) any additional suspected violations of laws or CPUC rules and
decisions; and (5) whether additional rules, conditions, or other changes to
the holding company decisions are necessary.

As this situation has deteriorated, California has taken steps to restore a
predictable and reliable power market to the State. Recently, California
adopted legislation permitting it to issue long-term revenue bonds to
provide funding for wholesale purchases of power. The bonds will be repaid
with the proceeds of payments by retail customers over time. The California
Department of Water Resources sought bids for long-term power supply
contracts. In early February 2001, the DWR announced agreements on contracts
totaling about 5,000 megawatts and ranging from three years to 10 years. The
state is expected to purchase about one-third of the electricity used by the
IOUs' customers. Calpine, for example, signed three significant long-term
power supply contracts with DWR, including a 10-year, $4.6 billion
fixed-price contract with DWR to provide electricity to the State of
California, in which Calpine committed to sell up to 1,000 megawatts of
electricity, with initial deliveries of 200 megawatts starting October 1,
2001, and increasing to 1,000 megawatts by January 1, 2004. This contract
will continue through 2011. The electricity will be sold directly to DWR on
a 24-hour, 7-day-a-week basis.

The electric utility industry in the United States is currently undergoing a
period of dramatic change as a result of regulatory and competitive factors.
Among the primary agents of change has been the Energy Act, which allows
IPPs to access a utility's transmission network in order to sell electricity
to other utilities. This enhances the incentive for IPPs to build
cogeneration plants for a utility's large industrial and commercial
customers, and sell energy generation to other utilities. Also, electricity
sales for resale rates are being driven down by wholesale transmission
access and numerous potential new energy suppliers, including power
marketers and brokers.

Although the Energy Act does not permit retail customer access, it was a
major catalyst for the current restructuring  and consolidation taking place
within the utility industry. Numerous federal and state initiatives are in
varying stages to promote wholesale and retail competition. Among other
things, these initiatives allow customers to choose their electricity
provider. Some states (such as California) have approved initiatives that
result in a separation of the ownership and/or operation of generating
facilities from the ownership and/or operation of transmission and
distribution facilities. Enactment of these initiatives would require
numerous issues to be resolved, including those significant issues relating
to recovery of any stranded investments, full cost recovery of energy
produced, and other issues related to the current energy crisis in
California. As a result of this crisis, many states have either discontinued
or delayed implementation of initiatives involving retail deregulation.




<PAGE>15
Subsequent Events

PG&E said that neither its parent holding company nor any of the parent's
other subsidiaries are affected by PG&E's filing. PG&E cited as reasons for
its bankruptcy filing the failure by the State of California to assume full
procurement responsibility for PG&E's net short position, the CPUC's actions
on March 27 and April 3, 2001, that created new payment obligations for
PG&E, lack of progress in negotiations with the state to provide recovery of
power purchase costs, the CPUC's adoption of an illegal and retroactive
accounting change, and the slow progress of discussions with representatives
of Governor Davis.

On April 9, 2001, the SCE and the California Department of Water Resources
(CDWR) executed a Memorandum of Understanding (MOU) which sets forth a
comprehensive plan calling for legislation, regulatory action and definitive
agreements to resolve important aspects of the energy crisis, and which, if
implemented, is expected to help restore the utilities' creditworthiness and
liquidity. The Governor of the State of California and his representatives
participated in the negotiation of the MOU, and the Governor endorsed
implementation of all the elements of the MOU. If required legislation is
not adopted and definitive agreements executed by August 15, 2001, the MOU
may be terminated by SCE or the CDWR. Implementation of the MOU will require
numerous actions by the parties and by other California state agencies and
the FERC, and would require significant changes in the regulatory decisions
and other actions.

Some key elements of the MOU include: (1) SCE will sell their transmission
assets to the CDWR, or another authorized California state agency, at a
price equal to 2.3 times their aggregate book value, or approximately $2.76
billion. SCE will agree to operate and maintain the transmission assets for
at least three years, for a fee to be negotiated. (2) Two dedicated rate
components will be established to assist IOUs in recovering the net
undercollected amount of its power procurement costs through January 31,
2001. (3) SCE will continue to own its generation assets, which will be
subject to cost-based ratemaking, through 2010. SCE will be entitled to
collect revenues sufficient to cover its costs from January 1, 2001,
associated with the retained generation assets and existing power contracts.
(4) The CDWR will assume the entire responsibility for procuring the
electricity needs of retail customers through December 31, 2002, to the
extent that those needs are not met by generation sources owned by or under
contract to SCE (The unmet needs are referred to as SCE's "net short
position.") The IOUs will resume procurement of its net short position after
2002.

After the other elements of the MOU are implemented, SCE may enter into a
settlement of or dismiss its federal district court lawsuit against the
CPUC, the State of California or any of its agencies, or against the federal
government seeking recovery of past undercollected costs.



<PAGE>16
On April 6, 2001, PG&E filed for bankruptcy protection under Chapter 11 of
the United States Bankruptcy Code. As of March 31, 2001, Los Alamos Energy
had recorded approximately $228,000 in accounts receivable with PG&E as a
bad debt. Therefore, Los Alamos Energy has provided for a reserve against
collection uncertainties for these PG&E receivables.

 Los Alamos Energy has historically sold power to PG&E, which is one of the
California utilities that is subject to the rate freeze. Due to
uncertainties arising form PG&E's bankruptcy, Los Alamos Energy elected to
terminate its contract with PG&E, and instead entered into a Participating
Generator Agreement with the California Independent System Operator
("CAISO"), and is currently selling power to the CAISO through the Automated
Power Exchange as its Scheduling Agent.

GOVERNMENT REGULATION

The Company is subject to complex and stringent energy, environmental and
other governmental laws and regulations at the federal, state and local
levels in connection with the development, ownership and operation of its
energy generation facilities. Federal laws and regulations govern
transactions by electrical and gas utility companies, the types of fuel
which may be utilized by an electric generating plant, the type of energy
which may be produced by such a plant and the ownership of a plant. State
utility regulatory commissions must approve the rates and, in some
instances, other terms and conditions under which public utilities purchase
electric power from independent producers and sell retail electric power.
Under certain circumstances where specific exemptions are otherwise
unavailable, state utility regulatory commissions may have broad
jurisdiction over non-utility electric power plants. Energy producing
projects also are subject to federal, state and local laws and
administrative regulations which govern the emissions and other substances
produced, discharged or disposed of by a plant and the geographical
location, zoning, land use and operation of a plant. Applicable federal
environmental laws typically have both state and local enforcement and
implementation provisions. These environmental laws and regulations
generally require that a wide variety of permits and other approvals be
obtained before the commencement of construction or operation of an energy-
producing facility and that the facility then operate in compliance with
such permits and approvals.

FEDERAL ENERGY REGULATION

As described below, the exemptions from extensive federal and state
regulation afforded by PURPA to Qualifying Facilities are important to the
Company and its competitors. The project that the Company currently owns
meet the requirements under PURPA to be a Qualifying Facilities and will be
maintained on that basis. Additionally, management expects regulatory
impositions on power marketing operations to be minimal under existing
regulatory standards.


<PAGE>17

PURPA

The enactment of the Public Utility Regulatory Policies Act of 1978, as
amended ("PURPA") and the adoption of regulations thereunder by the Federal
Energy Regulatory Commission ("FERC") provided incentives for the
development of small power facilities (those having a capacity of less than
80 megawatts.) A domestic electtricity generating project must be a
Qualifying Facility ("QF") under FERC regulations in order to take advantage
of certain rate and regulatory incentives provided by PURPA> PURPA exempts
QF's from most provisions of the Federal Power Act ("FPA") and, except under
certain limited cicrcumstances, state laws concerning rate or financial
regulation. In order to be a Qualifying Facility, a cogeneration facility
must (i) produce not only electricity but also a certain quantity of thermal
energy (such as steam) which is used for a purpose other than power
generation, (ii) meet certain energy operating and efficiency standards when
oil or natural gas is used as a fuel source and (iii) not be controlled or
more than 50% owned by an electric utility or electric utility holding
company, or any combination thereof.

PURPA provides two primary benefits to Qualifying Facilities owned and
operated by non_utility generators. First, Qualifying Facilities under PURPA
are exempt from certain provisions of PUHCA, the Federal Power Act (the
"FPA") and, except under certain limited circumstances, state laws
respecting rate and financial regulation. Second, PURPA requires that
electric utilities purchase electricity generated by Qualifying Facilities
at a price equal to the purchasing utility's full "avoided cost" and that
the utility sell back_up power to the Qualifying Facility on a
non_discriminatory basis. Avoided costs are defined by PURPA as the
"incremental costs to the electric utility of electric energy or capacity or
both which, but for the purchase from the Qualifying Facility or Qualifying
Facilities, such utility would generate itself or purchase from another
source." The FERC regulations also permit Qualifying Facilities and
utilities to negotiate agreements for utility purchases of power at rates
other than the purchasing utility's avoided cost. Although public utilities
are not required by PURPA to enter into long_term contracts, PURPA helped to
create a regulatory environment in which it has become more common for such
contracts to be negotiated or executed through selective procurement or
competitive bidding. If Congress amends PURPA, the statutory requirement
that an electric utility purchase electricity from a Qualifying Facility at
full avoided costs could be eliminated. Although current legislative
proposals specify the honoring of existing contracts, repeal of the
statutory purchase requirements of PURPA going forward could increase
pressure to renegotiate existing contracts. Any changes which result in
lower contract prices could have an adverse effect on the Company's
operations and financial position. See Competition.






<PAGE>18
PUHCA

Under the Public Utility Holding Company Regulation ("PUHCA"), any person
(defined by PUHCA to include corporations and partnerships and other legal
entities) which owns or controls ten percent or more of the outstanding
voting securities of a "public utility company" or a company which is a
"holding company" of a "public utility company" is subject to registration
with the Securities and Exchange Commission (the "Commission") and
regulation under PUHCA, unless such person is eligible for an exemption,
such as is available to Qualifying Facilities under PURPA, or as established
elsewhere under PUHCA. A registered holding company is required by PUHCA to
limit its operation to a single integrated utility system and to divest any
other operations not functionally related to the operation of that utility
system.

THE ENERGY ACT

Congress passed the Energy Act to promote further competition in the
development of new wholesale power generation sources. Through amendments to
PUHCA, the Energy Act encourages the development of independent power
projects which will be certified by the FERC as exempt wholesale generators
("EWGs"). The owners or operators of these facilities are exempt from the
provisions of PUHCA. The Energy Act also provides the FERC with extensive
new authority to order electric utilities to provide other electric
utilities, Qualifying Facilities and independent power projects with access
to their transmission systems. However, the Energy Act does preclude the
FERC from ordering transmission services to retail customers and prohibits
sham wholesale energy transactions which appear to provide wholesale
service, but actually are providing service to retail customers.

A company engaged in the ownership or operation of electric power generation
and transmission facilities faces certain types of regulation for its
international activities. The principal regulatory consideration for
international projects is PUHCA, since it is broadly applicable to the
ownership and operation of power facilities (including generation and
transmission facilities) both inside and outside of the United States. For
international projects, the principal basis for exemption from PUHCA is by
obtaining EWG status from the FERC. EWG status is even more beneficial for
international projects because, although EWGs are not permitted to make
retail sales in the United States, retail sales by EWGs are generally
allowed in international markets. Another way to obtain an exemption from
PUHCA for foreign ownership and operation activities is by filing a foreign
utility company determination ("FUCO") with the Commission. However, FUCO
filings are less frequently used, because unlike EWGs, no formal regulatory
order is issued confirming the status of a FUCO, and more rigorous state
commission scrutiny is entailed.

Structuring the Company's activities to ensure that it is not a "holding
company" of a "public utility company" under PUHCA is also important in
providing financing and financial reporting flexibility to the Company.

<PAGE>19
The cogeneration facilities owned by the Company, or in which the Company
has investments, are Qualifying Facilities under PURPA. The Company has also
pursued the development of independent power projects which will not qualify
for the benefits provided by PURPA, which could subject these projects to
PUHCA jurisdiction. To avoid such a consequence, the Company will structure
its participation in independent power projects in a manner to qualify for
exemptions under PUHCA provided by the Energy Act. Such structures will
permit the Company to take ownership positions in a number of independent
power project projects.

FPA

The Federal Power Act ("FPA") grants the FERC exclusive rate-making
jurisdiction over wholesale sales of electricity in interstate commerce. The
FPA provides the FERC with ongoing as well as initial jurisdiction, enabling
the FERC to revoke or modify previously approved rates. Such rates may be
based on a cost-of-service approach or on rates that are determined through
competitive bidding or negotiation on a market basis.

Although Qualifying Facilities under PURPA are exempt from rate_making and
certain other provisions of the FPA, independent power projects and certain
power marketing activities are subject to the FPA and to the FERC's rate-
making jurisdiction.

Utilities are not obligated to purchase power from projects subject to
regulation by the FERC under the FPA because they do not meet the
requirements of PURPA. However, because such projects would not be bound by
PURPA's thermal energy use requirement, they may have greater latitude in
site selection and facility size. The project currently owned or operated by
the Company as a Qualifying Facility under PURPA is exempt from the FPA.
FERC has significantly relaxed the rules under which power marketers and
independent power producers can sell or market power. With approval from
FERC, such entities, with certain exceptions, are exempted from cost_based
rates and can make all sales at market-based rates set through negotiations.
The independent power project in which the Company currently participates
have been granted market based rate authority and comply with the FPA
requirements governing approval of wholesale rates and subsequent transfers
of ownership interest in such projects.

CHANGES IN FEDERAL REGULATIONS

Historically in the United States, regulated and government-owned utilities
have been the only significant producers of electric power for sale to third
parties. The energy crisis of the 1970s led to the enactment of the federal
Public Utility Regulatory Policies Act of 1978 ("PURPA"), which encouraged
companies other than utilities to enter the electric power business by
reducing regulatory constraints. In addition, PURPA and its implementing
regulations created unique opportunities for the development of cogeneration
facilities by requiring utilities to purchase electric power generated in
cogeneration plants meeting certain requirements (referred to as "Qualifying
Facilities"). See "Regulatory Matters -- Energy Regulation."
<PAGE>20
As a result of PURPA, a significant market for electric power produced by
independent power producers such as the Company developed in the United
States. In 1992, Congress enacted the Energy Policy Act of 1992 ("Energy
Act"), which amended the Public Utility Holding Company Act of 1935
("PUHCA") to create new exemptions from PUHCA for independent power
producers selling electric energy at wholesale, to increase electricity
transmission access for independent power producers and to reduce the
burdens of complying with PUHCA's restrictions on corporate structures for
owning or operating generating or transmission facilities in the United
States or abroad. The Energy Act has enhanced the development of independent
power projects and has further accelerated the changes in the electric
utility industry that were initiated by PURPA. Implementation of federal and
state policies resulting in increased availability of transmission access
for wholesale and retail transactions could create additional markets and
competition for electricity power sales.

The Company believes it is possible that changes in PURPA, PUHCA and other
related federal statutes may occur in the next several years. The nature and
impact of such changes on the Company's projects operations and contracts is
unknown at this time. The Company is actively monitoring these developments
directly and through industry trade groups to determine such impacts as well
as to evaluate new business opportunities created by restructuring of the
electric power industry. Depending on the outcome of these legislative
matters, changes in legislation could have an adverse effect on current
contract prices.

STATE REGULATION

State public utility commissions, pursuant to state legislative authority,
have jurisdiction over how any new federal initiatives are implemented in
each state and have broad jurisdiction over regulated independent power
projects which are not Qualifying Facilities under PURPA, and which are
considered public utilities in many states. Such jurisdiction would include
the issuance of certificates of public convenience and necessity to
construct a facility as well as regulation of organizational, accounting,
financial and other corporate matters on an ongoing basis. Although the FERC
generally has exclusive jurisdiction over the rates charged by an
independent power project to its wholesale customers, state public utility
commissions have the practical ability to influence the establishment of
such rates by asserting jurisdiction over the purchasing utility's ability
to pass through the resulting cost of purchased power to its retail
customers. In addition, states may assert jurisdiction over the siting and
construction of independent power projects and, among other things, issuance
of securities, related party transactions and sale and transfer of assets.
The actual scope of jurisdiction over independent power projects by state
public utility regulatory commissions varies from state to state.

