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, 1996
OR
{ } TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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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, 1996:
7,785,973 - Voting Common, 0 - Non - Voting Common
<TABLE>
MOTO PHOTO, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
March 31, December 31,
1996 1995
<CAPTION>
<S> <C> <C>
Assets
Current assets:
Cash $ 457,054 $ 1,539,688
Accounts receivable, less allowances of $844,000 in
1996 and $769,000 in 1995 4,645,035 5,068,668
Notes receivable, less allowances of $70,000 in 1996
and 1995 269,000 269,000
Inventory 1,418,342 1,681,351
Deferred tax assets 730,000 730,000
Prepaid expenses 556,650 564,131
Total current assets 8,076,081 9,852,838
Property and equipment 2,949,473 3,130,533
Other assets:
Notes receivable, less allowances of $515,000 in
1996 and 1995 1,683,407 1,695,397
Cost of franchises and contracts acquired 281,880 293,565
Goodwill 4,869,626 4,898,385
Deferred tax assets 352,000 352,000
Other assets 1,092,829 1,101,756
Total assets $19,305,296 $ 21,324,474
</TABLE>
<TABLE>
MOTO PHOTO INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
March 31, December 31,
1996 1995
<CAPTION>
<S> <C> <C>
Liabilities and stockholders' equity
Current liabilities:
Line of credit $ 800,000$ 1,000,000
Note payable 750,000 750,000
Accounts payable 5,811,635 6,711,669
Accrued payroll and benefits 683,458 740,742
Accrued expenses 553,631 815,221
Current portion of long-term obligations 1,219,333 1,214,023
Other 238,289 173,000
Total current liabilities 10,056,346 11,404,655
Long-term debt 7,214,334 7,399,327
Capitalized leases 429,971 496,325
Deferred revenue 115,842 115,842
Stockholders' equity
Preferred stock $.01 par value:
Authorized shares - 2,000,000:
Series G cumulative nonvoting preferred shares,
1,000,000 shares issued and outstanding with
preferences aggregating $10,000,000 10,000 10,000
Common shares $.01 par value:
Authorized shares - 30,000,000
Issued and outstanding shares - 7,785,973 in 1996
and 1995 77,860 77,860
Paid-in capital 6,961,440 7,013,610
(Deficit)retained earnings subsequent to June 30, (5,560,497) (5,193,145)
1991
Total stockholders' equity 1,488,803 1,908,325
Total liabilities and stockholders' equity $19,305,296$ 21,324,474
</TABLE>
<TABLE>
MOTO PHOTO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Three Months
Ended Ended
March 31,1996 March 31,1995
<CAPTION>
<S> <C> <C>
Revenues
Company store sales $ 3,836,931 $ 4,112,203
Merchandise sales 3,401,608 2,941,702
Royalties 941,852 891,263
Franchise fees 78,918 312,213
Investment income 39,999 18,951
Gain on sale of stores 0 0
Other income 121,997 58,013
8,421,305 8,334,345
Expenses
Company store cost of sales and 3,641,488 3,877,421
operating expenses
Merchandise cost of sales and 2,984,583 2,436,677
operating expenses
Selling, general, and 1,701,460 1,890,968
administrative costs
Advertising 359,618 401,558
Depreciation and amortization 181,999 363,872
Interest expense 107,680 77,817
8,976,828 9,048,313
Income (Loss) Before Income Taxes (555,523) (713,968)
Income tax benefit (expense) 261,000 321,000
Net Income (Loss) (294,523) (392,968)
Preferred Stock Dividend (72,830) (87,824)
Requirements
Adjustment to Income Applicable to 0 673,219
Common Stock
Net Income (loss) Applicable to $ (367,353) $ 192,427
Common Stock
Net Income (loss) Per Common Share $ (.05) $ .03
Average Shares Outstanding 7,785,973 7,388,334
</TABLE>
<TABLE>
MOTO PHOTO INC AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASHFLOWS
(UNAUDITED)
Three Months Three Months
Ended Ended
March 31, March 31,
1996 1995
<CAPTION>
<S> <C> <C>
Operating Activities
Net (loss) income $ (294,523) $ (392,968)
Adjustments to reconcile net income to
net cash provided by operating
activities:
Provision for income taxes (261,000) (321,000)
Depreciation and amortization 181,999 363,872
Provision for losses on inventory 178,912 62,088
and receivables
Notes receivable increase from sale (15,000) 0
of franchise
Provision for gain on disposition of 0 (3,000)
assets
Increase (decrease) resulting from
changes in:
Accounts receivable (73,333) (381,549)
Inventory and prepaid expenses 504,688 277,692
Other assets 247 (34,429)
Accounts payable and accrued (835,407) (930,470)
expenses
Deferred revenues and other 65,291 69,944
liabilities
Net cash provided by (used (548,126) (1,289,820)
in)operating activities
Investing Activities
Purchases of equipment and leaseholds (20,486) (143,081)
