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 September 30, 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 133 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 November 3, 1995: 7,785,973 - Voting Common, 0 - Non -
Voting Common
<TABLE>
Moto Photo, Inc. And
Subsidiaries
Consolidated Statements of
Operations
(Unaudited)
Three Three Nine Nine
Months Months Months Months
Ended Ended Ended Ended
Sep 30, Sep 30, Sep 30, Sep 30,
<CAPTION> 1995 1994 1995 1994
<S> <C> <C> <C> <C>
REVENUES
Company store sales $5,180,741 $5,384,96 $ 14,490,682 $14,600,562
Merchandise sales 4,095,436 3,990,384 11,053,073 10,057,582
Royalties 1,178,695 946,709 3,136,269 2,580,129
Franchise fees 554,332 844,287 1,212,491 1,305,951
Investment income 49,797 26,053 119,128 88,447
Gain on Sale of Stores 41,266 0 41,266 0
Other income 189,158 98,927 346,666 220,396
11,289,425 11,291,266 30,399,575 28,853,067
EXPENSES
Company store cost of 4,318,583 4,370,859 12,434,166 12,017,324
sales and operating expenses
Merchandise cost of sales3,686,042 3,406,400 9,546,377 8,607,725
and operating expenses
Selling, general, and 2,037,299 1,949,420 6,032,164 5,377,755
administrative expenses
Advertising 421,300 429,906 1,214,589 1,226,031
Depreciation and 422,806 379,545 1,151,724 1,066,275
amortization
Interest expense 102,150 97,160 276,619 230,221
10,988,180 10,633,29 30,655,639 28,525,331
INCOME (LOSS) BEFORE INCOME 301,245 657,976 (256,064) 327,736
TAXES
Income tax (expense) (121,000) (249,000) 102,000 (114,000)
benefit
NET INCOME (LOSS) 180,245 408,976 (154,064) 213,736
Adjustment to Income App. 0 0 673,219 0
to Common Stock (Note 3)
Preferred Stock Dividend (73,177) (281,250) (234,350) (837,276)
Requirements
NET INCOME (LOSS) APPLIED TO
COMMON STOCK $ 107,068 $ 127,726 $ 284,805 $ (623,540)
NET INCOME (LOSS) PER COMMON
SHARE $ .01 $ .02 $ .04 $ (.11)
AVERAGE SHARES OUTSTANDING 7,785,973 5,663,340 7,653,980 5,654,451
</TABLE>
<TABLE>
Moto Photo, Inc. And
Subsidiaries
Consolidated Balance
Sheets
(Unaudited)
September30, December 31,
<CAPTION> 1995 1994
<S> <C> <C>
ASSETS
Current Assets
Cash $ 822,979 $2,269,722
Accounts receivable,
less allowances of
$583,000 in 1995 5,516,135 4,597,575
and 1994
Notes receivable, less
allowances of $60,000
in 1995 and 1994 194,280 189,540
Inventory 1,561,210 1,985,002
Deferred tax assets 663,000 663,000
Prepaid expenses 661,735 295,773
TOTAL CURRENT ASSETS 9,419,339 10,000,612
PROPERTY AND EQUIPMENT 3,460,740 3,268,659
OTHER ASSETS
Notes receivable, less
allowances of $509,000
in 1995 and 1994 1,647,104 1,061,695
Cost of franchises and 307,275 351,814
contracts acquired
Goodwill 10,248,115 10,491,925
Deferred tax assets 419,000 419,000
Other assets 959,034 974,821
TOTAL ASSETS
$ 26,460,607 $ 26,568,526
</TABLE>
<TABLE>
Moto Photo, Inc. And
Subsidiaries
Consolidated Balance Sheets
(Unaudited)
(Continued)
September 30, December 31,
1995 1994
<CAPTION>
<S> <C> <C>
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current Liabilities
Line of credit $ 300,000 $ 0
Accounts payable 7,987,421 7,718,736
Accrued payroll and 723,130 800,934
benefits
Accrued expenses 416,800 639,304
Current portion of long- 1,116,837 788,681
term obligations
Other 299,887 304,878
TOTAL CURRENT LIABILITIES 10,844,075 10,252,533
LONG-TERM OBLIGATIONS
Long-term debt 7,384,879 6,629,834
Capitalized leases 580,691 659,008
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 --
7,785,973 in 1995 and
5,695,140 in 1994 77,860 56,951
Paid-in capital 7,046,105 8,050,613
Retained earnings subsequent
to June 30, 1991
after elimination of a 399,441 787,856
deficit of ($12,823,266)
TOTAL STOCKHOLDERS' EQUITY 7,533,406 8,909,595
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY
$ 26,460,607 $ 26,568,526
</TABLE>
<TABLE>
Moto Photo, Inc. And Subsidiaries
Consolidated Statement of Cash Flows
(Unaudited)
Nine Months Nine Months
Ended Ended
September30, September30,
1995 1994
<CAPTION>
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ (154,064) $ 213,736
Adjustments to reconcile net
(loss) to net cash provided
by operating activities:
Provision for Income Tax (102,000) 114,000
Depreciation and amortization 1,151,724 1,066,275
Provision for losses on 325,179 206,867
inventory and receivables
Provision for (gain) or loss (6,617) (67,900)
on disposition of stores and assets
Notes Receivable increase as
result of refranchising and
franchise
sales (181,361) (191,930)
Increase (Decrease) resulting from
changes in:
Accounts receivable (1,719,659) (1,427,249)
Inventory and prepaid expenses 108,661 (941,106)
Other assets (6,848) (84,280)
Accounts payable and accrued (31,623) 2,331,296
expenses
Deferred revenues and other (4,991) 122,778
liabilities
NET CASH PROVIDED BY (USED IN) (621,599) 1,342,487
OPERATING ACTIVITIES
INVESTING ACTIVITIES
Purchase of equipment and (1,013,970) (982,164)
leaseholds
Proceeds from sale of stores and 32,220 73,000
assets
Payments received on notes 110,548 145,950
receivable
NET CASH PROVIDED BY (USED IN) (871,202) (763,214)
INVESTING ACTIVITIES
FINANCING ACTIVITIES
Proceeds from revolving line of 5,043,383 3,229,029
credit and borrowings
Principal payments on revolving
line of credit, long-term debt
and capital lease obligations (3,833,265) (3,611,881)
Proceeds from stock option 4,375 53,375
exercise
Payments of preferred dividends (300,000) 0
Payments related to redemption of (868,435) 0
preferred stock
NET CASH PROVIDED BY (USED IN) 46,058 (329,477)
FINANCING ACTIVITIES
INCREASE (DECREASE) IN CASH AND CASH (1,446,743) 249,796
EQUIVALENTS
CASH AND CASH EQUIVALENTS AT 2,269,722 1,321,779
BEGINNING OF PERIOD
CASH AND CASH EQUIVALENTS AT END OF
PERIOD $ 822,979 $ 1,571,575
</TABLE>
Moto Photo, Inc.
Notes to Financial Statements
September 30, 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
except for the fourth quarter which ends on December 31. The fiscal quarter
end is the same as the calendar quarter end (i.e. September 30) for the third
quarter 1995. The differences in interim periods are immaterial.
2.The first nine months of the year are seasonally slower and do not represent
75% 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 nine months of 1995, $300,000 of dividends were paid on the
Series G Preferred shares. Of this amount $65,650 was for previously
reported and accreted dividends.
6.Certain amounts have been reclassified in the 1994 financial statements to
conform with the 1995 presentation.
Management Discussion and Analysis of Financial Condition and Results of
Operations
Results of Operation 1995 Vs 1994
For the quarter ended September 30, 1995, the Company recorded net income of
$180,245, or $.01 per common share compared to net income of $408,976, or $.02
per common share for the same period a year ago. For the nine months ended
September 30, 1995 the Company recorded a loss of $154,064, and earnings per
common share of $.04 compared to net income of $213,736 and a loss per common
share of $.11 for the same period a year ago. Per share calculations are made
after provision for dividends on the Series G Preferred shares for 1995, and on
the $1.20 Cumulative Convertible Preferred shares, the Series E and the Series F
Preferred shares for 1994.The Company believes its 1995 annual net income will
be significantly lower than its 1994 net income even though earnings per share
will be higher because of the one time adjustment of $673,219 to earnings
available to common shares.