In the State of California, restructuring legislation was enacted in
September 1996 and was implemented in 1998. This legislation established an
Independent Systems Operator ("ISO") responsible for centralized control and

<PAGE>21
efficient and reliable operation of the state-wide electric transmission
grid, and a Power Exchange responsible for an efficient competitive electric
energy auction open on a non-discriminatory basis to all electric services
providers. Other provisions include the quantification and qualification of
utility stranded costs to be eligible for recovery through competitive
transition charges ("CTC"), market power mitigation through utility
divestiture of fossil generation plants, the unbundling and establishment of
rate structure for historical utility functions, the continuation of public
purpose programs and issues related to issuance of rate reduction bonds.

The California Energy Commission ("CEC") and Legislature have responsibility
for development of a competitive market mechanism for allocation and
distribution of funds made available by the legislation for enhancement of
in- state renewable resource technologies and public interest research and
development programs. Funds are to be available through the four-year
transition period to a fully competitive electric services industry.

In addition to the significant opportunity provided for power producers such
as the Company through implementation of customer choice (direct access),
the California restructuring legislation both recognizes the sanctity of
existing contracts, provides for mitigation of utility horizontal market
power through divestiture of fossil generation and provides funds for
continuation of public services programs including fuel diversity through
enhancement for in_state renewable technologies (includes geothermal) for
the four-year transition period to a fully competitive electric services
industry.


TRANSMISSION AND WHEELING

Energy-producing projects that sell power to customers which are not
geographically located near the project require that the project have the
capability of transmitting its power over utility power transmission grids
to the purchaser ("wheeling"). The FERC and state utility regulatory
commissions have jurisdiction over the wheeling of power to remote users;
the prices and related terms and conditions of wheeling in interstate
commerce are regulated by the FERC. At the moment, the Company's customers
being serviced by Los Alamos Energy are in the same geographical area as the
Company's power plant.

The PUCT has promulgated rules that require affected utilities to provide
wheeling service. These rules are in effect in the Electrical Reliability
Counsel of Texas system and the new transmission access provisions of the
Energy Act do not alter that federal and state jurisdictional balance.

Rules adopted at the FERC and a number of state utility regulatory
commissions require utilities to grant power producers increased access to
transmission and wheeling. The provisions of the Energy Act increase such
access. The Energy Act supports increased transmission access, and in April
1996 the FERC adopted rules (Order 888) to expand significantly transmission
service and access and provide alternative methods of pricing for
<PAGE>22
transmission services. Upon promulgation of the final rule by the FERC (and
the PUCT for ERCOT), the interstate transmission grid in the continental
United States was opened to all qualified persons that seek transmission
services to wheel wholesale power. Utilities are required to provide
transmission customers non_discriminatory open access to their transmission
grids with rates, terms, and conditions comparable to that which the utility
imposes on itself. This provides the Company with increased opportunities to
sell and market the power produced by its independent power projects. It
also increases competition on a nationwide basis between traditional and
non_traditional power generators, such as the Company.

ENVIRONMENTAL REGULATION

The construction and operation of domestic and international energy and fuel
producing projects and the exploitation of natural resource properties are
subject to extensive federal, state and local laws and regulations adopted
for the protection of the environment and to regulate land use. The laws and
regulations applicable to the Company and projects in which it participates
primarily involve the discharge of emissions into the water and air, but can
also include wetlands preservation, noise regulation and a comprehensive
Environmental Impact Assessment which includes evaluation of the facility's
impact on air, water, ecology, human health and socioeconomic factors. These
laws and regulations in many cases require a lengthy and complex process of
obtaining licenses, permits and approvals from federal, state and local
agencies. Obtaining necessary approvals regarding the discharge of emissions
into the air is critical to the development of a project and can be time_
consuming and difficult. Each energy_producing project requires technology
and facilities which comply with federal, state and local requirements and
sometimes extensive negotiations with administrative agencies. Meeting the
requirements of each jurisdiction with authority over a project can delay or
sometimes prevent the completion of a proposed project, as well as require
extensive modifications to existing projects.

The Company monitors environmental standards and evaluates its selection of
technology to ensure that applicable standards are being met. Based on
current trends, the Company expects that environmental and land use
regulation will become more stringent. Accordingly, the Company plans to
continue to place a strong emphasis on the development and use of state-of-
the-art technology to minimize potential impacts on the environment. In
addition, the Company has developed expertise and experience in obtaining
necessary licenses, permits and approvals.

In November 1990, comprehensive amendments to the Clean Air Act were enacted
(the "1990 Amendments"). The first major revisions to the Clean Air Act
since 1977, the 1990 Amendments vastly expand the scope of federal
regulations and enforcement in several significant respects. In particular,
provisions relating to non_attainment, air toxics, permitting, enforcement
and acid deposition may affect the Company's domestic projects. The Clean
Air Act and the 1990 Amendments contain provisions that regulate the amount
of sulfur dioxide and nitrogen oxides that may be emitted by a project.

<PAGE>23
These emissions may be a cause of "acid rain." The project the Company owns,
operates or plan's to investment in are, or will be fueled by natural gas
and are not expected to be significantly affected by the acid rain
provisions of the 1990 Amendments.

One of the key elements of the 1990 Amendments is the inclusion of an
operating permit program in Title V. This program is intended to establish a
central point in tracking all applicable air quality requirements for every
source required to obtain a permit under the Clean Air Act. Final
regulations implementing these provisions were issued by the EPA in 1992.
These regulations created minimum requirements for the operating permit
program. Each state was required to submit a program for its implementation
of the regulations for approval to the EPA. The Company is required to
submit complete operating permit applications to those states in which it
has operating projects which meet the applicability standards under the 1990
Amendments.


COMPETITION

The power generation industry is characterized by intense competition, and
the Company encounters competition from utilities, industrial companies and
other power producers. The independent power industry has grown rapidly over
the past twenty years. The demand for power may be met by generation
capacity based on several competing technologies, such as gas-fired or coal-
fired cogeneration and power generating facilities fueled by alternative
energy sources including hydro power, synthetic fuels, solar, wind, wood,
geothermal, waste heat, solid waste and nuclear sources. The Company
competes with other non-utility generators, regulated utilities, unregulated
subsidiaries of regulated utilities and other energy service companies in
the development and operation of energy-producing projects and the marketing
of electric power. In recent years, there has been increasing competition in
an effort to obtain power sales agreements, and this competition has
contributed to a reduction in electricity prices. In addition, many states
are implementing or considering regulatory initiatives designed to increase
competition in the domestic power industry. In California, the CPUC issued
decisions which provide for direct access for all customers as of April 1,
1998. This competition has put pressure on electric utilities to lower their
costs, including the cost of purchased electricity, and increasing
competition in the future will increase this pressure. However, management
believes that the deregulation of the electrical power industry in
California will enable it to achieve higher revenues from the sale of power.

At the Federal level, the Energy Act reduces certain restrictions currently
applicable to certain projects which are not Qualifying Facilities (as
further defined below) under PURPA and provides for the removal of certain
impediments to competition in the power generation industry. Although the
provisions of the Energy Act apply only to wholesale transactions, actions
by many state authorities are also increasing competition for industrial,
commercial and other larger scale customers in the provision of services by

<PAGE>24
Qualifying Facilities ("QF's"), and independent power projects, as well as
power marketers and other unregulated suppliers. The development rights of
Qualifying Facilities, which were facilitated by certain provisions of
PURPA, have not been affected, nor amended, by the Energy Act. However,
proposed legislation has been introduced in Congress to repeal all or part
of PURPA. These federal legislative proposals would not abrogate or amend
existing contracts with electric utilities and would only be effective
prospectively for new contracts.

Legislation to repeal PUHCA is also currently pending in Congress. Although
passage of stand alone legislation repealing PUHCA is not expected during
the current session, eventual repeal or modification of PUHCA is being
considered. Congressional repeal or modification of PUHCA will loosen the
strictures currently placed on utilities and others from acquiring
generation and transmission assets outside of their service territories.
This will significantly increase the competition the Company faces.

The industry is presently characterized by rapid change in the regulatory
and commercial aspects of competition. Although the timing and ultimate
effect of these changes cannot be predicted, management of the Company
believes that the overall effect of the current changes will be to increase
competition in the generation, transmission and sale of electric power.

EMPLOYEES

As of March 31, 2001, the Company employed 5 people. None of the Company's
employees are covered by collective bargaining agreements, and the Company
has never experienced a work stoppage, strike or labor dispute. The Company
considers relations with the Company's employees to be good.

ITEM 2. PROPERTIES

The Company rents offices from its Director, James C. Harvey, at the rate of
$850 per month, on a month to month basis, and also rents offices from a
member of LAE at a nominal rental on a month to month basis at 466 Bell
Street, Los Alamos, California. The Company owns two internal combustion
engine/generator sets located on the Blair Ranch. The Company owns all
right, title and interest in and to the power purchase agreement between ACI
and PG&E, dated November 28, 1988, and the power purchase agreement with
Texaco, consisting of correspondence between Texaco and ACI.  Atlas Power is
the owner of its intellectual property and trade secrets.

PATENTS, SERVICE MARKS, COPYRIGHTS AND OTHER PROPRIETARY TECHNOLOGY

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. The Company actively manages the
protection of its trademarks, know-how, trade secrets and other intellectual
property by requiring all its employees and those contractors where

<PAGE>25
applicable, to execute confidentiality agreements in relation to the
Company's intellectual property. The Company is not aware of any instance
where there has been a breach of such confidentiality obligations.

The Company has no patents, copyrights or trademarks with respect to its
power
plant operations.


ITEM 3. LEGAL PROCEEDINGS

      None.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

      None.
                                   PART II

ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The Company's Common Stock began trading on the Nasdaq Small Cap MarketSM
("NASDAQ") on March 9, 1993 under the symbol OUTT (also OUTTC during the
period from October 28, 1994 through December 30, 1994). On January 3, 1995,
the Company's securities were delisted from NASDAQ as a consequence of the
Company's not fulfilling the minimum bid price requirements set forth in
Paragraph 1(c)(4) of Schedule D of the NASDAQ By-Laws. On January 4, 1995,
the Company's Common Stock began to be quoted on the over-the-counter
Bulletin Board under the symbol "OUTT".

On March 9, 2000, the Company's quotation of its securities on the Bulletin
Board was deleted, due to the Company's failure to maintain current
financial reports with the SEC. The Company's securities are now quoted on
the National Quotation Bureau's pink sheets under the symbol "OUTT". The
Company is now current in its reports to the SEC, and has applied to the
NASD for a quotation on the Bulletin Board. There can be no assurance that
the NASD will approve the Company's securities for a quotation on the
Bulletin Board.

The following table sets forth, for the periods indicated, the high and low
closing prices for the Common Stock as reported by Nasdaq Freerealtime.com.


                       Fiscal 2001            Fiscal 2000
                      High      Low          High      Low
                      ----      ----         ----      ----
First Quarter         .06       .03         5/64      1/32
Second Quarter       .06       .03          1/16      1/32
Third Quarter        .06       .03          3/32      1/32
Fourth Quarter       .06       .03           .06       .03


<PAGE>26

There were approximately 83 holders of record of the Company's Common Stock
as of March 31, 2001.

The Company has not paid any dividends on its Common Stock since
incorporation in March 1992 and does not anticipate paying dividends in the
foreseeable future. There are no restrictions on the Company's present
ability to pay dividends on its Common Stock, other than those prescribed by
Delaware law.

ITEM 6. SELECTED FINANCIAL DATA

The following table sets forth certain data for the years ended March 31,
1998
through March 31, 2001. Refer to "Item 7. Management's Discussion and
Analysis or Plan of Operation" for discussion of operations.

<TABLE>
 <S>                                <C>             <C>          <C>             <C>
                                   2000            1999         1998             2001
                                 -------          ------       --------        ---------

Income Statement Data

Revenue from operations          216,623          637,450     $1,187,638         $541,755

Gross Income (Loss)             (369,365)        (541,246)        88,858         (344,578)

Net (Loss) Income               (884,110)        (403,774)    (1,082,306)         (17,293)
Net loss per share                 (0.04)          (0.019)       ($0.05)           ($0.00)

Balance Sheet Data


Total Assets                  $4,550,824         $312,503       $285,840       $4,454,044

Total Liabilities              6,552,789        1,667,725      1,020,943        6,438,736

Stockholders' Equity
 (Deficit)                    (1,893,559)      (1,355,672)      (735,103)      (1,876,286)


</TABLE>

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

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-K.







<PAGE>27

Overview

The Company leases to a third party, Colorvision, an operating photographic
portrait studio, which was opened on May 24, 1993 at MCA/Universal's
CityWalkSM project in Los Angeles, California ("the CityWalk Studio").  On
March 31, 2001, the Company assigned this lease to Colorvision to pay off a
note due a related party in the principal amount of $773,845.

The Company currently operates a 1 mW waste gas electricity plant in Los
Alamos, California, which was acquired from Los Alamos Energy, LLC on August
31, 1998.

The following table summarizes the Company's fiscal quarter results:

Results of Operations

Year Ended March 31, 2000 Compared to Year Ended March 31, 2001.

The net loss for the year ended March 31, 2000 was $884,110 compared with a
net income of $17,273 for the year ended March 31, 2001. The primary reasons
for the change was the recordation of the lease assignment. The Company
overall generated $216,623 in revenues in the fiscal year ended March 31,
2000, compared to revenues of $541,775 in the fiscal year ended March 31,
2001. Management attributes this increase to increased power sales.

Year Ended March 31, 2001 Compared to Year Ended March 31, 1999.

The net loss for the year ended March 31, 1999 was $382,184 compared with
$884,110 for the year ended March 31, 2000. The primary reasons for the
increase in the net loss were the elimination of the photo studio.

The Company overall generated $637,450 in revenues in the fiscal year ended
March 31, 1999, compared to revenues of $216,623 in the fiscal year ended
March 31, 2000. Management attributes this decline to the change in
business focus from a photography studio to power plant operations.

Liquidity and Capital Resources

At March 31, 2000, the Company had a working capital deficit of $2,421,343
as compared to a working capital deficit on March 31, 2001 of $2,253,414.
The difference is not significant in the opinion of management.

Net cash used in operating activities was $164,635 for the fiscal year ended
on March 31, 2000, compared to the utilization of $379,435 of cash for the
same period March 31, 2001.

The Company does not anticipate that it will have any problems in meeting
its obligations for continuing fixed expenses, materials procurement or
operating labor.

<PAGE>28

ITEM 8. FINANCIAL STATEMENTS OUT-TAKES, INC.

                     FINANCIAL STATEMENTS AND REPORT OF
                   INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT
                             March 31, 2001


                            C O N T E N T S


                                                              Page
                                                              ----
Report of Independent Certified Public Accountants              3

Financial Statements

     Consolidated Balance Sheets                                4

     Consolidated Statements of Operations                      5

     Consolidated Statements of Stockholders' Equity            6

     Consolidated Statements of Cash Flows                      7

     Consolidated Notes to Financial Statements                 8-12



              REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS



Board of Directors
OUT-TAKES, INC.
Dallas, Texas

We have audited the accompanying consolidate balance sheets of OUT-TAKES,
INC. (the "Company") and subsidiary as of March 31, 2001, and the related
consolidated statements of operations, stockholders' equity, and cash flows
for the year then ended. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation.
<PAGE>29
We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above,
present fairly, in all material respects, the consolidated financial
position of OUT-TAKES, INC. and its subsidiary as of March 31, 2001, and the
consolidated results of its operations and its cash flows for the year then
ended, in conformity with accounting principles generally accepted in the
United States of America.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 9 to the
financial statements, the Company has suffered recurring losses from
operations and has a net working capital deficiency that raise substantial
doubt about its ability to continue as a going concern. Management's plans
in regard to these matters are also described in Note 9. The financial
statements do not include any adjustments that might result from the outcome
of this uncertainty.