Proceeds from sale of assets 0 3,000
Payments received on notes receivable 57,015 22,675
Net cash provided by (used in) 36,529 (117,406)
investing activities
Financing Activities
Proceeds from revolving line of credit 1,700,000 700,000
and borrowings
Principal payments on revolving line
of credit, long-term debt and capital (2,146,037) (264,840)
lease obligations
Payments of preferred dividends (125,000) (100,000)
Payments related to redemption of 0 (853,663)
preferred stock
Net cash provided by (used in) (571,037) (518,503)
financing activities
Increase (decrease) in cash and (1,082,634) (1,925,729)
equivalents
Cash and cash equivalents at beginning 1,539,688 2,269,722
of year
Cash and cash equivalents at end of $ 457,054 $ 343,993
period
</TABLE>
MOTO PHOTO, INC AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1996
``UNAUDITED''
1. In the opinion of management, the accompanying financial statements
contain all adjustments necessary to present fairly the financial postion
and results of operations for the period 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, 1995.
The internal accounting for the Company is on a fiscal calendar quarter
basis. The fiscal quarterd dates may vary from the calendar quarter
dates, (i.e. March 30 vs. March 31 for the first quarter 1996), 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 the first quarter 1996, $125,000 of dividends were paid on the Series
G preferred shares. Of this amount $52,170 was for previously reported
and accreted dividends.
4. On March 22, 1996, the Company renewed its line of credit allowing for
borrowings up to $2.5 million through September 30, 1996 and $1.5 million
from October 1, 1996 through April 30, 1997.
5. The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates that
affect amounts reported in the financial statements. Actual results
could differ from those estimates.
6. Certain amounts have been reclassified in the 1995 financial statements
to conform with 1996 presentation.
MANAGEMENT DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS 1996 VS 1995
The Company reported a net loss of $294,523 and a loss per common share of
$.05 for the first quarter 1996 compared to a net loss of $392,968, and
earnings per common share of $.03 for the first quarter 1995. 1995 per share
earnings include a one-time positive adjustment of $673,219, or nine cents
per share, related to the redemption of the $1.20 preferred shares. Per
share calculations are made after provision for Series G preferred dividend
requirements.
Sales from Company stores were down 1% for the first quarter 1996 compared to
the same period a year ago primarily due to fewer stores in operation. Sales
from comparable Company stores were flat with increased merchandise and
portrait sales offset by lower film processing sales of approximately 0.5%.
Merchandise sales increased $460,000 or 16% for the first quarter 1996
compared to the first quarter 1995. This increase is primarily the result of
new products being sold by the Company in addition to the increasing number
of franchise stores in operation from 365 on March 31, 1995 to 385 on March
31, 1996. Continued growth in merchandise sales is anticipated through 1996
as the Company completes the transition back to Fuji paper and regains
customers.
Royalty revenues increased $51,000, or 6%, for the first quarter 1996
compared to the first quarter 1995, as a result of increased franchise stores
in addition to approximately a 9% increase in franchisee comparable store
sales.
Franchise fees were down $233,000, or 75%, for the first quarter 1996
compared to the first quarter 1995, as a result of fewer franchise store
openings from six in the first quarter 1995 to two in the first quarter 1996.
Company store cost of sales and operating expenses fell $246,000, or 6%, for
the first quarter 1996 compared to the first quarter 1995. This decrease
reflects the Company's planned reduction in labor and fixed costs related to
Company store operations.
Merchandise cost of sales and operating expenses increased $548,000, or 22%,
for the first quarter 1996 compared to the first quarter 1995 following
increased merchandise sales and increased allowances for bad debts.
Selling, general, and administrative costs decreased $190,000, or 10%, for
the first quarter 1996 compared to the first quarter 1995. This decrease
reflects the Company's planned cost reductions, particularly in the franchise
development area.
