FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.20549
(Mark One)
{X} QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1995
OR
{ } TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _____________________________ to
______________________________
Commission file number 0-11927
Moto Photo Inc.
(Exact name of registrant as specified in its charter)
Delaware 31-1080650
(State or other jurisdiction of (IRS Employer Identification Number)
Incorporation or organization)
4444 Lake Center Dr. Dayton, OH 45426
(Address of principal executive offices with Zip Code)
(513) 854-6686
(Registrant's telephone number, including area code)
No Change
(Former name, former address, and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
APPLICABLE ONLY TO ISSUERS IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS.
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes_____ No_____
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes of
common stock:
As of May 8, 1995: 7,782,640 - Voting Common, 0 - Non - Voting Common
<TABLE>
Moto Photo, Inc. and Subsidiaries
Consolidated Balance Sheets
(Unaudited)
March 31, December 31,
1995 1994
<CAPTION>
<S> <C> <C>
ASSETS
Current Assets
Cash $ 343,993 $ 2,269,722
Accounts receivable, less allowances of
$583,000 in 1995 and 1994 4,896,373 4,597,575
Notes receivable, less allowances of
$60,000 in 1995 and 1994 197,785 189,540
Inventory 1,655,692 1,985,002
Deferred tax assets 663,000 663,000
Prepaid expenses 279,070 295,773
TOTAL CURRENT ASSETS 8,035,913 10,000,612
PROPERTY AND EQUIPMENT 3,151,248 3,268,659
OTHER ASSETS
Notes receivable, less allowances of
$509,000 in 1995 and 1994 1,061,695 1,061,695
Cost of franchises and contracts acquired 337,249 351,814
Goodwill 10,410,655 10,491,925
Deferred tax assets 419,000 419,000
Other assets 1,001,705 974,821
TOTAL ASSETS $ 24,417,465 $ 26,568,526
</TABLE>
<TABLE>
Moto Photo, Inc. and Subsidiaries
Consolidated Balance Sheets
(Unaudited)
(Continued)
March 31, December 31,
1995 1994
<CAPTION>
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Line of credit $ 500,000 $ -0-
Accounts payable 7,243,376 7,718,736
Accrued payroll and benefits 692,822 800,934
Accrued expenses 292,306 639,304
Current portion of long-term obligations 894,538 788,681
Other 374,822 304,878
TOTAL CURRENT LIABILITIES 9,997,864 10,252,533
LONG-TERM OBLIGATIONS
Long-term debt 6,517,329 6,629,834
Capitalized leases 600,816 659,008
DEFERRED REVENUE 117,556 117,556
STOCKHOLDERS' EQUITY
Preferred Stock $.01 par value, 2,000,000
shares authorized:
$1.20 cumulative non-voting convertible
shares, 417,500 shares issued and
outstanding with preferences aggregating
$3,548,750 -0- 4,175
Series E cumulative non-voting preferred
shares, 370,000 shares issued and
outstanding with preferences aggregating
$3,700,000 -0- 3,700
Series F cumulative non-voting preferred
shares, 630,000 shares issued and
outstanding with preferences aggregating
$6,300,000 -0- 6,300
Series G Cumulative non-voting preferred
shares 1,000,000 shares issued and
outstanding with preferences aggregating
$10,000,000 10,000 -0-
Voting Common Stock $.01 par value;
30,000,000 shares authorized; issued and
outstanding -- 7,782,640 in 1995 and
5,695,140 in 1994 77,826 56,951
Paid-in capital 7,110,010 8,050,613
Retained earnings subsequent to June 30,
1991 after elimination of a deficit of
($12,823,266) (13,936) 787,856
TOTAL STOCKHOLDERS' EQUITY 7,183,900 8,909,595
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 24,417,465 $ 26,568,526
</TABLE>
<TABLE>
Moto Photo, Inc. and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
Three Three
Months Months
Ended Ended
March 31, March 31,
1995 1994
<CAPTION>
<S> <C> <C>
REVENUES
Company store sales $ 4,112,203 $ 4,081,234
Merchandise sales 2,941,702 2,601,556
Royalties 891,263 771,553
Franchise fees 312,213 99,509
Investment income 18,951 37,311
Other income 69,120 67,901
8,345,452 7,659,064
EXPENSES
Company store cost of sales and operating expenses 3,877,421 3,600,233