Oxnard, California
June 27, 2001






























<PAGE>30



<TABLE>

                                           OUT-TAKES, INC.
                                     CONSOLIDATED BALANCE SHEETS

<S>                                                                  <C>               <C>
                                                                   March 31,         March 31,
                                                                     2001              2000
                                                                   ---------         ---------
ASSETS
Current Assets
  Cash                                                               $52,745           $ 77,265
Accounts receivable (net)                                            132,118             42,722
                                                                   ---------         ---------
                     Total Current Assets                            184,863            119,987
                                                                   ---------         ---------
Property and Equipment (net)                                         183,712            236,798
                                                                   ---------         ---------
 Other Assets
        Deposits and advances                                         23,148             23,148
 Goodwill (net of amortization)                                    4,062,321          4,170,891
                                                                   ---------         ---------
        Total Other Assets                                         4,085,469          4,194,039
                                                                   ---------         ---------
Total Assets                                                     $ 4,454,044       $  4,550,824
                                                                   ==========         =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
  Accounts Payable                                               $    25,766       $     95,067
 Accrued expenses                                                    251,567             25,159
Accrued interest                                                     858,843            422,931
Accrued interest-related parties                                           -            173,001
Compensation payable-related parties                                  81,274            211,390
Notes Payable-Short-Term                                           1,213,856            832,966
Due to related parties                                                     -            773,845

<PAGE>31
Deferred Income                                                        6,971              6,971
                                                                   ---------         ---------
  Total Current Liabilities                                        2,438,277           2,541,330
                                                                   ---------         ---------
Long-Term Liabilities
  Notes payable-long term                                          4,000,459           4,011,459
                                                                   ---------         ---------
Shareholders' Equity
  Common Stock, par value $.01 per share
     35,000,000 shares authorized; 20,788,122
     shares issued and outstanding of which
    292,396 are in treasury     207,882                              207,882
  Preferred stock, par value $301 per share
    5,000,000 shares authorized; none issued                               -                   -

  Additional Paid in Capital                                       9,913,230           9,913,230
Accumulated deficit                                              (11,997,398)        (12,014,671)
                                                                   ---------         ---------
  Total Shareholders' Equity                                      (1,876,286)         (1,893,559)
                                                                   ---------         ---------
  Treasury stock, as cost                                           (108,406)           (108,406)
                                                                   ---------         ---------
Total Liabilities and Shareholders' Equity                       $ 4,454,044         $ 4,550,824
                                                                   ==========        ===========

</TABLE>














<TABLE>
                                           OUT-TAKES, INC.
                                CONSOLIDATED STATEMENTS OF OPERATIONS
                                         For the Years Ended
<S>                                                <C>          <C>                  <C>
                                                               March 31,
                                                  2001            2000              1999
                                                ---------       -----------       ---------
Revenues                                      $  541,755       $  216,623        $  637,450

Cost of revenues                                 468,707          212,323           192,374
                                                ---------       -----------       ---------
Gross margin                                      73,048            4,300           445,076

Operating expenses                               417,626          373,665           734,802
                                                ---------       -----------       ---------
          Loss from operations                  (344,578)        (369,365)         (289,726)
                                                ---------       -----------       ---------
          Other Expenses
          Interest income                                               -                -
Interest expense                                (510,780)        (509,945)          (36,559)
Asset lease agreement assignment                 874,231
Discontinued operations                                -                -           (55,934)
                                                ---------       -----------       ---------
          Total Other Expenses                   363,451         (509,945)          (92,458)
                                                ---------       -----------       ---------
          Provision for income taxes               1,600            4,800                 -
                                                ---------       -----------       ---------
          Total Income Tax Expense                 1,600            4,800                 -
                                                ---------       -----------       ---------
Net income (loss)                            $    17,273      $  (884,110)       $ (382,184)
                                                =========       ===========       =========
Net loss per share                           $    (0.00)      $     (0.04)       $    (0.02)
                                                =========       ===========       =========
</TABLE>


<PAGE>33
<PAGE>
 <TABLE>

                                           OUT-TAKES, INC.
                            CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

<S>                            <C>         <C>        <C>         <C>        <C>            <C>

                                   Common Stock      Additional
                              Number of              Paid-In      Accumulated   Treasury
                              Shares      Amount     Capital      Deficit       Stock        Total
                              ------      ------     ----------   -----------   --------  ----------
Balance, March 31, 1998    20,788,122   $ 207,882   $9,905,430   $(11,091,161) $(108,406) (1,086,255)

Acquisition of subsidiary                                             342,784                342,784
Adjustments                                              7,800                                 7,800
Net loss for the year
  ended March 31, 1999                                               (382,184)              (382,184)
                              ------      ------     ----------   -----------   --------  ----------
Balance, March 31, 1999    20,788,122     207,882    9,913,230     (11,130,561) (108,406) (1,117,855)

Net loss for the year
  ended March 31, 2000                                               (884,110)              (884,110)
                              ------      ------     ----------   -----------   --------  ----------
Balance, March 31, 2000    20,788,122     207,882    9,913,230    (12,014,671)   (108,406)(2,001,965)

Adjustments                                            (4,634)

Net loss for the year
  ended March 31, 2001                                                 17,273                 17,273
                              ------      ------     ----------   -----------   --------  ----------
Balance March 31, 2001     20,788,122   $ 207,882  $ 9,908,596   $(11,997,398)  $(108,406)(1,984,692)
                           ==========   =========  ============  ============   ========== =========


</TABLE>



<PAGE>34

<TABLE>

                                           OUT-TAKES, INC.
                                CONSOLIDATED STATEMENTS OF CASH FLOWS

<S>                                            <C>          <C>            <C>

                                                     For the Years Ended
                                                           March 31,
                                               2001          2000          1999
                                             ----------    ----------     ---------
Operating Activities:
Net Loss                                     $ 17,273)     $(884,110)    $(382,184)
Adjustments to reconcile net loss to
  net cash used in operating activities:
    Depreciation and amortization             164,952        163,659        116,585
    Compensation - related party                    -                        80,887
Changes in operating assets and liabilities:
  Accounts receivable                         (89,396)       (42,722)
  Due from related party                     (308,616)             -       (120,854)
  Deposits                                          -         (4,600)       (25,504)
  Inventory                                         -              -         10,082
  Prepaid expenses                                  -              -         11,954
  Other current assets                              -          1,543          9,564
  Accounts payable, accrued expenses          589,723        490,816       (162,039)
  Interest payable-related party             (173,001)        79,993         36,556
  Provision for studio closure                      -        (31,878)
  Prepaid asset lease                         (30,604)        30,604
  Compensation payable - related party        178,500         61,390         79,540
                                             ----------    ----------     ---------
Net cash provided by (used in)
    operating activities                      379,435       (164,635)      (346,687)
                                             ----------    ----------     ---------
Investing Activities:
  Purchases of property,
plant and equipment                                 -        (53,213)       (33,522)


<PAGE>35

  Proceeds from disposal of property,
     plant and equipment                            -          5,500
                                             ----------    ----------     ---------
Net cash used in investing activities               -        (47,713)       (33,522)
                                             ----------    ----------     ---------
Financing Activities:
  Proceed from issuance of stock
  Advances from related parties                     -          6,570        272,887
  Payments to related parties                (773,845)      (116,903)
  Capital contribution                              -          7,800
  Proceeds from short term debt               380,890        405,131         74,000
  Notes & contracts payable                   (11,000)        (6,541)             -
Net cash provided by (used in)
    financing activities                     (403,955)       288,257        354,687
                                             ----------    ----------     ---------
Increase (decrease) in cash and cash
    equivalents                               (24,520)        75,909        (25,522)
                                             ----------    ----------     ---------

Cash and cash equivalents
 -beginning of year                            77,265          1,356         26,878
                                             ----------    ----------     ---------
Cash and cash equivalents- end of year     $   52,745      $  77,265       $  1,356
                                             ==========    ===========     ========
  Supplemental disclosure of
   cash flow information:
 Cash paid during the year for:
  Interest                                 $        -      $   2,516       $  7,650


</TABLE>




<PAGE>36




                               OUT-TAKES, INC.
                 CONSOLIDATED NOTES TO FINANCIAL STATEMENTS


    Note 1   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Business
------------------
The Company's principal business activity is the collection and distribution
of waste natural gas in the State of California, and the conversion of such
natural gas into electricity, which is then sold to retail providers of
consumer electricity.

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates that affect the
reported amounts of assets, liabilities, revenues, expenses and the disclosure
of contingent assets and liabilities.  Actual results could differ from these
estimates.

Basis of Presentation
---------------------

The accompanying financial statements include the accounts of Out-Takes,
Inc. and its wholly owned subsidiaries. All significant inter-company
accounts and transactions have been eliminated.

Property, Plant and Equipment
-----------------------------
Plant and equipment are recorded at cost. Depreciation is provided over the
estimated useful asset lives using the straight-line method over 5-7 years.

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, 2001.

Accounts Receivable
-------------------
Accounts receivable are shown net of the allowance for bad debts of $117,239
at March 31, 2001.


Goodwill and acquisition related intangibles
--------------------------------------------
Goodwill is recorded when the consideration paid for acquisitions exceeds
the fair value of net tangible and intangible assets acquired.  Goodwill is
amortized on a straight-line basis over 40 years.  Net goodwill at the
reporting dates is as follows:
<PAGE>37
                                    March 31, 2001        March 31, 2000
                                    --------------        --------------
 Goodwill                            $4,342,874            $4,342,784
 Accumulated amortization              (280,553)             (171,983)
                                       ---------             ---------
 Net Goodwill                        $4,062,321            $4,170,891
                                       =========             =========
Amortization expense                   $180,570              $108,564
                                        =======               =======
Earnings per share
------------------
Earnings per share data in the financial statements have been calculated in
accordance with SFAS No. 128. 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. As of March 31, 2001 and 2000, no contingently issuable
shares qualified as dilutive to be included in the earnings per share
calculation.

Reclassifications
-----------------
Certain amounts reported in previous years have been reclassified to conform
to the March 31, 2001 presentation.


    NOTE 2   MERGERS AND ACQUISITIONS

On August 31, 1998, Out-Takes, Inc. acquired all of the issued and
outstanding equity interests of Los Alamos Energy, LLC, a California limited
liability company (LAE). This acquisition has been accounted for as an
exchange between companies under common control.  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 LAE at the date of the exchange.

The Company has executed a letter of intent with Atlas Engineering, LLC to
the effect that the Company shall acquire Atlas Engineering, LLC pursuant to
the provisions of a Purchase Agreement.  As of March 31, 2001, the merger is
in process but had not yet been completed.


     NOTE 3   PROPERTY AND EQUIPMENT

The components of property and equipment are as follows:

                                      March 31, 2001     March 31, 2000
                                     ----------------   ---------------
Computers and software                     5,589              4,793
Equipment and furniture                  350,633            350,633
<PAGE>38

Leased asset                              19,000             19,000
Motor vehicle                              2,500                  -
                                       ------------       -------------
Total - At Cost                          377,722            374,426
Less: Accumulated depreciation          (194,010)          (137,628)
                                       -------------      -------------
Net                                $     183,712      $     236,798
                                        =============      =============


      NOTE 4   NOTES PAYABLE

Note Payable   Consultant
-------------------------
This is an unsecured note payable 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.  The payable amount as of March 31, 2001 is
$48,000.

Note Payable   Radovich
-----------------------
This is an unsecured promissory note dated September 27, 1996.  The note's
original maturity dated was thirty (30) days, no interest.  The note's
maturity date has been extended indefinitely without interest.  The payable
amount as of March 31, 2001 is $30,557.

Note Payable   Reeves
---------------------
This is an unsecured promissory note dated March 30, 1998.  The note's
original maturity date was sixty days with interest at 10% per annum and is
convertible into Out-Takes, Inc. common stock at a rate to be negotiated
between the parties.  The payable amount as of March 31, 2001 is $25,000.


Note Payable   Boyd
-------------------
This is an unsecured promissory note dated August 14, 1998.  The note's
original maturity date was sixty (60) days, 10% annum simple interest.  The
note's maturity date was extended to December 31, 1999 with interest and the
parties are in negotiation for an additional extension.  The payable amount
as of March 31, 2001 is $45,000.



<PAGE>39

Note Payable   Atlas Engineering
--------------------------------
This is an unsecured promissory note dated March 19, 1999.  The note is
convertible into Out-Takes, Inc. common stock pursuant to a non-binding
share purchase agreement executed between the parties.  The note includes
interest at 10% per annum until paid or converted.  The payable amount as of
March 31, 2001 is $62,984.

Note Payable - Coastal Resources Corp.
--------------------------------------
This note, dated June 15, 1999 is secured by the property, plant and
equipment of Los Alamos Energy, LLC and includes interest at 8% per annum
beginning October 1, 1999.  The master loan agreement specifies a $300,000
maximum financing amount and was entered into pursuant to a non-binding
merger agreement between the parties. If the merger is consummated, then the
loan balance at that date shall be credited to Coastal Resources Corp. as
part of its proportionate equity interest in Out-Takes, Inc.  If the merger
is not consummated, then the principal and interest is due and payable on
the first anniversary date of each advance ranging from June 2000 through
August 2000. The payable amount as of March 31, 2001 is $219,036.

Note Payable   Los Alamos Energy, LLC Equity Holders
----------------------------------------------------
This note, dated August 31, 1998, is pursuant to a share Purchase Agreement
executed between Los Alamos Energy, LLC (LAE) and Out-Takes, Inc.  The note
specifies interest at 10% per annum and is convertible into a aggregate
ninety percent of the issued and outstanding shares of common stock of Out-
Takes, Inc. as of the date of conversion.  The agreement also requires as a
condition of the conversion that Out-Takes, Inc. effect a reverse stock
split of one share for every one-hundred issued and outstanding shares at
the conversion date.  As of March 31, 2001, this conversion and reverse
stock split has not been completed.  The payable amount as of March 31, 2001
is $4,000,000.

   Note Payable   Joint Venture Working Interest
---------------------------------------------
These notes are pursuant to a Joint Venture Agreement executed between Los
Alamos Energy, LLC and the participants in development and generation of
electricity from waste natural gas activities.  The agreement specifies that
participants may be required to convert their working interest into an
equity position when the Company merges with a publicly traded entity.
Those participants electing not to convert would be repaid their original
consideration plus a non-compounded annual yield of 12%. As of March 31,
2000, this conversion or repayment has not been completed. The payable
amount as of March 31, 2001 is $250,279.





<PAGE>40

  Note Payable   Hall
  --------------------
This is an unsecured promissory note dated January 4, 2000.  The note's
maturity date is January 4, 2001 without interest.  The payable amount as of
March 31, 2001 is $4,000.



Lease Payable   Fairfield Energy Corp.
---------------------------------------
The company is the lessee of a transformer under a capital lease expiring July
2003.  The asset and liability under the capital lease is recorded at the
present value of the minimum lease payments.  The asset is depreciated over the
lease term of 50 months.  Depreciation of the asset under the capital lease is
included in depreciation expense for the year ended March 31, 2001.  The
equipment held under capital lease at March 31, 2001 is valued at $19,000 less
accumulated depreciation of $5,202.

Future minimum lease obligations are as follows:

         Year ended March 31
         -------------------
             $  6,137
                6,137
                6,137
                 2004                                  2,046
                                                      --------
              Total                                 $ 20,457


                Less interest                          5,162
                                                     -------
        Present value of net minimum lease payment  $ 15,295
                                                     =======


     NOTE 5   RELATED PARTY TRANSACTIONS AND ASSET LEASE ASSIGNMENT

The amount due to related party of $773,845 is unsecured and payable upon
demand.  Interest is charged at a rate of 10% per annum. As of March 31,
2001 and 2000 interest of $77,385 and $173,001 respectively was accrued.

The Company holds an asset lease agreement that generates annual income for
the Company. On March 30, 2001, the Company assigned this asset lease
agreement in lieu of cash to payoff the above amount, including the accrued
interest that was due to related party. In addition, the Company also issued
a $150,000 promissory note, dated March 31, 2001. The note bears 10%
interest per annum. Both principal and interest is due in 180 days.



<PAGE>42

    NOTE 6   COMMITMENTS AND CONTINGENCIES

The Company has an extended 12 month non-cancelable operating lease
agreement for an office facility.

Future minimum lease obligations are as follows:

         Year ended March 31
         -------------------
              2002                                 $  10,200
                                                    --------
              Total                                $  10,200
                                                   =========

In the twelve months to March 31, 2001, 2000, and 1999 total rent expense
under this lease was $10,200, $10,200 and $10,200 respectively

The Company's facilities are subject to federal, state and local provisions
relating to the discharge of materials into the environment.  Compliance
with these provisions has not had, nor does the Company expect such
compliance to have, any material effect on the capital expenditures,
revenues or expenses, or financial condition of the Company.  Management
believes that its current practices and procedures for the control and
disposition of materials comply with all applicable federal, state and local
requirements.

Los Alamos Energy, LLC (LAE) participates in certain agreements with respect
to the generation of electricity from waste natural gas whereby its managing
member also acts as the operator of the electrical power plant's development
and production activities.  As its managing member and operator, LAE is
contingently liable for the activities of this venture.

      NOTE 7 -  INCOME TAXES

As of March 31, 2001, the Company has a net operating loss (NOL) carry
forward of approximately  $12,103,777. The net operating loss carry forwards
expire between 2007 and 2016. No deferred tax asset has been recorded for
these losses since a valuation allowance has been recorded for the portion
of the NOL that is not expected to be realized.

      NOTE 8   NEW AUTHORITATIVE PRONOUNCEMENTS

The Company intends to adopt Statement of Financial Accounting Standards
(SFAS) No. 133, "Accounting for Derivative Instruments and Hedging
Activities," as of the beginning of its fiscal year 2001.  The standard will
require the Company to recognize all derivatives on the balance sheet at
fair value.  The effect of adopting the standard is not expected to have a
material effect on the Company's financial position or overall results in
operations.


<PAGE>43
      NOTE 9   GOING CONCERN

The Company has been unsuccessful in generating net cash from operations.
The Company incurred a net loss from operation of $344,578 for the year
ended March 31, 2001 and has a working capital deficit as of March 31, 2001
of $2,254,565.

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 plans to expand its existing power plant to a four or five mega
watt facility, reduce expenses, expand operations to include direct service
of consumer electricity, and convert $4,250,279 of existing debt to equity
which will substantially reduce interest expense.

      NOTE 10   CONCENTRATIONS OF CREDIT RISK

All of the consolidated revenue of Out-Takes, Inc. is generated from the
leasing of photographic equipment to one customer and the sale of
electricity to Pacific Gas and Electric Company and Texaco.

      NOTE 11   SUPPLEMENTAL CASH FLOW DISCLOSURE

Cash flows from operating activities include the following cash payments:

                  March 31,     March 31,     March 31,
                    2001          2000          1999
                 ---------      ---------     ---------
Income taxes      $   -          $    -       $    -
Interest          $   -          $2,516       $7,650

Noncash investing and financing activities include the following amounts:

                                      March 31,  March 31, March 31,
                                         2001     2000      1999
                                       --------- --------- ---------

Capital lease of equipment              $   -     $19,000   $    -








<PAGE>44
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
   FINANCIAL DISCLOSURE

        NONE

                                  PART III

ITEM 10.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
          COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT


Name                     Age                Position
----------------         ---                ----------------------
James. C. Harvey         52                 Chairman, Director

Kenneth L. Kinlaw        36                 CEO, Secretary,
                                            President, Atlas Power

Jody P. Lenihan          34                 Vice President, Chief Executive
                                            Officer, Director,
                                            CFO Atlas Power

James C. Harvey. Mr. Harvey is the current Chairman, President, Chief
Executive Officer, Secretary and sole Director of the Company, and has acted
in that capacity since 1998. He is a practicing attorney at law with
emphasis on business, real estate, banking and finance. Mr. Harvey
previously was of Counsel to Ludwick & Anderson providing legal services for
the Resolution Trust Corporation in connection with the receivership of
seven thrifts, and prior thereto was the Managing Partner of Simpson, Dowd,
Kaplan & Moon, where he managed all business affairs for the firm. He
received his B.B.A., Accounting  Banking & Finance in 1963, and J.D. in
1966, both from Southern Methodist University.

ITEM 11. EXECUTIVE COMPENSATION

No executive salaries were paid to officers or directors in the last fiscal
year. There were no grants of options or SAR grants given to any executive
officers during the last fiscal year. The director of the Company, James
Harvey, is paid $850 per month for rent of the Company's offices, and is
reimbursed monthly for company telephone expenses.

                                   SALARIES

                             NO SALARIES WERE PAID







<PAGE>45

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth certain information regarding the beneficial
ownership of the shares of Common Stock of the Company as of the date of
this disclosure(1), by (I) each person who is known by the Company to be the
beneficial owner of more than five percent (5%) of the issued and
outstanding shares of common stock, (ii) each of the Company's directors and
executive officers, and (iii) all directors and executive officers as a
group.

Name and Address                Number of Shares          Percentage Owned
----------------                ----------------          ----------------
James C. Harvey                         0                        0%
3811 Turtle Creek Blvd.
Suite 350
Dallas, Texas 75219

All Officers and Directors              0                        0
as a Group

No officers and directors hold any stock in the Company.  However, the
acquisition agreement providing for the acquisition of Los Alamos Energy
provides that, in the event the Equity Holders shall desire to do so, they
may convert their indebtedness to common stock of the Company representing
in the aggregate ninety percent (90%) of the issued and outstanding shares
of such common stock as of the date of such conversion. The Acquisition
Agreement provides that it is a condition of the conversion that the Company
effect a reverse stock split of one (1) share for every one hundred (100)
shares issued and outstanding as of such date. LAE contemplates that a
significant number of persons currently holding promissory notes and/or
working interests in its electricity production (collectively, "Interest
Holders") will exercise their rights to convert such interests into the
equity of LAE, and subsequently to join in the conversion of the Notes into
common stock of the Company. Presently, management of LAE anticipates that,
prior to the conversion of the Notes and after giving effect to the
contemplated reverse stock split, the Company will issue approximately three
million (3,000,000) additional shares of common stock, and that subsequent
to completing the conversion, the Equity Holders and Interest Holders will
own, in the aggregate, approximately two million eight hundred eighty
thousand (2,880,000) shares of the Company's common stock, representing
ninety percent (90%) of the total amount of common stock estimated to be
issued and outstanding as of the date such conversion rights are exercised.
This means that, if James Harvey, who is the beneficial owner of 790,059
units of LAE (including those in the name of the Inwood 1991 Trust, of which
he is Trustee, converted his indebtedness to common stock of the Company,
giving effect to the contemplated reverse split, he would be the owner of
approximately 26% of the Company's common stock. In addition, there are two
other members of LAE who would own more than 5% of the Company's outstanding
common stock should they decide to convert their indebtedness to common
stock; Hannes Faul, who would own 25% of the outstanding common stock, and
Lance Hall & Co., who would own 25% of the outstanding common stock.
<PAGE>46
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The Company rents offices from its President and shareholder, James C.
Harvey, on a month to month basis at a monthly rental of $850 per month. The
Company's acquisition agreement to acquire Los Alamos Energy gives Mr.
Harvey and other members of LAE the right to convert the debt the Company
owes under the acquisition agreement to Company common stock, which means
that, if the members of LAE decided to convert the debt owed them to common
stock, they would become the owners of 90% of the outstanding common stock
of the Company.  On March 31, 2001, the Company's lease rights to
Colorvision were assigned to pay off a $775,845 note due to Photo
Corporation.

There have been no other transactions since the beginning of the fiscal
year, or any current transactions, or series of similar transactions, to
which the Company was or is to be a party, in which the amount involved
exceeds $60,000, and in which any of the officers, or directors, or holders
of over 5% of the Company's stock have or will have any direct or indirect
material interest. The Company does not currently have any policy toward
entering into any future transactions with related parties.

                                   PART IV

ITEM 14.   EXHIBITS AND REPORTS ON FORM 8-K

(a)  The  following  exhibits  are filed as part of this  report as required
by
     Item 601 of Regulation S-B:

     3.1   Certificate of Incorporation of the Company. (ii)

     3.2   Certificate of Amendment of Certificate of Incorporation. (ix)

     3.3   Bylaws of the Company. (I)

     4.1   Form of Unit Purchase Option. (I)

     4.2   Form of Warrant Agreement. (I)

     4.3   Form of Escrow Agreement. (iv)

     4.4   Section 203 of the Delaware General Corporation Law. (ix)

     10.1  Form of Registration Rights Agreement. (I)

     10.5  Form of Standard Employment Agreement for hourly wage employee.
           (vi)




<PAGE>47

     10.6  Form of  Standard Employment  Agreement for hourly  wage
           employee eligible to earn commissions. (vi)

     10.7  Form of Standard Employment Agreement for salaried employee. (vi)

     10.8  Form of Standard Employment Agreement for salaried employee
           eligible to earn commissions. (vi)

     10.9  Form of Standard Employment Agreement for salaried employee
           eligible for bonus in the form of incentive compensation. (vi)

     10.10 Agreement dated March 16, 1992 between the Placement Agent and
           Shelton on behalf of "Founders" specified therein, as amended.
           (I) +

     10.11 Founders Agreement dated March 25, 1992 among Robert H. Shelton
         ("Shelton"), Ellen Korval ("Korval"), Robert A. Small ("Small"),
           Leah R. Shelton ("Shelton")and John L. Sigalos ("Sigalos"), as
           supplemented by letter agreement dated as of March 25, 1992 among
           Shelton, Shelton, Sigalos, Korval and Small. (I) +

     10.12 Merchandising License  Agreement  dated  February  25, 1992
           between MCA/Universal Merchandising, Inc. and the Company. (I)

     10.13 Merchandising  License Agreement dated April 24, 1992 between
           Turner Home Entertainment, Inc. and the Company. (I)

     10.14 Merchandising License Agreement dated as of April 16, 1992
           between Paramount Pictures Corporation and the Company. (I)

     10.15 Letter Agreement between the Image Bank West and the Company
           dated as of August 5, 1992. (I)

     10.16 Letter Agreement between the Company and Tony Stone Worldwide
           dated as of August 31, 1992. (I)

     10.17 1992 Employee Stock Option Plan. (iii) +

     10.18 1992 Non-Employee Directors Stock Option Plan. (iii)

     10.19 Metrum  Imaging  Products VAR  Agreement  dated  September  11,
           1992 between Metrum Information Storage and the Company. (I)

     10.20 Lease dated November 13, 1992 between the Company and MCA
           Development Company. (ii)

     10.21 Lease  dated   October  13,  1992  between  the  Company  and
           Midis Properties, Ltd. (ii)

     10.22 Lease dated March 28, 1993 between the Company and Midis
           Properties, Ltd. (vi)
<PAGE>48
     10.23 Letter Agreement  between the Company and Jay P. Morgan
           Photography dated September 28, 1992. (iii)

     10.24 Settlement  Agreement and Mutual Release dated as of August 11,
           1994 between the Company,  on the one hand, and Richard T.
           Eckhouse, B&E Financial Express,  Business & Executives Financial
           Group, Innovative Business  Management Inc., and R. T. Eckhouse &
           Assoc., on the other hand. (vii)

     10.25 Promissory  Note in favor  of Photo  Corporation  of  Australia
           Pty Limited, dated March 23, 1995. (viii)

     10.26 Security  Agreement  between the Company  and Photo  Corporation
           of Australia Pty Limited, dated as of March 23, 1995. (viii)

     10.27 Subscription  Agreement between the Company and Oakrusk Pty
           Limited, dated May 26, 1995. (viii)

     10.28 Stock Option Agreement  between the Company and Oakrusk Pty
           Limited, dated May 26, 1995. (viii)

     10.29 Form of Subscription Agreement. (ix)

     10.30 Settlement  and  Mutual  Release   Agreement  between  the
           Company, Shelton,  Shelton and Photo  Corporation  Group Pty
           Limited, dated August 31, 1996. (x)

    10.31  Purchase and Sale Agreement between the Company and Los Alamos
           Energy, LLC, Dated August 31, 1998

    10.32  Asset Lease Agreement dated October 26, 1998


(b)  Reports on Form 8-K

     Current Report on Form  8-K dated April 27, 1998.

     Current Report on Form  8-K dated May 13, 1998

     Current Report on Form  8-K dated October 28, 1998

     (I)  Incorporated by reference to the Company's  Registration
          Statement on Form  S_1   (Registration   No.  33_  52904)  filed
          on October 5, 1992 (the "Registration Statement").

     (ii)  Incorporated  by reference to  Pre-Effective  Amendment  No. 1 to
           the Registration Statement filed on December 21, 1992.

     (iii) Incorporated  by reference to  Pre-Effective  Amendment No. 2 to
           the Registration Statement filed on January 15, 1993.

<PAGE>50

     (iv)  Incorporated  by reference to  Pre-Effective  Amendment  No. 3 to
           the Registration Statement filed on February 3, 1993.

     (v)  Incorporated by reference to the Company's  Registration
           Statement on Form 8_A (No. 0_21322) filed on March 5, 1993 and
           effective on March 19, 1993.

     (vi)  Incorporated  by reference  to the  Company's  Annual  Report on
           Form 10-KSB for the fiscal year ended March 31, 1993.

     (vii)  Incorporated by reference to the Company's Quarterly Report on
            Form 10_QSB for the quarterly period ended June 30, 1994.

    (viii)  Incorporated  by reference to the  Company's  Annual Report on
            Form 10-KSB for the fiscal year ended March 31, 1995.

     (ix)  Incorporated  by reference  to the  Company's  Annual  Report on
           Form 10-KSB for the fiscal year ended March 31, 1995.

     (x) Incorporated by reference to the Company's Report on Form 10_QA for
         the period ended September 30, 1996.

Management contract or compensatory plan.


                                   SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.

                                  Out-Takes, Inc.


Dated: June 30, 2001             By:  James Harvey, President
                                      ___________________________
                                      James Harvey, President


In  accordance  with the Exchange Act, this report has been signed below by
the
following  persons on behalf of the  registrant and in the capacities and on
the dates indicated.







<PAGE>51

         Signature                       Title                     Date
         ---------                       -----                     ----

       James Harvey        Chairman of the Board, President,   June 30, 2001
       -----------------   Chief Executive Officer, Chief
       James Harvey        Financial Officer and Secretary,
       And Sole Director



EXHIBIT 10.31 PURCHASE AND SALE AGREEMENT BETWEEN COMPANY AND LOS
ALAMOS ENERGY, LLC, DATED AUGUST 31, 1998
PURCHASE AND SALE AGREEMENT

THIS PURCHASE AND SALE AGREEMENT (the "Agreement") is made and entered into
as  of the 31st day of August, 1998, by and between Out-Takes, INC., a
corporation duly organized and validly existing under the laws of the state
of Delaware (the "Purchaser") and the several individuals named on the
signature page of this Agreement (collectively, the "Seller").

WHEREAS, the Purchaser is a publicly-traded corporation on the OTC-Bulletin
Board under the symbol OUTT; and

WHEREAS, the Seller collectively owns all of the issued and outstanding
units of equity interest (the "Equity") in LOS ALAMOS ENERGY, LLC, a limited
liability company organized and existing under the laws of the State of
California (the "Company"); and

WHEREAS, the Purchaser desires to purchase from the Seller, and the Seller
desires to sell and convey to the Purchaser, all of the Equity in the
Company, subject to and in accordance with the terms and conditions set
forth in this Agreement;

NOW, THEREFORE, in consideration of the foregoing premises and the covenants
and agreements set forth herein, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties hereto, intending to be legally bound, hereby agree as follows:

PURCHASE AND SALE OF THE EQUITY. Upon execution of this Agreement by both
parties, and subject to the fulfillment of all Closing Conditions (as such
term is defined below) contained in Section 7 below, the Purchaser hereby
irrevocably agrees to purchase, and the Seller agrees to sell, transfer and
convey to the Purchaser, all of the Equity in the Company outstanding as of
the Closing (as defined below). Such units of Equity, once delivered to the
Purchaser as set forth herein, shall be validly issued, fully paid and
non_assessable. The Seller may elect, in its sole discretion at any time
prior to the Closing, to convert its form of organization from a limited
liability company to a corporation, in which case each reference to the
Company shall be deemed to refer to the new corporation, and each reference
to units of Equity in this Agreement shall be deemed to refer to shares of
capital of the new corporation.
<PAGE>52
CONSIDERATION TO BE PAID FOR THE EQUITY. As consideration for the Equity to
be purchased hereunder, the Purchaser shall deliver to the Seller promissory
notes, substantially in the form of Exhibit A attached hereto, totaling four
million dollars ($4,000,000) in the aggregate (collectively, the "Promissory
Note"). The Promissory Note shall have a maturity of five (5) years, and
shall bear interest at the rate of ten percent (10%) per annum until paid in
full. As security for the Note, at the Closing, the Purchaser shall deliver
to the Seller a security agreement (the "Security Agreement") substantially
in the form of Exhibit B attached hereto, and a stock pledge agreement (the
"Stock Pledge") substantially in the form of Exhibit C attached hereto. The
security interests granted in the Security Agreement and the Stock Pledge
shall remain in full force and effect until the Note has been repaid in its
entirety, or converted as set forth in Section 3 below.

3.  CONVERSION OPTION IN THE NOTE. The Note shall contain an option (the
"Conversion Option") to convert the indebtedness represented thereby into
such number of shares of voting common stock of the Purchaser as shall
represent ninety percent (90%) of the shares of such voting stock issued and
outstanding as of the date of conversion, on a fully_diluted basis (the
"Conversion Shares"). In the event that the Seller desires to exercise the
Conversion Option, it shall notify the Purchaser of such fact, and commence
such actions not later than ninety days from the date of the Note. Within
thirty (30) days after the Purchaser determines that the Conversion may be
lawfully completed (or such other time as is mutually agreed between the
parties), there shall be a closing of the Conversion Option (the "Conversion
Closing"). At such Conversion Closing, the Seller shall deliver to the
Purchaser the Note marked Paid in Full, and the Purchaser shall deliver to
the Seller, or its nominees, a certificate or certificates evidencing the
issuance to the Seller of the Conversion Shares, which Conversion Shares
when so delivered shall be validly issued, fully paid, and non_assessable.
The Conversion Closing shall be subject to the condition that the Purchaser
shall have effected a reverse stock split of one (1) share for every one
hundred (100) shares of the Purchaser outstanding as of such date. The
Conversion Closing shall only occur if the foregoing condition has been
fully satisfied or waived prior to or simultaneously with such Conversion
Closing as set forth herein.

4.   REPRESENTATIONS AND WARRANTIES OF THE SELLER. Each Seller hereby
represents and warrants to the Purchaser, as to himself only and not
jointly, as of the date hereof, the following:

(a)  each Seller is an adult individual, and has full power and capacity to
enter into, execute, deliver and perform this Agreement in accordance with
its terms, which Agreement, once so executed and delivered by such Seller,
shall be the valid and binding obligation of such Seller, enforceable
against him by any court of competent jurisdiction in accordance with its
terms;




<PAGE>53
(b)   no Seller, is bound by or subject to any contract, agreement, court
order, judgment, administrative ruling, law, regulation or any other item
which prohibits or restricts such party from entering into and performing
this Agreement, or which requires the consent of any third party prior to
the entry into or performance of this Agreement, in accordance with its
terms.

REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. The Purchaser hereby
represents and warrants to the Seller, as of the date hereof, the following:
 the Purchaser is a corporation duly organized and validly existing under
the laws of the State of Delaware, and has full power and authority to enter
into and perform this Agreement in accordance with its terms;

the individuals signing this Agreement on behalf the Purchaser are the duly
elected executive officers of the Purchaser so indicated, and have full
power and authority to execute and deliver this Agreement for and on behalf
of the Purchaser, which Agreement, once so executed and delivered, shall be
the valid and binding obligation of the Purchaser, enforceable against it by
any court of competent jurisdiction in accordance with its terms;

the Purchaser is not bound by or subject to any contract, agreement, court
order, judgment, administrative ruling, law, regulation or any other item
which prohibits or restricts such party from entering into and performing
this Agreement, or which requires the consent of any third party prior to
the entry into or performance of this Agreement, in accordance with its
terms;

(d)   a majority of the Purchaser's voting stock is owned by PCG, which
controls, beneficially and of record, fourteen million four hundred ten
thousand (14,410,000) shares of the Company's common stock and a beneficial
interest in another approximately eight hundred eighty five thousand
(885,000) shares of the Company's common stock (common stock being the only
voting securities of the Company outstanding as of the date hereof), on a
fully_diluted basis, representing approximately seventy_five percent (75%)
of the total number of shares of common stock issued and outstanding as of
the date hereof;

(e)  the Purchaser has been given every opportunity to review all documents,
and ask all questions of the Seller and the executive officers of the
Company, as it shall have requested prior to executing and delivering this
Agreement to the Seller; and the Purchaser has been advised to consult with
its attorney and tax advisor regarding the consequences of purchasing the
Equity.

INDEMNIFICATION. The parties each hereby agree that they shall be
responsible for, and shall hold harmless and indemnify the other party from
and against, any and all obligations, liabilities, losses, costs, charges,
damages or expenses (including, but not limited to, reasonable attorneys
fees and court costs incurred in defense thereof) of whatever type or nature
to the extent that any such Claim shall result from or arise out of the

<PAGE>54
breach by such party of any agreement, undertaking, representation or
warranty contained in this Agreement (including, without limitation, all
exhibits and other documents entered into pursuant hereto).

7.   CLOSING. The transactions contemplated by this Agreement shall be
consummated at such location, at such time and on such date as the parties
shall mutually agree (the "Closing"). At the Closing, each Seller shall
deliver to the Purchaser a certificate evidencing his respective portion of
the Equity being acquired hereunder, and the Purchaser shall deliver to each
such Seller an originally_signed Note, evidencing such Seller's pro rata
portion of the Purchase Price, together with originally_signed copies of the
Security Agreement and the Stock Pledge, and each party shall further
deliver such documents and instruments as the other party may reasonably
request to further the transactions to be consummated at the Closing (all of
such delivery items being referred to herein as the "Closing  Conditions").

8.   MISCELLANEOUS PROVISIONS.

(A)  NOTICES. All notices, requests, demands and other communications to be
given hereunder shall be in writing and shall be deemed to have been duly
given on the date of personal service or transmission by fax if such
transmission is received during the normal business hours of the addressee,
or on the first business day after sending the same by overnight courier
service or by telegram, or on the third business day after mailing the same
by first class mail, or on the day of receipt if sent by certified or
registered mail, addressed as set forth below, or at such other address as
any party may hereafter indicate by notice delivered as set forth in this
Section 8(a):

      If to the Seller:   Sellers of Equity in the Company
                          c/o Los Alamos Energy, LLC
                          466 Bell Street
                          Los Alamos, CA  93440
                          Attn: Mr. Hannes Faul
                          Managing Member

      (with a copy) to:   Feldhake, August & Roquemore
                          600 Anton Boulevard, Suite 1730
                          Costa Mesa, CA  92626
                   Attn: Kenneth S. August, Esquire
                   Partner

      If to the Purchaser: Out-Takes, Inc.
                           1419 Peerless Place
                           Suite 116
                           Los Angeles, California  90035
                           Attn: Mr. Peter C. Watt
                           President



<PAGE>55


      (with a copy) to:   Photo Corporation Group Pty. Limited
                          P.O. Box 415
                          Chester Hill, N.S.W. Australia 2162
                          Attn: Mr. Michael C. Roubicek
                          Group Commercial Manager

(B)     BINDING AGREEMENT; ASSIGNMENT. This Agreement shall constitute the
binding agreement of the parties hereto, enforceable against each of them in
accordance with its terms. This Agreement shall inure to the benefit of each
of the parties hereto, and their respective successors and permitted
assigns; provided, however, that this Agreement may not be assigned (whether
by contract or by operation of law) by either party without the prior
written consent of the other party.

(C)   ENTIRE AGREEMENT. This Agreement constitutes the entire and final
agreement and understanding between the parties with respect to the subject
matter hereof and the transactions contemplated hereby, and supersedes any
and all prior oral or written agreements, statements, representations,
warranties or understandings between the parties, all of which are merged
herein and superseded hereby.

(D)  WAIVER. No waiver of any provision of this Agreement shall be deemed to
be or shall constitute a waiver of any other provision, whether or not
similar, nor shall any waiver constitute a continuing waiver. No waiver
shall be binding unless executed in writing by the party making the waiver.

(E)   HEADINGS. The headings provided herein are for convenience only and
shall have no force or effect upon the construction or interpretation of any
provision hereof.

(F)   COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.

FURTHER DOCUMENTS AND ACTS. Each party agrees to execute such other and
further documents and to perform such other and further acts as may be
reasonably necessary to carry out the purposes and provisions of this
Agreement.

GOVERNING LAW; VENUE. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of California, without giving
effect to the principles of conflicts of laws applied thereby.

(I)  INJUNCTIVE RELIEF. Each party hereby agrees that should either party
materially breach any of its respective obligations under this Agreement,
including without limitation any exhibit or other document entered into
between the parties pursuant hereto, the non_breaching party would have no
adequate remedy at law, since the harm caused by such a breach may not be

<PAGE>56
easily measured and compensated for in damages. Accordingly, the parties
agree that in addition to such other remedies as may be available to the
non_breaching party at law, such party may also obtain injunctive or other
equitable relief including, but not limited to, specific performance, to
compel the breaching party to meet its obligations under this Agreement. All
of such remedies available to any party hereunder shall be cumulative and
non_exclusive.

(J)   CONFIDENTIALITY. By their execution hereof, each party hereby
acknowledges to the other that certain information furnished to it by the
other party is proprietary to such disclosing party, and neither the
receiving party, nor any affiliate, employee, officer, director,
shareholder, agent or representative of such receiving party shall have any
rights to distribute or divulge any of such Confidential Information to any
third party without the disclosing party's prior, written consent, or to use
any such Confidential Information in any way detrimental to the disclosing
party or its affiliates, or which would otherwise destroy, injure or impair
any of the disclosing party's rights in or in respect of any such
Confidential Information including, without limitation, by using of such
Confidential Information to establish or assist any person or entity which
is, or will be, directly or indirectly in competition with the disclosing
party. For purposes of this Agreement, the term "Confidential Information"
shall mean any and all proprietary information belonging to the disclosing
party, whether tangible or intangible, written or oral, including, without
limitation, any non_public intellectual property rights, trade secrets,
designs, books and records, computer software and files, and lists of
(and/or information concerning) such disclosing party's financial condition,
customers, suppliers, vendors, sources, methods, techniques and other
business relationships or information.

(K)  SEVERABLE PROVISIONS. The provisions of this Agreement are severable,
and if any one or more provisions is determined to be illegal, indefinite,
invalid or otherwise unenforceable, in whole or in part, by any court of
competent jurisdiction, then the remaining provisions of this Agreement and
any partially unenforceable provisions to the extent enforceable in the
pertinent jurisdiction, shall continue in full force and effect and shall be
binding and enforceable on the parties.

(L)   EXHIBITS. All Schedules and Exhibits attached hereto are hereby
incorporated by reference herein as an integral part of this Agreement, with
the same force and effect as if the same had been written herein in their
entirety.

SURVIVAL. The provisions of Sections 4, 5, 6 and 8(j) shall expressly
survive any expiration, termination or revocation of this Agreement by
either party.




<PAGE>57

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the  date and year first above written.

THE PURCHASER:

 Out-Takes, INC.                    ATTEST:


 By:  Peter C. Watt                 By: Michael C. Roubicek
      -------------                     --------------------
      Peter C. Watt, President         Michael C. Roubicek, Secretary


 THE SELLER:

 HANNES FAUL                         WITNESS:
 -----------------
 HANNES FAUL


 LANCE HALL                          WITNESS:
 ----------
 LANCE HALL



 THE INWOOD 1991 TRUST               WITNESS:
 ---------------------
  By: James C. Harvey
      Trustee


EXHIBIT A TO
PURCHASE AND SALE AGREEMENT

THIS CONVERTIBLE PROMISSORY NOTE HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), NOR UNDER THE LAWS OF ANY
STATE, AND MAY NOT BE RESOLD, ASSIGNED, PLEDGED, OR HYPOTHECATED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR AN OPINION
OF COUNSEL SATISFACTORY TO THE MAKER THAT REGISTRATION UNDER THE ACT IS NOT
REQUIRED.

                                Out-Takes, INC.

 CONVERTIBLE PROMISSORY NOTE
 _____________________________

  $_________                      August __, 1998



<PAGE>58

FOR VALUE RECEIVED, Out-Takes, INC., a corporation organized and existing
under the laws of the State of Delaware (hereinafter referred to as the
"Maker"), hereby promises to pay to the order of
_______________________________, an adult individual residing in the County
of ________, State of California (hereinafter referred to as the "Payee"),
at Payee's principal address located at ________________________, _______
California, 9____, or such other place or places as the Payee may hereafter
direct from time to time, in lawful money of the United States and in
immediately available funds, the principal sum of _____________________
DOLLARS ($_________).  This Convertible Promissory Note (hereinafter
referred to as the "Note") shall accrue simple interest at the rate of ten
percent (10%) per annum. Amounts of principal and accrued interest due and
payable in respect of this Promissory Note shall be paid out of gross
operating revenues, as available, with payments to be made monthly in
arrears up to ninety_nine percent (99%) of gross revenues from operations,
being applied first to accrued interest and then to principal, with the
balance due on August __, 2003 (the "Maturity Date"), unless this Note is
earlier converted in accordance with the provisions set forth below (the
"Conversion Date"). The principal amount of this Promissory Note shall be
due and payable on the Maturity Date, unless earlier converted in accordance
with the provisions set forth herein.

This Promissory Note may be converted into shares of common stock of the
Maker, having a par value of One Cent ($0.01) per share, (the "Common
Stock") in whole or in part, in the manner set forth below. Each Promissory
Note shall be convertible into such number of shares of Common Stock of the
Maker as are obtained by (a) calculating the total outstanding amount of
principal and accrued interest owed by Maker to all sellers of Los Alamos
Energy, LLC (pursuant to that certain Purchase and Sale Agreement dated as
of August 31, 1998, by and between Maker and the several sellers named
therein (the "Purchase Agreement") as of the effective date of such
conversion (the "Conversion Date"); (b) determining what percentage of such
total amount is represented by the indebtedness evidenced by this Note; and
(c) multiplying such percentage by the total number of Conversion Shares
available (as such term is defined in the Purchase Agreement).

The indebtedness represented by this Promissory Note constitutes senior
secured indebtedness of the Maker, and shall be senior in right of payment
to all other indebtedness of the Maker. By its execution of this Note, the
Maker represents and warrants that it is not subject to any indebtedness
which would be senior to, or pari passu with, the indebtedness to the Payee
evidenced by this Note, other than in accordance with the Purchase
Agreement.

The Maker hereby agrees and covenants with the Payee that, in the event that
the Maker shall hereafter become in default under this Promissory Note, the
Maker shall not make or authorize any dividend or other distribution to
shareholders of the Maker prior to the repayment in full of any amounts
outstanding hereunder.

<PAGE>59

Upon the occurrence of either of the following specified Events of Default
(each herein called an "Event of Default"):

(i)   Breach of Agreements. The Maker shall be in breach or violation, for a
period of three (3) days, of any material agreement, undertaking,
obligation, representation, warranty or statement contained in this
Promissory Note, the Purchase Agreement, or any other Exhibit or document
entered into by the Maker pursuant thereto; or

(ii)    Insolvency. The Maker shall suspend or discontinue its business, or
make an assignment for the benefit of creditors or a composition with
creditors, shall file a petition in bankruptcy, shall be adjudicated
insolvent or bankrupt, shall petition or apply to any tribunal for the
appointment of any custodian, receiver, liquidator or trustee of or for it
or any substantial part of its property or assets, shall commence any
proceedings relating to it under any applicable bankruptcy, reorganization,
arrangement, readjustment of debt, receivership, dissolution or liquidation
law or statute of any jurisdiction, whether now or hereafter in effect; or
there shall be commenced against the Maker any such proceeding which shall
remain undismissed or unstayed for a period of forty_five (45) days or more,
or any such order, judgment or decree shall be entered, or the Maker shall
by any act or failure to act indicate its consent to, approval of or
acquiescence in any such proceeding or in the appointment of any such
custodian, receiver, liquidator or trustee; or the Maker shall take any
action for the purpose of effecting any of the foregoing;

then, and in any such event, and at any time thereafter if any Event of
Default shall be continuing, the Payee may, by written notice to the Maker,
declare the entire principal of this Promissory Note, and any accrued but
unpaid interest in respect thereof, to be forthwith due and payable. The
Maker hereby expressly waives presentment, demand, protest or other notice
of any kind.

This Promissory Note shall inure to the benefit of the Payee, his or her
heirs, executors, successors and permitted assigns. The obligations of the
Maker arising hereunder shall become the obligations of any successor in
interest or permitted assignee thereof, whether by contract or by operation
of law.
This Promissory Note shall be governed by and construed in accordance with
the  internal laws of the State of California applicable to the enforcement
and operation of such instruments in the State, and without giving effect to
the principles of conflicts of laws which may be applied thereby. Any action
brought under or in respect of this Promissory Note shall be brought only in
a court of competent jurisdiction sitting in the County of Los Angeles,
State of California. If any suit or other proceeding shall be instituted
with respect to this Promissory Note, the prevailing party shall, in
addition to such other relief as the court may award, be entitled to recover
reasonable attorneys' fees, expenses and costs of investigation.


<PAGE>60
IN WITNESS WHEREOF, the Maker hereby sets its hand and seal in the County of
Los Angeles, State of California, as of the date and year first above
written.

THE MAKER:


Out-Takes, INC.                    ATTEST:

                                   [SEAL]
By: _________________________             By: ____________________
     Peter C. Watt                              Michael C.Roubicek
     President                                  Secretary


                     EXHIBIT B TO PURCHASE AND SALE AGREEMENT

                              SECURITY AGREEMENT

THIS SECURITY AGREEMENT (the "Agreement") is made and entered into as of
this
___th day of August, 1998 by and between Out-Takes, INC., a corporation
organized and existing under the laws of the State of California (the
"Grantor")
and the several individuals named on the signature page of this Agreement
(collectively, the "Secured Party").

WHEREAS, the Grantor and the Secured Party have entered into that certain
Purchase and Sale Agreement, dated as of August ___, 1998 (the "Purchase
Agreement"), pursuant to which Grantor has purchased (the "Acquisition") all
of
the equity securities issued and outstanding of LOS ALAMOS ENERGY, LLC, a
California limited liability company (the "Subsidiary"); and

WHEREAS, the Grantor has delivered to the Secured Party, as the Purchase
Price
for the Acquisition, a Secured Promissory Note in the amount of Four Million
Dollars ($4,000,000) dated as of even date herewith (the "Note"); and

WHEREAS, in order to induce the Secured Party to accept the Note as
consideration for the Acquisition, the Grantor has agreed to provide the
Secured
Party with a security interest in and first lien upon all of its assets and
the
assets of the Subsidiary, and the parties now desire to enter into this
Agreement to evidence the same;





<PAGE>61
NOW, THEREFORE, in consideration of the foregoing premises and the promises
and  covenants herein contained, and for other good and valuable
consideration, the  receipt and sufficiency of which are hereby
acknowledged, the parties, intending to be legally bound, hereby agree as
follows:
1.    Grant of Security Interest. Grantor hereby assigns, conveys and grants
to Secured  Party a continuing security interest in and first lien upon all
of Grantor's  right, title and interest in and to all of the assets and
properties owned or used by the Grantor in the conduct of its business, or
the business of the  Subsidiary, now owned or hereafter acquired at any time
during the term hereof, whether tangible or intangible, fixed, movable or
fixtures, of whatever kind or nature and wherever located, including,
without limitation, all cash and cash equivalents, securities, accounts
receivable, plant and equipment, inventory, rolling stock, materials,
supplies, intellectual property rights, contract rights, choses in action,
and any proceeds from the sale, lease, transfer or other disposition of any
of such assets, whether for cash or property (all of the foregoing being
herein referred to collectively as the "Collateral").  The security interest
granted herein is intended to secure the prompt payment, when due, of all
amounts due and payable to Secured Party under the Note including, without
limitation, all principal amounts due thereunder, all interest accrued
thereon, and all applicable late charges or other fees due under the Note,
as well as the performance in full of all of Grantor's obligations under the
Purchase Agreement (collectively, the "Secured Obligations").

2.    Transfers and Other Liens. Grantor hereby acknowledges to, and agrees
with, Secured Party that for so long as this Agreement shall be in effect,
Grantor, without the prior written consent of the Secured Party, shall not:

(a)     sell, assign or otherwise dispose of, any or all of the Collateral
(except in the ordinary course of business); or

(b)     create or permit to exist or be created any lien, mortgage, security
interest, or other charge or encumbrance upon or with respect to the
Collateral, other than the Secured Obligations; or

(c)   move the Collateral from any location other than the Grantor's
principal place of business located at the address set forth in Section 6(b)
below.

Remedies Upon an Event of Default.
----------------------------------
In the event that the Grantor shall fail to perform fully any Secured
Obligation on the date such performance is due, or if the Grantor should
breach or be in default of any other provision of the Note, the Purchase
Agreement or this Agreement (any of such occurrences being hereinafter
referred to as an "Event of Default"), to the extent that such Event of
Default is not cured or waived within ten (10) days after the occurrence of
such Event of Default, then the Secured Party shall be entitled to foreclose
upon and take possession of the Collateral, in satisfaction (full or partial

<PAGE>62
as the case may be) of the indebtedness owed by Grantor.  Promptly after
retaking possession of the Collateral upon any such foreclosure, the Secured
Party shall, after deducting therefrom any amounts expended by the Secured
Party in enforcing the Note, the Purchase Agreement or this Agreement and/or
repossessing the Collateral (including, without limitation, the cost of
reasonable attorneys' fees), remit to the Grantor the difference between the
liquidation value of the Collateral on the date of repossession thereof and
the sum of any amounts paid to the Secured Party to purchase the Collateral
in a liquidating sale. The parties hereby agree that any such payment to
Grantor upon such foreclosure may be made in stock of the Grantor or a five
(5)_year promissory note bearing interest at the rate of ten percent (10%)
per annum, or some combination thereof, as determined in the sole discretion
of the Secured Party.

The Secured Party hereby agrees with the Grantor that, in the event it shall
exercise any or all of its remedies upon an event of default set forth in
Clause 3(a) above, it shall look first to satisfy all of the Secured
Obligations out of the assets of the Subsidiary, which it shall exhaust as
fully as reasonably possible prior to looking to the assets of the Grantor
to satisfy any remaining Secured Obligations.


4.     Continuing Security Interest; Termination of Same.
       -------------------------------------------------
(a)     This Agreement shall create a continuing security interest in the
Collateral, and shall (i) remain in full force and effect until all of the
Secured Obligations of Grantor shall have been paid or performed in full;
(ii) be binding upon the Grantor, its successors and permitted assigns; and
(iii) inure to the benefit of the Secured Party and their respective
successors, heirs, executors, administrators, transferees and assigns.

(b)   Upon the payment or performance in full of all Secured Obligations,
and any fees, costs and penalties owing thereon, the security interest
granted hereby shall automatically terminate. Upon any such termination, the
Secured Party shall execute and deliver to the Grantor such documents as the
Grantor shall reasonably request to evidence such termination and to effect
the release of the Collateral.

5.   Amendments and Waivers. No amendment or waiver of any provision of this
Agreement, the Purchase Agreement or the Note, and no consent to any
departure by the Grantor herefrom or therefrom, shall in any event be
effective unless the same shall be in writing and signed by the Secured
Party, and then such waiver or consent shall be effective only in the
specific instance and for the express written purpose for which given.

6.    Notices. In the event that any notice or other communication is to be
sent pursuant to this Agreement, such notice shall be in writing, sent by
telex or by certified mail, return receipt requested, or by delivery in
person, or by overnight courier, addressed as follows, or to such other
address as either party may notify the other of in accordance with the
provisions hereof:
 <PAGE>63
      if to Secured Party, to: c/o Mr. Hannes Faul
                                   466 Bell Street
                                   Los Alamos, CA  93440

      (with a copy) to:     Feldhake, August & Roquemore
                            600 Anton Boulevard, Suite 1730
                            Costa Mesa, CA  92626
                            Attn: Kenneth S. August, Esquire
                             Partner


      if to Grantor, to:     Out-Takes, INC.
                             1419 Peerless Place
                             Suite 116
                             Los Angeles, CA  90035
                     Attn: Mr. Peter C. Watt
                     President

      (with a copy) to:     Photo Corporation Group
                            Pty. Limited
                            P.O. Box 415
                            Chester Hill, N.S.W.
                            Australia 2162
                            Attn: Mr. Michael C. Roubicek
                            Group Commercial Manager

All notices and other communications hereunder shall be deemed given when
telexed or delivered, or upon receipt if mailed, in accordance with this
paragraph.

7.    Further Assurances. Grantor agrees to execute and deliver immediately
upon request, financing statements on Form UCC_1 for recordation with the
California Secretary of State; and (b) such other documents as may be
necessary to perfect the Secured Parties' security interests in the
Collateral.

8.    Entire Agreement. This Agreement, together with the Note, constitutes
the entire agreement between Grantor and Secured Party, with respect to the
subjects contained herein, and supersedes any prior agreements or
understandings, whether written or oral, express or implied.

9.   Governing Law; Venue. This Agreement shall be governed by and construed
in accordance with the laws of the State of California, without reference to
principles of conflicts of law. Any action brought by any party to enforce
any of the terms or provisions of this Agreement or the note, or otherwise
in connection with or relating to this Agreement, shall be brought only in
the courts of the State of California in the county of Los Angeles, and the
parties hereby accept the exclusive jurisdiction of such courts for all
disputes arising under this Agreement, the Purchase Agreement or the Note.


<PAGE>64
10.     Miscellaneous. All other provisions of the Purchase Agreement,
including, without limitation, the specific clauses setting forth the
governing law and venue of this Agreement, the right of further assurances,
severability, specific performance and other injunctive relief, and every
other aspect of the performance, interpretation relationship between the
parties and other miscellaneous provisions, are hereby incorporated herein
by reference from the Purchase Agreement, and are of force and effect as
fully as if the same had been repeated herein in their entirety.

IN WITNESS WHEREOF, Grantor has caused this Agreement to be duly executed
and  delivered as of the date first above written.

THE GRANTOR:

 Out-Takes, INC.               ATTEST:


 By: _____________________           By: _____________________
      Peter C. Watt                         Michael Roubicek
      President                             Secretary



THE SECURED PARTY:

 LOS ALAMOS ENERGY, LLC           WITNESS:


    By:  ____________________________   By: ________________________
          Hannes Faul
          Managing Member



 THE INDIVIDUALS:                WITNESS:


 _____________________              ___________________

 _____________________              ___________________

EXHIBIT 10.33
ASSET LEASE AGREEMENT BETWEEN COMPANY AND COLORVISION,
INC. DATED OCTOBER 26, 1998

                             ASSET LEASE AGREEMENT

This is an Asset Lease Agreement ("Agreement"), effective as of October __,
1998, by and between Colorvision International, Inc., a Florida corporation,
located at 8250 Exchange Drive, Suite 132, Orlando, Florida 32809
(hereinafter referred to as "Lessee") and Out-Takes, Inc., a Delaware
<PAGE>65
corporation located at 1419 Peerless Place, Suite 116, Los Angeles,
California 90035 (hereinafter referred to as "Lessor").

                                  BACKGROUND

Lessor owns and operates the Out Takes photo store (the "Business") located
at  Universal Studios California City Walk (the "Location"). Lessee seeks to
lease from Lessor, and Lessor seeks to lease to Lessee certain of the assets
of the Business for use at the Location as set forth in this Agreement,
subject to the terms and conditions set forth below. Accordingly, in
consideration of the mutual covenants and agree_ments set forth below, the
parties agree as follows:

                                     TERMS

1.    LEASE OF ASSETS. The parties hereby agree that, at Closing (as defined
below), Lessor shall lease the assets of the Business set forth on Schedule
1 to this Agreement (collectively the "Assets") provided, however, that
within thirty (30) days from the date of this Agreement they shall jointly
prepare an item by item list of the Assets being leased hereunder, and the
agreed-upon value thereof, which list will then be attached to this
Agreement as a revised Schedule 1.  Lessor further agrees that the Assets
shall be used only at the Location during the Lease Term, as hereafter
defined. Upon the expiration of the Lease Term, or its earlier termination,
all of the Assets shall be returned to Lessor hereunder in the same
condition as they are being delivered to Lessee at the Closing, normal wear
and tear excepted, and free and clear of any lien, charge, security
interest, claim or other encumbrance. The Assets are being leased to Lessee
on an "as is_where is" basis, and Lessor makes no representation or warranty
to Lessee, express or implied, as to the condition of any Asset or
suitability to the Business or the contemplated use thereof by Lessee.

Throughout the entire Lease Term, Lessee hereby agrees with and covenants to
Lessor that it shall not do any of the following, nor suffer or permit any
of the following to occur to the extent the same shall be within its
discretion or control, without having obtained the prior written consent of
Lessor:

   (a)    sell, lease, sublease, exchange, transfer or otherwise dispose of
any of the Assets;

   (b)    subject any of the Assets to any lien, security interest or
encumbrance;

   (c)    take any action which would materially destroy, injure, alter or
modify any Asset, or the right of Lessor to use any Asset, or which would
render defective or otherwise encumber good and marketable title to any such
Asset, to the extent such title exists in respect of such Asset at the
Closing.


<PAGE>66
2.   ASSIGNMENT OF LEASE. At Closing (as defined below), Lessor shall assign
and transfer to Lessee all of its right, title and interest in and to that
certain Business Lease executed as of November 13, 1992 ("Lease") between
Lessor and MCA Development Company, a division of MCA Inc. ("Landlord")
pursuant to an Assignment of Lease substantially in the form attached to
this Agreement as Exhibit "A" ("Assignment"), which Assignment requires the
written consent of the Landlord.

3.    LEASE PRICE. The rental price for the Assets (the "Lease Price") shall
be a monthly amount equal to seven percent (7%) of the gross revenues (less
applicable sales taxes due on goods sold at the Location) ("Gross Revenues")
derived by Lessee from the Business, or any other business conducted or
engaged in by Lessee at the Location during each month, or portion thereof,
that Lessee shall be in possession of the Assets, for the duration of the
Lease, as currently extended through May 30, 2005 (the "Lease Term"). In the
event Lessee ceases to conduct any business at the Location: (i) for reasons
of bankruptcy or insolvency, (ii) acts of God, emergencies, strikes or other
causes out of Lessee's control; (iii) any loss of the right of Lessor to
lease the Assets to Lessee prior to the conclusion of the Lease Term; or
(iv) any termination of Lease by Landlord if through no fault of the Lessee,
then no further payments shall be due Lessor hereunder from the date Lessee
ceases to operate at the Location until Lessee resumes business at the
Location, if such a resumption of business occurs.  Lessee acknowledges to
Lessor by its execution of this Agreement that it intends in good faith to
operate at the Location profitably in accordance with the Lease, and shall
use its best efforts throughout the Lease term to do so, and Lessor
acknowledges to Lessee that it understands such profitable operation cannot
be guaranteed.

4.    PAYMENT OF LEASE PRICE. Subject to the terms of this Agreement and in
reliance on the representations and warranties of Lessor set forth below,
Lessee shall lease, at Closing, the Assets and, in full consideration
therefor, shall:

   (a)     pay $50,000.00 as a deposit ("Deposit") to Lessor at Closing.
Lessee shall have the option of making the payment by cashier's check or
bank wire.  Lessor shall provide bank wire instructions to Lessee if
requested by Lessee; and

   (b)   pay the entire amount of the Lease Price due and payable to Lessor
(together with the applicable amount of any taxes as may be required in
connection with payments of the Lease Price) on or before the fifteenth day
of the month following each month of the Lease Term; provided, however, that
Lessee may deduct up to $4,166.67 each month from any sum otherwise payable
to Lessee pursuant to this subsection 4(b) until the entire amount of the
Deposit has been repaid to Lessee; further provided that the amount of any
security deposits shown on Schedule 2 to this Agreement which are
transferred to, or credited to the account of, Lessee by the holders of such
deposits shall be deemed repayments of the Deposit to Lessee and shall


<PAGE>67
thereby reduce, by a corresponding amount, any deductions from the Gross
Revenues otherwise payable to Lessor which Lessee may make pursuant to this
Subsection 4(b).

5.    LICENSE TO USE TRADE NAME. In further consideration of the payment of
the Lease Price to Lessor as set forth above, the Lessor hereby grants to
Lessee a license (the "License") to use the trade name "Out-Takes" (the
"Trade Name") only in connection with the Business at the Location and for
so long as Lessee operates the Business at the Location. Lessee shall have
no right to use the Trade Name in connection with any other present or
future operations of Lessee. Lessee recognizes and acknowledges Lessor's
ownership of and prior rights in the Trade Name and shall not take any
action inconsistent with Lessor's ownership of and prior rights in the Trade
Name or which would otherwise destroy or impair Lessor's interest in such
rights.

Notwithstanding any other provisions contained in this Agreement concerning
the  rights of Lessor to indemnification hereunder, and without limiting or
excluding any of such rights, Lessee hereby expressly agrees with Lessor
that in the event Lessor shall be named in any lawsuit or other proceeding
solely by virtue of Lessee's use of the Trade Name hereunder (and not in
connection with any actual liability or specific claim against Lessor in
such lawsuit or proceeding), then Lessee shall provide to the Lessor
directly, and promptly upon its request therefor, the full amount of any
fees or expenses (including, without limitation, reasonable attorneys' fees
and expenses) incurred by Lessor in having itself dismissed from any such
action.

The license to use the Trade Name granted hereunder shall be co_ terminous
with the Lease Term or such shorter period as Lessee shall actually operate
the Business at the Location. Lessor agrees that, for so long as this
Agreement shall be in effect, it shall not take any action, or omit to take
any action which would have the effect of impairing any of Lessor's rights
in the Trade Name, or the value thereof to Lessor. Lessor covenants that it
shall not enter into any agreement, arrangement or undertaking, the effect
of which would be to result in the transfer, assignment, mortgage,
hypothecation, dilution or extinguishment of the Trade Name or any rights of
Lessor therein.

6.    CLOSING. The closing of the transaction contemplated by this Agreement
(the "Closing") shall take place in Los Angeles, California on October ___,
1998, or such other date and/or place as the parties mutually agree in
writing (the "Closing Date").

7.     DELIVERIES BY LESSOR. At Closing, Lessor shall deliver to Lessee:

   (a)     an originally executed copy of this Agreement;

   (b)     the Assignment, duly executed by Lessor;


<PAGE>68

   (c)     a certificate of actions by Board of Directors of Lessor
authorizing the transaction contemplated by this Agreement to be undertaken
by Lessor.

8.   DELIVERIES BY LESSEE. At Closing, Lessee shall deliver to Lessor (1) an
originally executed copy of this Agreement; (2) the Deposit in accordance
with subsection 4(a) hereof; (3) the Assignment, duly executed by Lessee;
and (4) a certificate of action by the Board of Directors of Lessee
authorizing the transactions contemplated by the Agreement to be undertaken
by Lessee.

9.   LIABILITIES OF LESSOR. Except with respect to the Assignment and except
as provided in Schedule 3 to this Agreement, Lessee will not assume any
trade and accounts payable that are, or have become due for payment as of
the Closing date or any other liabilities not incurred by Lessor in the
ordinary course of business through the Closing Date.  Without limiting the
generality of the foregoing, Lessee will not assume intercompany
liabilities, payables or obligations of Lessor, nor will it assume any of
Lessor's liabilities or obligations arising out of employment agreements
between Lessor and any of Lessor's employees or Lessor's liabilities or
obligations relating to the negotiation and/or closing of the transaction
contemplated herein including, but not limited to, any broker commission
payable in connection with the transaction. Lessee shall be solely and
exclusively liable for, and Lessor expressly does not agree to assume any of
the obligations created or liabilities imposed upon Lessee by virtue of its
use of the Assets after the Closing. Lessee further covenants to and agrees
with Lessor that in the use of the Assets as contemplated herein, it shall
not disturb any agreement to which such Assets are subject nor by which they
are bound, nor create, nor suffer or permitted to be created or imposed, any
lien, charge or other liability to, upon or for the account of, Lessor.

10.     INDEMNIFICATION.

   (a)   Except as otherwise contemplated herein, Lessor shall indemnify and
hold Lessee harmless from, against, and in respect of the following:

     (i)   any and all liabilities, obligations, debts, contracts or other
commitments of Lessor of any kind, known or unknown, whether fixed or
contingent, and whether arising in contract, in tort, or otherwise from the
operation of the Business at the Location prior to Closing including, but
not limited to, any liability of Lessor for sales and use taxes;

   (ii)  any damage or deficiency resulting from any misrepresentation in or
omission from any certificate or other instrument furnished or to be
furnished to Lessee by Lessor pursuant to this Agreement;

   (iii)   any and all losses, liabilities, claims, damages and expenses,
including court costs and reasonable attorney's fees, arising out of any
claim for brokerage or other commissions relative to this Agreement or the
transactions contemplated hereby insofar as any such claim arises by reason
of services alleged to have been rendered to or at the instance of Lessor;
<PAGE>69
   (iv)   any material breach by Lessor of this Agreement; and
   (v)   all actions, suits, proceedings, claims, demands, assessments,
judgments, legal fees, costs and expenses incident to any of the foregoing
or arising out of any act or omission of Lessor in the conduct of the
Business before the Closing.    (b)  Lessee shall indemnify and hold Lessor
harmless from, against, and in respect of the following:

   (i)   any and all liabilities, obligations, debts, contracts or other
commitments of Lessee of any kind, known or unknown, whether fixed or
contingent, and whether arising in contract, in tort, or otherwise from the
operation of the Business (or any other business or activity conducted) at
the Location after the Closing including, but not limited to, any liability
of Lessee for sales and use taxes and any use of the Trade Name at any
location by Lessee in breach of Section 5 hereof; and

   (ii)   any material breach by Lessee of this Agreement.

   (iii)  any liability or obligation arising out of the inclusion in the
list of Assets of the license agreements set forth on Schedule 1 hereto,
including without limitation for the failure of Lessor to obtain the consent
of any licensor thereunder prior to leasing such licenses to Lessee, or any
liability or obligation which may be agreed upon between Lessee and any of
such licensors subsequent to the date of the Closing.

  (c)   Each party agrees to give notice to the other party of the assertion
of any claim or demand or the institution of any action, suit, or proceeding
in respect of which indemnification may be claimed hereunder and the party
receiving such notice shall have the right to undertake the defense or
settlement of such action, suit or proceeding ("Litigation") at it's own
expense. If the party receiving such notice does not undertake (or, within
ten (10) days thereafter, express its intention to so undertake) the defense
or settlement of the Litigation, the party giving such notice may control
the defense or settlement of the Litigation, provided, that if at any time
during the pendency of such Litigation it shall be deemed in good faith by
either party, or its respective counsel, that the interests of the
respective parties in respect of such Litigation are or may become adverse,
or otherwise conflict in any material way, then each party shall be entitled
to separate counsel thereafter, and, provided, further, that in no event
shall either party be entitled to make any offer or agreement of settlement
in respect of any such Litigation which is or will or could become binding
upon the other party hereto, without having obtained such other party's
prior written consent to be bound thereby. In the event Lessee is
controlling the defense or settlement of Litigation pursuant to this
Subsection 10(c), and provided that Lessor is not entitled to
indemnification in respect of such Litigation pursuant to Section 10(b)
above, Lessor hereby authorizes Lessee to deduct the costs of such defense
or settlement from any sums due Lessor pursuant to subsection 4(b) hereof.
In the event such costs exceed any sums due Lessor pursuant to subsection
4(b) hereof, Lessor shall remit the amount of such costs directly to Lessee.


<PAGE>70

(d)  Notwithstanding anything else contained in this Section 10, Lessee
shall promptly notify Lessor in the manner set forth in Section 16(d) below
in the event it becomes aware of any threatened or pending litigation
involving or relating to the Business, any other business or activity
conducted at the Location, the Assets (or any part thereof) or the Lease.

11.   REPRESENTATIONS AND WARRANTIES OF LESSOR. Lessor represents and
warrants to Lessee as follows:

  (a)  Organization and Standing. Lessor is a corporation organized under
the
laws of the State of Delaware and its status is active.
   (b)  Power and Authority. Lessor has the requisite corporate authority to
enter into this Agreement and to incur and perform its obligations under
this Agreement. Lessor has all necessary corporate power to own, lease,
hold, and operate all of its properties and assets and to carry on the
Business as it is now being conducted. The execution, delivery and
performance by Lessor of this Agreement has been authorized by all necessary
corporate action. Upon the execution and delivery of this Agreement, this
Agreement shall constitute a valid and binding agreement of Lessor,
enforceable against Lessor in accordance with its terms, subject only to
applicable bankruptcy, moratorium and similar laws.    (c)   Title to
Assets. Except for any licenses listed on Schedule 7 hereto with respect to
which Lessor makes no representation or warranty as to title, quality or
validity thereof, Lessor has good and marketable title to all of the Assets,
free and clear from all liens, encumbrances, security interests or claims of
any kind or nature, other than liens incurred in the ordinary course of the
Business for trade or in connection with the purchase of assets, or for
services rendered to Lessor by materialmen or other similar persons, or for
taxes not yet due and payable, or which otherwise do not have a material
adverse impact upon the financial condition of the Business. With respect to
any security interests by a third party in the Assets, Lessor shall deliver
to Lessee at closing (or as soon thereafter as Lessor may become aware
thereof) a copy of a duly filed UCC Form 3 terminating the security interest
of any third party in the Assets.

  (d)  Approvals and Consents. The execution, delivery and performance of
this Agreement (and the transactions contemplated by this Agreement) do not
and will not: (i) contravene any provision of the articles of incorporation
or bylaws of Lessor; (ii) result in a material breach of, constitute a
material default under, result in the modification or cancellation of, or
give rise to any right of termination, modification or acceleration in
respect of any indenture, loan agreement, mortgage, lease or any other
contract, or agreement to which Lessor or any of the Assets are bound (other
than in respect of the Lease); (iii) other than as may apply to Lessee,
result in the creation of any security interest, pledge, lien, charge,
claim, option, right to acquire, encumbrance, restriction on transfer, or
adverse claim of any nature whatsoever upon any of the Assets; (iv) violate
any writ, order, injunction or decree of any court or any federal, state,
municipal or other domestic or foreign governmental department, commission,

<PAGE>71
board, bureau, agency or instrumentality, which violation or default in any
such case would have a material adverse effect on the Business; (v) require
approval of the shareholders of Lessor; or (vi) require any authorization,
consent or approval of, or filing with or notice to, any governmental or
judicial body or agency, or any other entity or person, including, without
limitation, any filing with the Securities and Exchange Commission ("SEC")
other than any obligation Lessor may have to file a Form 8_ K as
contemplated by Section 15 of this Agreement.

  (d)  Litigation. There are no actions or suits at law or in equity now
pending or, to the actual knowledge of Lessor, threatened which could have a
material adverse effect on the Business or any of the Assets, or the ability
of Lessor to consummate the transactions contemplated by this Agreement.
(e)   Collective Bargaining Agreements.

There are no collective _______________ bargaining agreements to which
Lessor is a party or by which Lessor is bound, and there is no pending or
threatened labor dispute, labor union organizing attempt, strike, or work
stoppage affecting either Lessor or the Business.

  (f)  Benefit Plans. There are no benefit plans applicable to any of the
employees of the Business that are currently in effect or which, with
respect to the Business, Lessor has committed to implement prior to the
Closing, except as shown on Schedule 4 to this Agreement.

  (g)   Contracts. Schedule 5 to this Agreement lists all material contracts
(including contracts with consultants), leases (where Lessor is lessor or
lessee) except the Lease, licenses, agreements, and undertakings of Lessor
to which it is or at the Closing Date will be a party and bound, or to which
any of its properties or Assets are or will be subject, and, if written,
Lessor shall have supplied Lessee with copies of such documents. Except as
shown on Schedule 6 to this Agreement, each such contract, undertaking or
other commitment listed in Schedule 5 is, and upon the Closing will be
(except as completed or expired by its terms), valid and enforce-able in
accordance with its terms, and no party is in default under any material
provision thereof.

  (h)   Trade Name. Lessor has adopted and uses the Trade Name in connection
with the Business. Lessor has not been notified that Lessor's use of the
trade name or logo infringes the rights of a third party. No proceedings
have been or will at the Closing Date have been instituted or threatened
which assert infringement of rights of any third party against Lessor
pursuant to its use of the Trade Name.

  (i)   Compliance with Laws. As of the date of this Agreement, to the
actual knowledge of Lessor, (i) there is no violation of any applicable
laws, regulations or orders relating to the conduct of the Business, and
(ii) there is no use of the Assets by Lessor in the Business which violates
any applicable laws, codes, ordinances and regulations, whether federal,
state or local, which, in either case, would have a material adverse effect
on the Business.
<PAGE>72
  (j)   Conditions Affecting the Business. Other than as applicable to Gerry
Wersh, who is deemed to be essential to the technical aspects of the
Business as currently being conducted, Lessor is not aware of any
extraordinary or unusual conditions in existence on the date hereof with
respect to the markets, services, facili_ties, personnel, or supplies of
Lessor that is not public information or known generally in Lessor's
industry or which has not been disclosed in writing to Lessee and which
Lessor believes will result in a material and adverse effect on the Business
not experienced by others in similar businesses.

  (k)  No Misrepresentations. None of the representations and warranties of
Lessor set forth in this Agreement or in the attached exhibits and schedules
nor any information or statements contained in the lists or documents
provided or to be provided by Lessor to Lessee, notwithstanding any
investigation thereof by Lessee, contains or will contain any untrue
statement of a material fact, or omits or will omit the statement of any
material fact necessary to render the same not misleading.

  (l)  Conveyance Not Fraudulent. Lessor is not making the transactions
contemplated by this Agreement with the intent to hinder, delay, or defraud
either its present or future creditors.

  (m)  Discontinuance of Business. Upon consummation of the transactions
contemplated hereby, Lessor will discontinue its operation of the Business,
but not of any other business owned or operated by Lessor.

12.   REPRESENTATIONS AND WARRANTIES OF LESSEE. Lessee represents and
warrants to Lessor as follows:

  (a)  Organization and Standing. Lessee is a corporation organized and
existing under the laws of the State of Florida and its status is active.
  (b)  Power and Authority. Lessee has the requisite corporate authority to
enter into this Agreement and to incur and perform its obligations under
this Agreement. Lessee has all necessary corporate power to own, lease,
hold, and 2operate the Assets and carry on the Business as it is now being
conducted. The execution, delivery, and performance by Lessee of this
Agreement has been authorized by all necessary corporate action. Upon the
execution and delivery of this Agreement, this Agreement shall constitute a
valid and binding agreement of Lessee, enforceable against Lessee in
accordance with its terms, subject only to applicable bankruptcy,
moratorium, and similar laws.

  (c)  Approvals and Consents. The execution, delivery and performance of
this Agreement (and the transactions contemplated by this Agreement) do not
and will not: (i) contravene any provision of the articles of incorporation
or bylaws of Lessee; (ii) result in a breach of, constitute a default under,
result in the modification or cancellation of, or give rise to any right of
termination, modification, or acceleration in respect of any indenture, loan
agreement, mortgage, lease or any other contract, or agreement to which


<PAGE>73
Lessee is bound; (iii) require any authorization, consent or approval of, or
filing with or notice to, any governmental or judicial body or agency, or
any other entity or person.

  (d)  No Misrepresentations. None of the representations and warranties of
Lessee set forth in this Agreement or in the attached exhibits and
schedules, nor any information or statements included in the lists or
documents to be provided by Lessee to Lessor, notwithstanding any
investigation thereof by Lessor, contains or will contain any untrue
statement of a material fact, or omits or will omit the statement of any
material fact necessary to render the same not misleading.
 (e)  Brokers' Fees. Lessee has no liability or obligation to pay any fees
or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement.

13. SURVIVAL OF PROVISIONS. All representations, warranties, agreements,
covenants, assignments and licenses made or granted herein by Lessor or
Lessee in connection with the transactions contemplated by or set forth in
this Agreement or contained in any certificate, schedule, exhibit, or other
document delivered pursuant to this Agreement shall survive the Closing.

14.   DISCLOSURE AND NON-INTERFERENCE. The parties agree not to make any
independent press releases or to disclose the terms of this Agreement except
to their attorneys and other necessary parties. The parties further agree to
prepare and issue a mutually agreeable press release upon Closing of this
transaction, provided that Lessee understands that Lessor may be obligated
to file with the SEC on Form  8-K within five days following the Closing.
Further, the parties agree not to interfere in each other's businesses, nor
to make any statements which would adversely impact the other's business
interests.

15.   RELATIONSHIP CREATED; INDEPENDENT CONTRACTOR. No provision of this
Agreement is intended to make Lessee an employee or agent of Lessor for any
purpose whatsoever, nor shall the execution of this Agreement be deemed to
create any partnership, joint venture or other form of business association
between the parties other than that of independent contractors. Lessor
acknowledges that it shall not have the right to require Lessee to make any
specific amount or number of sales, to attend sales meetings, to conform to
any fixed or minimum number of hours devoted to selling effort, to follow
prescribed itineraries, or do anything else which would jeopardize the
relationship being created between the parties. Notwithstanding the
foregoing, Lessor shall have the right to request Lessee to, and Lessee
shall, provide Lessor with such reports or information regarding the Assets
as Lessor may reasonably request from time to time during the Lease Term.

16.   GENERAL PROVISIONS.

  (a)   Further Assurances. The parties agree that, from time to time
hereafter and upon request, each of them will execute, acknowledge and
deliver such other instruments as may be reasonably required to carry out
the terms and conditions of this Agreement.
<PAGE>74
  (b)  Benefit and Assignment. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors
and assigns. The rights of Lessee hereunder may not be assigned without the
prior written consent of Lessor which shall not unreasonably be withheld.
The rights of Lessor hereunder may be assigned, provided that any such
assignment shall in no way relieve Lessor of its obligations and
responsibilities to Lessee under this Agreement.

  (c)   Governing Law; Venue. This Agreement shall be governed by and
construed in accordance with the laws of the State of California, excluding
those laws of California relating to conflicts of laws of different
jurisdictions. The parties hereby expressly submit to the jurisdiction of
any court of competent jurisdiction sitting in and for the County of Los
Angeles, State of California.

(d)   Notices. All notices, requests, demands and other communications
hereunder shall be in writing, and shall be deemed to have been duly given
if delivered by overnight delivery service or hand delivered, addressed as
follows:

   If to Lessor:

        Out-Takes, Inc.
        1419 Peerless Place, Suite 116
        Los Angeles, California  90035

     With a copy (which shall not constitute notice) to:

        Feldhake, August & Roquemore
        600 Anton Boulevard, Suite 1730
        Costa Mesa, California 92626
        Attention:  Kenneth S. August, Esquire

     If to Lessee:

        Colorvision International, Inc.
        8250 Exchange Drive, Suite 132
        Orlando, Florida 32809

     With a copy (which shall not constitute notice) to:

        Holland & Knight LLP
        Post Office Box 1526
        Orlando, Florida  32802
        Attention:  John R. Dierking, Esquire

   (e)    Expenses. Any expenses in connection with this Agreement or the
transactions contemplated herein shall be paid for by the party incurring
such expenses following the Closing. Lessee shall not assume any obligations
of Lessor, nor Lessor assume any obligations of Lessee, in connection with
any such expenses.
<PAGE>76
  (f)  Sales and Other Taxes. Any sales and other applicable taxes with
respect to the lease of the Assets hereunder shall be borne by Lessee, and
shall be paid by Lessee as and when such taxes become due consistent with
the lease of the Assets set forth on Schedule 1 attached hereto.

  (g)   Headings. All paragraph headings herein are inserted for convenience
only and shall not modify or affect the construction or interpretation of
any provision of this Agreement.

  (h)  Counterparts; Faxes. This Agreement may be signed in one or more
counterparts, each of which shall be considered an original copy but all of
which together shall be deemed to be but one and the same instrument.
Wherever in this Agreement an original signature shall be required, a
facsimile of an original signature shall be deemed an original signature for
all purposes.

  (i)   Schedules and Exhibits. The schedules and exhibits attached to this
Agreement are hereby incorporated herein as an integral part hereof as fully
as if they had been written into the body of this Agreement in their
entirety.

  (j)   Amendment, Modification and Waiver. This Agreement may be modified,
amended and supplemented only by the mutual written agreement of both of the
parties hereto. Each party may waive in writing any condition intended to be
for its benefit.

  (k)  Validity. The invalidity or unenforceability of any provision or
provisions of this Agreement shall not affect the validity or enforceability
of any other provision of this Agreement which shall remain in full force
and effect, nor shall the invalidity or unenforceability of a portion of any
provision of this Agreement affect the validity or enforceability of the
balance of such provision.

  (l)  Entire Agreement. This Agreement and the Schedules and Exhibits
delivered herewith represent the entire Agreement of the parties and
supersede all prior negotiations and discussions by and among the parties
hereto with respect to the subject matter hereof. No provision or document
of any kind shall be included in or form a part of this Agreement unless in
writing and delivered to the other party by the party to be charged. This
agreement supersedes and replaces the Letter which shall terminate upon the
execution of this Agreement by the parties.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date and year set forth above.







<PAGE>77
LESSOR:

Out-Takes, INC.                        ATTEST:

By:                      By:
__________________________
   James C. Harvey                      James C. Harvey
   President                             Secretary

LESSEE:

COLORVISION INTERNATIONAL, INC.          ATTEST:



By:     _____________________________          By:
__________________________
             President                                Secretary

EXHIBIT "A"

     ASSIGNMENT, ASSUMPTION OF LEASE AND LANDLORD CONSENT AGREEMENT

THIS AGREEMENT is made and entered into as of this ___ day of October, 1998
by and between Out-Takes, Inc. ("Assignor"), Colorvision International, Inc.
("Assignee") and Universal CityWalk Hollywood, a Unit of Universal Studios,
Inc., as successor in interest to MCA Development, a division of MCA Inc.
("Landlord").
               R E C I T A L S

A. Landlord and Assignor, as Tenant, entered into that certain written Lease
dated as of November 12, 1992 (" 1992 Lease") pursuant to which Landlord
leased
to Assignor certain premises located in Universal City, California as
described
in such 1992 Lease (the "Premises"), which was subsequently amended by that
certain First Amendment to Lease dated March, 1993. The 1992 Lease and the
First
Amendment to Lease are collectively referred to herein as the "Lease".

  B. Simultaneously as of November 13, 1992 Guarantor executed and delivered
a
Guarantee of Lease (the "Guarantee") with respect to Assignor's obligations
under the 1992 Lease, which Guarantee remains in full force and effect.

  C. Effective as of the date first written above, Assignor wishes to assign
and Assignee wishes to accept such assignment and assume all of Assignor's
rights and obligations under the Lease.



<PAGE>78
  NOW, THEREFORE, in consideration of the above and other good and valuable
consideration, the receipt of which is hereby acknowledged, the parties
hereto agree as follows:

1. Assignor hereby assigns, conveys and transfers all of its right, title
and interest in the Lease, a copy of which is attached and incorporated
herein by  reference.

  2. Assignee hereby assumes, agrees to be bound by and undertakes to
perform each and every one of the terms, covenants and conditions contained
in the Lease. The Assignee further assumes all obligations and liabilities
of the Assignor under the Lease in all respects as if Assignee were the
original party to the Lease.

3.  Assignee shall be liable for all amounts due under the Lease on or after
the date hereof. In the event of a default under the Lease, Lessor shall
have the right to proceed directly and immediately against the Assignee
without first proceeding against the property and such proceeding is not
deemed to be an irrevocable election of remedies.

4.   Subject to the terms and conditions herein, Lessor consents to the
assignment of the Lease from Assignor to Assignee. Assignor acknowledges
that this consent by Lessor is given without releasing Assignor from its
obligations under the Lease. This consent by Lessor shall not be deemed to
be or construed as a consent to any subsequent assignment of the Lease.

5. Assignee and Lessor agree that Assignee shall replace Robert Shelton as
Guarantor under said Lease, and shall assume all obligations of Guarantor
consistent with the terms of the Lease.

 6.  Assignee shall deposit with Lessor a Security Deposit of two months
Minimum Rent (as defined in the Lease) in the amount of Twenty Thousand
Seven Hundred Forty Five Dollars and Seventy Cents ($20,745.70). Landlord
hereby agrees that, notwithstanding the foregoing, Assignor shall transfer
its Security Deposit currently held by Landlord in the amount of Eighteen
Thousand Seven Hundred Twenty Two Thousand Dollars Sixty Six Cents
($18,722.66), less any amounts owed to Landlord prior to the Effective Date,
to Assignee's Security Deposit account, and Assignee shall remit to Landlord
on or before the Effective Date any balance remaining in order to satisfy
the Security Deposit requirement of Assignee.

7.  Assignor represents, warrants and agrees that all furniture, fixtures
and equipment which are the property of Assignor (including but not limited
to property which Assignor leases to Assignee as part of the assignment
transaction) and used in the Premises will be owned by Assignor, free and
clear of any lien or encumbrance, and further that in the event of a default
by Assignee which results in the loss of the right of Assignee to occupy the
Premises and the re_entry by Assignor, all of Assignor's furniture, fixtures
and equipment located in the Premises will be left in the Premises for
Assignor's use without compensation until the obligations of Assignor to
Landlord under the Lease have been satisfied.
<PAGE>79
8.  Except as modified hereby, all terms and conditions of the Lease shall
remain in full force and effect.

  9. All of the terms and provisions of this Agreement shall be binding and
shall insure to the benefit of the parties, their respective successors and
assigns.

  IN WITNESS WHEREOF, the parties have caused this instrument to be executed
as of the date first written above.

ASSIGNOR:    Out-Takes, INC.


By  ________________________________
Name: ______________________________
Title: _______________________________





ASSIGNEE:  Colorvision International, Inc.


By:  ________________________________
Name: ______________________________
Title: _______________________________



LANDLORD: Universal CityWalk Hollywood,
a Unit of Universal Studios, Inc.



By:___________________________________
   Larry Kurzweil
   Senior Vice President & General Manager












<PAGE>80

   SCHEDULE 1

   ASSETS OF BUSINESS


1.    All items remaining in the Out Takes store at Universal City Walk as
of
October ___ , 1998, excluding the Sticker Machine belonging to paradise
Creations.

2.     All items remaining in the Panorama City storage facility including
equipment previously used by Lessor in operating its Irvine, California
location.

3.     The licenses listed on Schedule 7 hereof.

   [The parties shall prepare a definitive list of the above_referenced
Assets
being leased hereunder within thirty (30) days from the date of this
Agreement
in accordance with the provisions of Section 1 hereof.]

    SCHEDULE 2

   SECURITY DEPOSITS


     City Walk premises deposit        $18,722.66     Board
of Equalization deposit                $ 1,000.00
     City Walk electricity deposit     $   700.00
   SCHEDULE 3

   LIABILITIES OF LESSOR TO BE ASSUMED BY LESSEE

Lessee assumes all liabilities in connection with royalties on the below
named contracts, as of October ___, 1998. Lessee will assume financial
responsibility and liability for any and all existing or future guarantees
or
other commitments in respect of the below named contracts:

 1.     MTV Networks
 2.     King Features
 3.     Stan Gorman
 4.     Young Kwon
 5.     Simon Kornblit
 6.     Gerry Wersh/Watkins
 7.     20th Century Fox
 8.     Curtis Archives
 9.     CMC


<PAGE>81
10.     Universal Studios
11.     Tony Stone Images
12.     Paramount
13.     JP Morgan
14.     Queen B
15.     Saban
16.     Baywatch
17.     Warner Brothers

   SCHEDULE 4

   BENEFIT PLANS OF LESSOR

1.   Group health insurance plan in effect as of September 30, 1998

   SCHEDULE 5

   SCHEDULE OF CONTRACTS

1.     License Agreements listed on Schedule 3

   SCHEDULE 6

   CONTRACT DEFAULTS

License agreements with:

1.     JP Morgan
2.     20th Century Fox
3.     Curtis Archives
4.     CMC
4.     Universal Studios
6.     Warner Brothers



   SCHEDULE 7

   LICENSE AGREEMENTS

 1.     MTV Networks
 2.     King Features
 3.     Stan Gorman
 4.     Young Kwon
 5.     Simon Kornblit
 6.     Gerry Wersh/Watkins
 7.     20th Century Fox
 8.     Curtis Archives
 9.     CMC
10.     Universal Studios

<PAGE>82

11.     Tony Stone Images
12.     Paramount
13.     JP Morgan
14.     Queen B
15.     Saban
16.     Baywatch
17.     Warner Brothers


                              OUT TAKES, INC.


                             WRITTEN CONSENT
                                 of the
                              SOLE DIRECTOR


                             October 26, 1998

This Written Consent of the Sole Director of Out Takes, Inc., a Delaware
Corporation (the "Corporation") is made as of the date set forth above in
accordance with the Bylaws of the Corporation. The Sole Director hereby
consents, pursuant to the provisions of Section 141(f) of the Delaware
Corporations Code, to the adoption of the following Resolutions, effective
as of 5:00 p.m. on October 26, 1998, which are to be filed with the Minutes
of the Board of Directors:

WHEREAS, it is in the best interests of the Corporation to lease to others
certain of its assets; and

WHEREAS, it is in the best interests of the Corporation to divest itself of
certain of its liabilities:

RESOLVED, that the Corporation enter into an Asset Lease Agreement with
Colorvision International, Inc.

FURTHER RESOLVED, that all of the actions taken by the executive officers of
the Corporation since the last meeting of the Board of Directors are hereby
specifically authorized, ratified and approved by the Sole Director.

APPROVED:



____________________
James C. Harvey
Sole Director

<PAGE>83