Sales from Company stores were down $204,000, or 4%, for the quarter and down
$110,000, or 1%, for the nine months ended September 30, 1995 compared to the
same period a year ago. Year-to-date sales from company stores which were
acquired in August and October 1994 accounted for a $601,000, or a 4% increase
in sales, offset by a $487,000, or a 3% loss of sales from stores which were
closed or sold in 1995. Sales from comparable company stores were down
$224,000, or 2%, on a year-to-date basis.
Merchandise sales increased $105,000, or 3%, for the quarter ended September 30,
1995 compared to the same period a year ago. On a year-to-date basis
Merchandise sales are up $995,000, or 10%. This increase is primarily due to
more franchise stores in operation and increases in comparable franchise store
sales of approximately 8%.
Royalty revenue increased $232,000, or 25%, for the quarter and $556,000, or
22%, for the first nine months of 1995 compared to the same period a year ago.
Royalty revenue increases are primarily the result of additional franchise
stores in operation and increases in comparable franchise store sales.
Franchise fees were down $290,000, or 34%, for the quarter and $93,000, or 7%,
for the nine months ended September 30, 1995 compared to the same period a year
ago. New store openings total 11 for the quarter and 25 for the nine months
ended September 30, 1995 compared to 16 for the quarter and 26 for the nine
months ended September 30, 1994.
The Company reported a $41,000 gain on the sale of a company store in September
1995. No company stores were sold during the first nine months of 1994.
Other income increased $90,000 for the quarter and $126,000 for the nine months
ended September 30, 1995. Other income includes sales to franchisees for
telemarketing services which are steadily expanding as a marketing method for
portrait appointments. I994 other income includes $67,901 from a first quarter
sale of the Company's investment in a joint venture .
Company store cost of sales and operating expenses were down $52,000 for the
quarter, but, up $417,000 for the nine months ended September 30, 1995 compared
to the same period a year ago. This increase is primarily due to increased
paper costs and increased labor and fixed costs from additional stores.
Merchandise cost of sales and operating expenses were up $280,000, or 8% for the
quarter and $939,000, or 11%, for the first nine months of 1995 compared to the
same period a year ago. Margins on merchandise sales have been adversely
impacted by increased paper costs which the Company has not been able to fully
pass on to its franchisees. The Company anticipates this problem to be
corrected in mid 1996 when a new production facility from its strategic supplier
is operational.
Selling, general, and administrative costs rose $88,000, or 5% for the quarter
and $654,000, or 12%, for the first nine months of 1995 compared to the same
period a year ago. The Company incurred one time costs in the second quarter
1995 associated with the physical move and conversion of its telemarketing
center to an automated operation. In the third quarter of 1995, the Company
reduced development expenses resulting in a lower rate of increase in selling
general and administrative expenses from previous quarters.
Interest expense was about equal for the quarter, but up $46,000 on a year-to-
date basis as of September 30, 1995 primarily due to increased interest rates
and increased borrowings.
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 nine months of the year.
In the third quarter 1994, the Company purchased large quantities of paper in
anticipation of rising prices. This resulted in a substantial increase in
inventory and accounts payable for the third quarter of 1994. For the nine
months ended September 30, 1995, there was no significant increase in accounts
payable and inventory levels have decreased. These differences, in addition to
a lower net income, and increasing receivables from a greater number of
franchisees and larger franchisee purchases of merchandise primarily accounted
for the increase in cash used in operating activities.
Cash used in financing activities decreased $376,000 primarily as a result of
increased borrowings, offset by payments related to the redemption of the
Preferred stock and payment of Preferred dividends.
On June 7, 1995, the Company obtained a $1,450,000 term loan to finance
equipment additions. As of September 30, 1995, the Company had borrowed
$1,343,000 of the $1,450,000 available. The Company also had $ 1.2 million
of unused seasonal line of credit availability as of September 30, 1995.
PART II. OTHER INFORMATION
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 September 30, 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.
By /S/ David A. Mason
David A. Mason
Executive Vice President,
Treasurer, and Chief
Financial Officer
Date: November 10, 1995
EXHIBITS TO
FORM 10-Q
for the quarter ended
September 30, 1995
Copies of the following documents are filed as exhibits to this report:
No. Description
11 Statement Re: Computation of Per Share
Amounts
27 Financial Data Schedule
EXHIBIT 11
<TABLE>
Moto Photo, Inc. and
Subsidiaries
Exhibit 11 - Computation of Per Share
Earnings
Three Three Nine Nine
Months Months Months Months
Ended Ended Ended Ended
<CAPTION> 30-Sep-95 30-Sep-94 30-Sep-95 30-Sep-94
<S> <C> <C> <C> <C>
PRIMARY
Average shares outstanding 7,785,973 5,663,340 7,653,980 5,654,451
Net effect of dilutive
common equivalents --
based on the tresaury
stock method using
average market price (B) (B) (B) (A)
TOTAL 7,785,973 5,663,340 7,653,980 5,654,451
Net Income (Loss) $ 180,245 $ 408,976 $ (154,064) $ 213,736
Adjustment to Income Applicable to 673,219
Common Stock
Less Preferred Stock (73,177) (281,250) (234,350) (837,276)
dividend requirements
Net Loss applicable to 107,068 127,726 284,805 (623,540)
Common Stock
Per share amount $ 0.01 $ 0.02 $ 0.04 $ (0.11)
FULLY DILUTED
Average shares outstanding 7,785,973 5,663,340 7,653,980 5,654,451
Net effect of dilutive
common stock
equivalents -- based on
the treasury
stock method using the quarter-end
market
price, if higher than (B) (B) (B) (B)
average market price
Assumed conversion of $1.20
cumulative
convertible preferred (C) 835,000 (C) 835,000
shares
Assumed conversion of
Series E and F
convertible preferred 5,732,758 5,470,085 5,516,406 4,603,806
shares
TOTAL 13,518,731 11,968,425 13,170,386 11,093,257
Net Income(Loss) $ 180,245 $ 408,976 $ (154,064) $ 213,736
Adjustment to Income 1,342,026 1,066,653 1,342,026 1,066,653
Applicable to Common Stock
Adjustment to Income 0 0 673,219 0
Applicable to Common Stock
Fully Diluted Net 1,522,271 1,475,629 1,861,181 1,280,389
Income(Loss)
Per share amount $ 0.11 $ 0.12 $ 0.14 $ 0.12
(A) The effects of conversion of common stock
equivalents to common stock
are antidilutive to the earnings
per share calculations.
(B) Less than 3%
(C) Converted to common in 1994
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Moto Photo
Inc.'s 1995 Third Quarter 10-Q and is qualified in its entirety by reference to
such 10-Q filing.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 822,979
<SECURITIES> 0
<RECEIVABLES> 7,357,519
<ALLOWANCES> 1,152,000
<INVENTORY> 1,561,210
<CURRENT-ASSETS> 9,419,339
<PP&E> 3,460,740
<DEPRECIATION> 9,176,457
<TOTAL-ASSETS> 26,460,607
<CURRENT-LIABILITIES> 10,844,075
<BONDS> 0
<COMMON> 77,860
0
10,000
<OTHER-SE> 7,445,546
<TOTAL-LIABILITY-AND-EQUITY> 26,460,607
<SALES> 25,543,755
<TOTAL-REVENUES> 30,399,575
<CGS> 12,954,486
<TOTAL-COSTS> 21,980,543
<OTHER-EXPENSES> 2,366,313
<LOSS-PROVISION> 325,179
<INTEREST-EXPENSE> 276,619
<INCOME-PRETAX> (256,064)
<INCOME-TAX> 102,000
<INCOME-CONTINUING> (154,064)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (154,064)
<EPS-PRIMARY> .04
<EPS-DILUTED> .14
</TABLE>