Merchandise cost of sales and operating expenses 2,436,677 2,245,847
Selling, general, and administrative costs 1,902,074 1,592,653
Advertising 401,559 362,012
Depreciation and amortization 363,872 337,065
Interest expense 77,817 49,210
9,059,420 8,187,020
INCOME (LOSS) BEFORE INCOME TAXES (713,968) (527,956)
Income tax benefit (expense) 321,000 218,000
NET INCOME (LOSS) (392,968) (309,956)
Preferred Stock Dividend Requirements (87,824) (276,944)
Adjustment to Income Applicable to Common Stock(Note3) 673,219 -0-
NET INCOME (LOSS) APPLICABLE TO COMMON STOCK $ 192,427 $ (586,900)
NET INCOME (LOSS) PER COMMON SHARE $ .03 $ (0.10)
AVERAGE SHARES OUTSTANDING 7,388,334 5,636,377
</TABLE>
<TABLE>
Moto Photo Inc. And Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
Three Three
Months Months
Ended Ended
March 31, March 31,
1995 1994
<CAPTION>
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ (392,968) $ (309,956)
Adjustments to reconcile net (loss) to net cash
provided by operating activities:
Provision for Income Tax (321,000) (218,000)
Depreciation and amortization 363,872 337,065
Provision for losses on inventory and receivables 62,088 72,088
Provision for gain on disposition of assets (3,000) -0-
Increase (decrease) resulting from changes in:
Accounts receivable (381,549) 442,059
Inventory and prepaid expenses 277,692 (82,108)
Other assets (34,429) 13,417
Accounts payable and accrued expenses (930,470) (1,558,443)
Deferred revenues and other liabilities 69,944 (90,875)
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES (1,289,820) (1,394,753)
INVESTING ACTIVITIES
Purchase of equipment and leaseholds (143,081) (133,409)
Proceeds from sale of assets 3,000 -0-
Payments received on notes receivable 22,675 44,072
NET CASH PROVIDED BY (USED IN) INVESTING
ACTIVITIES (117,406) (89,337)
FINANCING ACTIVITIES
Proceeds from revolving line of credit and borrowings 700,000 1,300,000
Principal payments on revolving line of credit,
long-term debt and capital lease obligations (264,840) (567,229)
Proceeds from stock option exercise -0- 53,375
Payments of preferred dividends (100,000) -0-
Payments related to redemption of preferred stock (853,663) -0-
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES (518,503) 786,146
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,925,729) (697,944)
CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD 2,269,722 1,321,779
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 343,993 $ 623,835
</TABLE>
MOTO PHOTO, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1995
"UNAUDITED"
1.In the opinion of management, the accompanying financial statements contain
all adjustments necessary to present fairly the financial position and results
of operations for the periods covered in this report. These statements should
be read in conjunction with the Notes to the Consolidated Financial Statements
for the year ended December 31, 1994.
The internal accounting for the Company is on a fiscal calendar quarter basis.
The fiscal quarter dates may vary from the calendar quarter dates, (i.e.,
April 1 vs. March 31 for the first quarter 1995), except for the fourth
quarter which ends on December 31. The differences in interim periods are
immaterial.
2.The first three months of the year are seasonally slower and do not
represent 25% of the year.
3.In January 1995, the Company redeemed the $1.20 Cumulative Convertible
Preferred shares in exchange for $2 and five Common shares per share of
Preferred. This redemption resulted in the issuance of 2,087,500 shares of
Common stock and a one time positive adjustment to Income Applicable to Common
Stock of $673,219. The one time positive adjustment reflects the difference
between the market value of the Common stock and cash issued versus the
aggregate liquidation value and dividend arrearage of the $1.20 Preferred
shares.
4.In January 1995, the Company redeemed the Series E and Series F Cumulative
Preferred shares in exchange for Series G Cumulative Preferred shares.