Depreciation and amortization charges were $182,000 lower in the first
quarter 1996 compared to the first quarter 1995 primarily due to the
restructuring charge taken in the fourth quarter of 1995 which adjusted the
carrying value of company stores held for sale to their fair value thus
requiring no depreciation charges on these stores.
Interest expense is up $30,000 compared to the same period a year ago due to
increased borrowings.
MANAGEMENT DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
For the first quarter 1996, cash used in operating activities decreased by
$742,000 compared to the same period a year ago. This improvement in
cashflow is primarily the result of less of an increase in accounts
receivable, larger reductions in inventory and prepaid items, improved net
loss, and less of a decrease in accounts payable and accrued expenses.
Cash provided by investing activities increased $154,000 for the first
quarter 1996 from the same period a year ago due to lower capital
expenditures and increased collections on notes receivable.
Cash used in financing activities increased $53,000 for the first quarter
1996 compared to the same period a year ago primarily due to no payments
related to the redemption of preferred stock in 1996 offset by increased
dividend and principal payment requirements.
The Company historically operates with a working capital deficit. The
Company believes that the nature of its business allows it to operate
adequately with a deficit working capital. The factors which contribute to
this are the substantial percentage of sales for cash, favorable terms with
suppliers, significant non-cash charges to income resulting from depreciation
and amortization expenses, and the line of credit availability to meet
seasonal needs. However, if the Company suffers a moderate decline from its
planned operational levels, additional funding would be required from one or
more of the following sources: added equity or credit sources, the sale or
liquidation of certain assets, reduction of capital expenditures, or
adjustment of debt retirement schedules. Added liquidity is contemplated
from the refranchising of 32 Company stores, however, this process is
anticipated to take up to two years to complete.
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 March 31, 1996.
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 there unto duly authorized.
MOTO PHOTO, INC.
By /s/ David A Mason
David A. Mason
Executive Vice President,
Treasurer, and Chief
Financial Officer
Date: May 8, 1996
EXHIBITS TO
FORM 10-Q
for the quarter ended March 31, 1996
Copies of the following documents are filed as exhibits to this report:
No. Description
3.1 Certificate of Incorporation, as amended
(Incorporated by Reference to Exhibit 3.1 to Form
10-K dated March 29, 1995)
3.2 Bylaws, as amended (Incorporated by Reference
to Exhibit 3.2 to Form 10-K dated May 5, 1989)
4.1 Certificate of Designation of Series G Preferred Stock
(Incorporated by Reference to Exhibit 4.2 to Form 10-K
dated March 29, 1995)
4.2 Securities Purchase Agreement dated September 9, 1992
between Moto Photo, Inc. and Fuji Photo Film U.S.A., Inc.
and Exhibits C, E, F and G to such Agreement
(Incorporated by Reference to Exhibit 28.1 to Form 8-K
dated September 9, 1992)
10.1 Promissory Note Modification Agreement dated March 22, 1996
between Moto Photo, Inc. and Bank One, Dayton, N.A.