5.During the first quarter 1995, $100,000 of dividends were paid on the
Series G Preferred shares. Of this amount $12,176 was for previously reported
and accreted dividends.
MANAGEMENT DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS 1995 VS 1994
The Company reported a net loss of $392,968, and earnings per common share of
$.03 for the first quarter 1995, compared to a net loss of $309,956, and a loss
per common share of $.10 for the first quarter 1994. Per share calculations are
made after provision for dividends on the Series G Preferred share for 1995, and
on the $1.20 Cumulative Convertible Preferred shares, the Series E and Series F
Preferred shares for 1994.
Sales from Company stores were up 1% for the first quarter 1995 compared to the
same period a year ago due to sales from five new Company stores exceeding the
sales lost from two closed stores which operated as Company stores in the first
quarter 1994.
Merchandise sales increased $340,000, or 13%, for the first quarter 1995
compared to the first quarter 1994, primarily as a result of an increased number
of franchise stores in operation to 365 as of March 31, 1995 compared to 337 at
March 31, 1994.
Royalty revenues increased $120,000, or 16%, for the first quarter 1995 compared
to the first quarter 1994, as a result of increased franchise stores in addition
to increases in franchise store sales which are up approximately 9% on a
comparable store basis.
Franchise fees increased $212,000, or 200%, for the first quarter 1995 compared
to the first quarter 1994, as a result of increased franchise store openings
from three in the first quarter 1994 to six in the first quarter 1995.
Company store cost of sales and operating expenses rose $277,000, or 8%, for the
first quarter 1995 compared to the first quarter 1994. This increase was
primarily due to increased paper costs in addition to increasing labor and fixed
costs from additional stores.
Merchandise cost of sales and operating expenses increased $191,000, or 8%, for
the first quarter 1995 compared to the first quarter 1994 following increased
merchandise sales offset by a favorable resolution of a $100,000 purchase
allowance.
Selling, general, and administrative costs rose $309,000, or 19%, for the first
quarter 1995 compared to the first quarter 1994. This increase was primarily
due to increased development costs incurred to increase sales and openings of
new franchise stores. The Company expects a significant increase in new
franchise store openings for the remainder of 1995. As new franchise stores
open, the Company will recognize additional Franchise Fees, Royalties, and
Merchandise Sales.
Interest expense is up $29,000 compared to the same period a year ago primarily
due to increased interest rates.
MANAGEMENT DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
The seasonal nature of the business results in less cash being generated from
operations in the first quarter as compared to other quarters.
Extended terms from major suppliers and reduced inventory levels, offset by
increased receivables from a greater number of franchisees, primarily accounted
for the reduction to cash used in operating activities.
Cash used in financing activities increased $1,300,000 as a result of payments
related to the redemption of the Preferred stock, payment of Preferred dividends
and lower net borrowings from the revolving line of credit.
The Company renewed and increased the revolving line of credit in April 1995.
The renewed line provides for $1,500,000 in available borrowings through April
30, 1996.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
On February 24, 1995, an amended counterclaim was filed by the defendant in
Moto Photo, Inc. v. James Monsour, United States District Court for the Eastern
Division of Missouri, Case No. 94CV1549 CAS. This lawsuit was reported in the
Company's Form 10-Q dated November 10, 1994 and in its Form !0-K dated March 29,
1995. The Company originally filed this lawsuit against defendant, an
individual who purportedly purchased a One Hour MotoPhoto store and franchise
from a corporation which, at the time of the purported sale, was also an Area
Developer for the Company. The Company alleges that the defendant is using the
Company's trademarks and service marks without license and alleges violation of
the Federal Trademark Act, and violation of the Missouri Revised Statutes for
injury to the Company's business reputation and dilution of the Company's
trademark rights. The Company seeks an injunction against continued use of the
marks, damages (trebled) equivalent to 6.5% of the defendant's gross sales
during the period he has been using the marks, costs of suit, and attorneys'
fees. The Company's motion for a preliminary injunction was denied but the
defendant has ceased using the Company's marks. The amended counterclaim added
the Area Developer and its principals as defendants and alleges against the
Company, primarily on the basis of the alleged acts of the Area Developer,
negligent misrepresentation, fraudulent misrepresentation and fraud, negligence,
breach of the federal franchise laws, tortuous interference with contract, and
breach of the Missouri Franchise Act. The defendant seeks actual damages of
$232,886.55, punitive damages of at least $500,000, costs of suit, and
attorneys' fees. The Company denies all of the allegations and will defend
against the counterclaim vigorously.
On May 2, 1995, plaintiff Taylor Photo filed a lawsuit against the
Company, captioned TSL Imaging, Inc. dba Taylor Photo v. Ameritech Publishing
and Moto Photo, Court of Common Please, Lucas County, Ohio, Case No. 95-1181.
The plaintiff had previously dismissed voluntarily a similar lawsuit filed in
1994. In 1987, the Company bought several stores (along with various assets
including the telephone numbers for the stores) from the plaintiff. In 1992,
the plaintiff began doing business again under the name Taylor Photo. The
telephone directory company, Ameritech Publishing, erroneously inserted a Yellow
Pages listing under the name Taylor Photo--One Hour Photo which lists the
address and phone number of one of the Company's stores. The plaintiff alleges
negligence, breach of contract, and deceptive trade practices against Ameritech.
The plaintiff alleges against the Company deceptive trade practices, conversion
in connection with the telephone directory ad, and deceptive trade practices and
intentional interference with the plaintiff's business in connection with
certain alleged couponing and advertising activities by the Company near the
Taylor Photo store. The plaintiff seeks injunctive relief, compensatory damages
in the amount of $250,000 on each of four causes of action, and punitive damages
in the amount of $350,000 on each of two causes of action. The Company denies
all of the allegations and will defend against the lawsuit vigorously.
Item 4. Submission of Matters to a Vote of Security Holders.
a) On January 17, 1995, the Company held a special meeting of
shareholders.
b) At the meeting, the holders of $1.20 Cumulative Convertible Preferred
Stock ("$1.20 Preferred Stock") and of Voting Common Stock voted on the
Company's proposal to redeem the outstanding shares of $1.20 Preferred Stock for
five shares of Voting Common Stock and a $2 cash payment per share of $1.20
Preferred Stock. The vote on the proposal was as follows:
Shares Shares
Voting Voting Shares
For Against Abstaining
$1.20 Preferred Stock 313,883 5,884 1,725
Common Stock 3,907,402 23,600 11,727
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits: See Exhibit Index immediately preceding exhibits.
(b) Reports on Form 8-K. The Company filed no reports on Form 8-K during
the quarter ended March 31, 1995.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
MOTO PHOTO, INC.
/s/ David A. Mason
David A. Mason
Executive Vice President,
Treasurer, and Chief
Financial Officer
Date: May 15, 1995
Copies of the following documents are filed as exhibits to this report:
No. Description
10 Amendment to Amended and Restated Secured Credit
Agreement, dated April 25th, 1995, by and between
Moto Photo, Inc. and Bank One, Dayton, N.A.
11 Statement - Computation of Per Share Earnings
27 Financial Data Schedule
AMENDMENT TO AMENDED AND RESTATED SECURED REVOLVING CREDIT AGREEMENT
This Amendment to Amended and Restated Secured Credit Agreement (`Amendment'')
is made this 25th day of April, 1995, by and between Moto Photo, Inc., a
Delaware corporation (`Borrower''), and Bank One, Dayton, NA (``Bank One'').
WITNESSETH:
WHEREAS, Borrower and Bank One entered into an Amended and Restated Secured
Credit Agreement dated March 28, 1994 (the `Agreement''); and WHEREAS, Borrower
desires and Bank One has agreed to amend certain definitions set forth in the
Agreement.
1. On page 21, delete the definitions of `Revolving Credit Commitment'' and
`Revolving Credit Maturity Date'' and insert the following in their place.
`Revolving Credit Commitment'' means: (i) at all times prior to August 15,
1994, $1,500,000, (ii) at all times from August 15, 1994 through April 30, 1995,
$1,000,000, and (iii) at all times from May 1, 1995 to the Revolving Credit
Maturity Date, $1,500,000.00.
`Revolving Credit Maturity Date'' means April 30, 1996.
2. This Amendment is a modification only and not a novation. Except for the
above-quoted modification(s), the Agreement, any agreement or security document,
and all the terms and conditions thereof, shall be and remain in full force
and effect with the changes and herein deemed to be incorporated therein.
This Amendment is to be considered attached to the Agreement and made a part
thereof. This Amendment shall not release or affect the liability
of any guarantor, surety or endorser of the Agreement or release any owner of
collateral securing the Agreement. The validity, priority and enforceability of
the Agreement shall not be impaired hereby. To the extent that any provision of
this Amendment conflicts with any term or condition set forth in the Agreement,
or any agreement or security document executed in conjunction therewith, the
provisions of this Amendment shall supersede and control.
IN WITNESS WHEREOF, the parties have executed this Amendment effective as of the
day and year first written above.
MOTO PHOTO, INC., a Delaware corporation
By: David A. Mason
Its: Executive Vice President
BANK ONE, DAYTON, NA
By: Terri Meadows
<TABLE>
EXHIBIT 11 -- COMPUTATION OF PER SHARE EARNINGS Three Three
Months Months
Ended Ended
1995 1994
<CAPTION>
<S> <C> <C>
PRIMARY
Average common shares and equivalents outstanding 7,388,334 5,636,377
Net effect of dilutive common stock equivalents -
- - based on the treasury stock method using
average market price (A) (B)
TOTAL 7,388,334 5,636,377
NET INCOME $ (392,968) $ (309,956)
Adjustment to Income Applicable to Common Stock 673,219 -0-
Less preferred stock dividend requirements (87,824) (276,944)
NET INCOME (LOSS) APPLICABLE TO COMMON STOCK $ 192,427 $ (586,900)
PER SHARE AMOUNT $ 0.03 $ (0.10)
FULLY DILUTED
Average common shares and equivalents outstanding 7,388,334 5,636,377
Net effect of dilutive common stock equivalents -
based on the treasury stock method using the year
end market price, if higher than average
market price (B) (B)
Assumed conversion of Series E, F and G
convertible preferred shares 5,671,747 4,232,804
Assumed conversion of $1.20 cumulative
convertible preferred shares 0 835,000
TOTAL 13,060,081 10,704,181
NET INCOME (LOSS) $ (392,968) $ (309,956)
FULLY DILUTED NET INCOME $ (392,968) $ (309,956)
PER SHARE AMOUNT $ (0.03) $ (0.03)
(A) Less than 3%.
(B) The effects of conversions of common stock equivalents to common
stock and conversion of preferred shares to common stock are anti-
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Moto
Photo Inc.'s 1995 Second Quarter 10-Q and is qualified in its entirety
by reference to such 10-Q filing.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1995
<CASH> 343,993
<SECURITIES> 0
<RECEIVABLES> 6,155,853
<ALLOWANCES> 1,152,000
<INVENTORY> 1,655,692
<CURRENT-ASSETS> 8,035,913
<PP&E> 3,151,248
<DEPRECIATION> 8,777,092
<TOTAL-ASSETS> 24,417,465
<CURRENT-LIABILITIES> 9,997,864
<BONDS> 0
<COMMON> 77,826
0
10,000
<OTHER-SE> 7,096,074
<TOTAL-LIABILITY-AND-EQUITY> 24,417,465
<SALES> 7,053,905
<TOTAL-REVENUES> 8,345,452
<CGS> 3,563,571
<TOTAL-COSTS> 6,314,098
<OTHER-EXPENSES> 765,431
<LOSS-PROVISION> 51,831
<INTEREST-EXPENSE> 77,817
<INCOME-PRETAX> (713,968)
<INCOME-TAX> (321,000)
<INCOME-CONTINUING> (392,968)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (392,968)
<EPS-PRIMARY> .03
<EPS-DILUTED> (.03)
</TABLE>