11 Statement Re: Computation of Per Share Amounts
27 Financial Data Schedule
<TABLE>
Moto Photo, Inc.and Subsidiaries
Exhibit 11 - Computation of Per Share Earnings
Three Three
Months Months
Ended Ended
31-Mar-96 31-Mar-95
<CAPTION>
<S> <C> <C>
PRIMARY
Average shares outstanding 7,785,973 7,388,334
Net effect of dilutive common stock
equivalents --
based on the treasury stock method using
average market price (A) (B)
TOTAL 7,785,973 7,388,334
NET INCOME (Loss) $ (294,523) $ (392,968)
Adjustment to Income Applicable to Common 673,219
Less preferred stock dividend requirements (72,830) (87,824)
NET (LOSS) APPLICABLE TO COMMON STOCK $ (367,353) $ 192,427
PER SHARE AMOUNT $ (0.05) $ 0.03
FULLY DILUTED
Average shares outstanding 7,785,973 7,388,334
Net effect of dilutive common stock
equivalents --
based on the treasury stock method using the
year-end
market price, if higher than average market (B) (B)
price
Assumed conversion of Series G convertible
preferred shares 8,465,608 5,671,747
TOTAL 16,251,581 13,060,081
NET INCOME (LOSS) $ (294,523) $ (392,968)
Pref Series E.F & G Previously Accreted 1,288,207 1,380,853
Dividends 0 673,219
Pref $1.20 Previously Accreted Dividends
Fully Diluted Net Income (Loss) $ 993,684 $ 1,661,104
PER SHARE AMOUNT $ $
0.06 0.13
(A) The effects of conversions of common stock equivalents to common
stock
are anti-dilutive to the earnings per share calculations.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information from Moto Photo Inc's 1996
First 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-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 457,054
<SECURITIES> 0
<RECEIVABLES> 6,597,442
<ALLOWANCES> 1,429,000
<INVENTORY> 1,418,342
<CURRENT-ASSETS> 8,076,081
<PP&E> 2,949,473
<DEPRECIATION> 8,592,644
<TOTAL-ASSETS> 19,305,296
<CURRENT-LIABILITIES> 10,056,346
<BONDS> 0
0
10,000
<COMMON> 77,860
<OTHER-SE> 1,400,943
<TOTAL-LIABILITY-AND-EQUITY> 19,305,296
<SALES> 7,238,539
<TOTAL-REVENUES> 8,421,305
<CGS> 3,962,438
<TOTAL-COSTS> 6,626,071
<OTHER-EXPENSES> 541,617
<LOSS-PROVISION> 178,912
<INTEREST-EXPENSE> 107,680
<INCOME-PRETAX> (555,523)
<INCOME-TAX> (261,000)
<INCOME-CONTINUING> (294,523)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (294,523)
<EPS-PRIMARY> (.05)
<EPS-DILUTED> 0.06
</TABLE>
PROMISSORY NOTE MODIFICATION AGREEMENT
This Agreement is made and entered into on March 22,1996 (`Agreement Date''),
to be effective as of March 22, 1996 (`Effective Date''), by and between Moto
Photo, Inc. (`Maker'') and Bank One, Dayton, NA (``Bank One'')
WITNESSETH:
WHEREAS, Maker heretofore executed a $1,500,000.00 Amended and Restated
Revolving Note date March 28, 1994 in favor of Bank One as same may have been
amended or modified from time to time (`Promissory Note''); and, WHEREAS, Maker
has requested that the Promissory Note be modified to the limited extent as
hereinafter set forth; and, WHEREAS, Bank One has agreed to such modification;
NOW THEREFORE, by mutual agreement of the parties and in mutual consideration of
the premises and for other good and valuable considerations, the receipt of
which is hereby acknowledged, the parties hereto agree that the Promissory Note
is modified as hereinafter indicated.
1. INCREASE OF PRINCIPAL.
The principal amount of the Promissory Note shall be increased by ONE MILLION
and NO/100 DOLLARS ($1,000,000.00), thereby affording Maker with a credit
availability of TWO MILLION FIVE HUNDRED THOUSAND AND NO/100 DOLLARS
($2,500,000.00).
2. AGREEMENT/COLLATERAL.
All agreements or security documents previously executed shall remain in full
force and effect except to the extent hereby modified.
3. TERMS AND CONDITIONS.
This Agreement is a modification only and not a novation. Except for the above-
quoted modification(s), the Promissory Note, any agreement or security document,
and all the terms and conditions thereof, shall be and remain in full force and
effect with the changes herein deemed to be incorporated therein. This
agreement is to be considered attached to the Promissory Note and made a part
thereof. This Agreement shall not release or affect the liability of any
guarantor, surety or endorser of the Promissory Note or release any owner of
collateral securing the Promissory Note. The validity, priority and
enforceability of the Promissory Note shall be impaired hereby. To the extent
that any provision of this Agreement conflicts with any term or condition set
forth in the Promissory Note, or any agreement or security document executed in
conjunction therewith, the provisions of the Agreement shall supersede and
control. Maker acknowledges and agrees that as of the Agreement Date there are
no claims, setoffs or defenses or rights to claims, setoffs or defenses to
payment of the Promissory Note. If the Promissory Note is signed by more than
one person, the modified Promissory Note shall be the joint and several
obligation of all Makers of the Promissory Note.
MOTO PHOTO, INC
By:
David A. Mason, Executive Vice President
BANK ONE'S ACCEPTANCE
The foregoing Promissory Note Modification Agreement is hereby agreed to and
acknowledge this 22nd day of March, 1996.
BANK ONE, DAYTON, NA
By:
