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, 1996
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)
(937) 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 October 18, 1996:
7,785,973 - Voting Common, 0 - Non - Voting Common
MOTO PHOTO, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<TABLE>
September 30, December 31,
1996 1995
<S> <C> <C>
Assets
Current assets:
Cash $ 467,361 $ 1,539,688
Accounts receivable, less allowances of
$844,000 in 1996 and $769,000 in 1995 4,708,522 5,068,668
Notes receivable, less allowances of $70,000 in
1996 and 1995 359,958 269,000
Inventory 1,656,950 1,681,351
Deferred tax assets 730,000 730,000
Prepaid expenses 205,111 564,131
Total current assets 8,127,902 9,852,838
Property and equipment 3,076,644 3,130,533
Other assets:
Notes receivable, less allowances of $515,000
in 1996 and 1995 1,910,888 1,695,397
Cost of franchises and contracts acquired 258,523 293,565
Goodwill 4,779,943 4,898,385
Deferred tax assets 352,000 352,000
Other assets 1,075,809 1,101,756
Total assets $ 19,581,709 $21,324,474
</TABLE>
MOTO PHOTO INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<TABLE>
September 30, December 31,
1996 1995
<S> <C> <C>
Liabilities and stockholders' equity
Current liabilities:
Line of credit $ 200,000 $ 1,000,000
Note payable 550,000 750,000
Accounts payable 5,677,339 6,711,669
Accrued payroll and benefits 1,033,830 740,742
Accrued expenses 992,312 815,221
Current portion of long-term obligations 1,274,998 1,214,023
Other 250,179 173,000
Total current liabilities 9,978,658 11,404,655
Long-term debt 6,810,994 7,399,327
Capitalized leases 474,771 496,325
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 6,856,087 7,013,610
(Deficit)retained earnings subsequent to
June 30, 1991 (4,742,503) (5,193,145)
Total stockholders' equity 2,201,444 1,908,325
Total liabilities and stockholders' equity $ 19,581,709 $ 21,324,474
</TABLE>
MOTO PHOTO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
Sep 30, 1996 Sep 30, 1995 Sep 30, 1996 Sep 30, 1995
<S> <C> <C> <C> <C>
REVENUES
Company store sales $ 4,903,101 $ 5,180,741 $13,514,994 $14,490,682
Merchandise sales 4,642,682 4,095,436 12,486,437 11,053,073
Royalties 1,309,681 1,178,695 3,334,436 3,136,269
Franchise fees 158,119 554,332 503,566 1,212,491
Investment income 51,721 49,797 153,925 119,128
Gain on Sale of Stores 444,270 41,266 444,270 41,266
Other Income 184,968 189,158 468,063 346,666
11,694,542 11,289,425 30,905,691 30,399,575
EXPENSES
Company stores cost of sales and
operating expenses 3,934,746 4,318,583 11,386,221 12,434,166
Merchandise cost of sales and
operating expenses 4,597,439 4,234,622 11,393,336 10,094,957
Selling, general, and
administrative expenses 1,512,648 1,488,719 5,030,520 5,483,584
Advertising 337,223 421,300 1,139,449 1,214,589
Depreciation and amortization 191,489 422,806 555,240 1,151,724
Interest expense 116,711 102,150 371,806 276,619
10,690,256 10,988,180 29,876,572 30,655,639
INCOME (LOSS) BEFORE INCOME TAXES 1,004,286 301,245 1,029,119 (256,064)
Income tax (expense) benefit (351,000) (121,000) (361,000) 102,000
NET INCOME (LOSS) 653,286 180,245 668,119 (154,064)
Adjustment to Income App. to
Common Stock 0 673,219
Preferred Stock Dividend
Requirements (72,154) (73,177) (217,477) (234,350)
NET INCOME (LOSS) APPLIED TO COMMON
STOCK $ 581,132 $ 107,068 $ 450,642 $ 284,805
NET INCOME (LOSS) PER COMMON SHARE $ .07 $ .01 $ .06 $ .04
AVERAGE SHARES OUTSTANDING 7,785,973 7,785,973 7,785,973 7,653,980
</TABLE>
MOTO PHOTO INC AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASHFLOWS
(UNAUDITED)
<TABLE>
Nine Months Nine Months
Ended Ended
September 30, September 30,
1996 1995
<S> <C> <C>
Operating Activities
Net income (loss) $ 668,119 $ (154,064)
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for income taxes 361,000 (102,000)
Depreciation and amortization 555,240 1,151,724
Provision for losses on inventory and
receivables 560,219 325,179
Notes receivable increase from sale of
franchise (100,000) (181,361)
Provision for (gain) or loss on disposition
of assets (382,812) (6,617)
Increase (decrease) resulting from changes
in:
Accounts receivable (785,275) (1,719,659)
Inventory and prepaid expenses 365,421 108,661
Other assets 22,710 (6,848)
Accounts payable and accrued expenses (564,151) (31,623)
Deferred revenues and other liabilities (283,821) (4,991)
Net cash provided by (used in) operating
activities 416,650 (621,599)
Investing Activities
Purchases of equipment and leaseholds (220,285) (1,013,970)
Proceeds from sale of assets 540,564 32,220
New notes receivable (15,000) 0
Payments received on notes receivable 367,830 110,548
Net cash provided by (used in) investing
activities 673,109 (871,202)
Financing Activities
Proceeds from revolving line of credit and
borrowings 5,600,000 5,043,383
Principal payments on revolving line of
credit, long-term debt and capital lease
obligations (7,387,086) (3,833,265)
Payments of preferred dividends (375,000) (300,000)
Proceeds from stock option exercise 0 4,375
Payments related to redemption of preferred
stock 0 (868,435)
Net cash provided by (used in) financing
activities (2,162,086) 46,058
Increase (decrease) in cash and equivalents (1,072,327) (1,446,743)
Cash and cash equivalents at beginning of
period 1,539,688 2,269,722
Cash and cash equivalents at end of period $ 467,361 $ 822,979
</TABLE>
MOTO PHOTO, INC AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 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 quarter dates may vary from the calendar quarter dates,
(i.e. September 28 vs. September 30 for the third quarter 1996), except
for the fourth quarter which ends on December 31. 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 the first nine months of 1996 $375,000 of dividends were paid on the
Series G preferred shares. Of this amount $157,523 was for previously
reported and accreted dividends.
4.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.
5.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 net income of $653,286 and income per common share of
$.07 for the third quarter 1996, compared to net income of $180,245 and
earnings per common share of $.01 for the third quarter 1995. For the nine
months ended September 30, 1996, the Company recorded net income of $668,119
and income per common share of $.06 compared to a loss of $154,064 and
earnings per common share of $.04 for the same period a year ago. 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 $278,000, or 5% for the third quarter
1996, and down $976,000, or 7% on a year-to-date basis compared to the same
period a year ago primarily due to fewer Company stores in operation. Sales
from comparable Company stores have increased approximately 1% year to date
with higher merchandise and portrait sales offset by lower film processing
sales.
Merchandise sales increased $547,000, or 13% for the third quarter 1996, and
$1.4 million, or 13% on a year-to-date basis compared to the same period a
year ago. This increase is primarily the result of new products being sold
by the Company, an increase in the number of U.S. franchise stores in
operation from 297 on September 30, 1995 to 305 on September 30, 1996, and
increased sales at franchise stores.
Royalty revenues increased $131,000, or 11% for the third quarter 1996, and
$198,000, or 6% year-to-date compared to the same period a year ago primarily
as a result of more franchise stores in operation in adddition to an increase
in franchisee comparable store sales of approximately 7%.
Franchise fees were down $396,000, or 71% for the third quarter 1996, and
$709,000, or 58% year-to-date compared to the same period a year ago due to
25 franchise store openings in the first nine months of 1995 and only 16 in
the first nine months of 1996.
Investment income was up $1,900, or 4% for the quarter and $35,000, or 29%
year-to-date due to a higher notes receivable balance.
In the third quarter 1996, the Company sold the lease rights for a company
owned store. This one-time event impacted pre-tax earnings by approximately
$300,000. Additionally, the Company reported a gain on the refranchising of
one company store in the third quarter of 1996, and one company store in the
third quarter 1995.
Other income increased $90,000, or 91% for the quarter and $126,000, or 57%
year-to-date due to increasing telemarketing service revenues.
RESULTS OF OPERATIONS 1996 VS 1995 (CONTINUED)
Company store cost of sales and operating expenses fell $384,000, or 9% for
the third quarter 1996, and $1.05 million, or 8% year-to-date compared to the
same period a year ago. This decrease generally reflects the Company's
planned reduction in labor and fixed costs related to Company store
operations.
Merchandise cost of sales and operating expenses increased $363,000, or 9%
for the third quarter 1996, and $1.3 million, or 13% year-to-date compared to
the same period a year ago following increased merchandise sales.
Selling, general, and administrative costs increased $24,000, or 2%, for the
third quarter 1996, and decreased $453,000, or 8% year-to-date compared to
the same period a year ago. This decrease reflects the Company's planned
cost reductions, particularly in the franchise development area.
Depreciation and amortization charges were $231,000 lower in the third
quarter 1996, and $596,000, or 52% lower year-to-date compared to the same
period a year ago 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 was up $15,000 for the quarter and $95,000, or 34% year-to-
date compared to the same period a year ago due to increased borrowings.
LIQUIDITY AND CAPITAL RESOURCES
For the first nine months of 1996, cash provided by operating activities
increased by $1.04 million compared to the same period a year ago. This
improvement is primarily the result of less of an increase in accounts
receivable, larger reductions in inventory and prepaid items, and improved
net income offset by larger reductions in accounts payable and accrued
expenses.
Cash provided by investing activities increased $1.5 million for the first
nine months of 1996 from the same period a year ago primarily due to lower
capital expenditures, increased proceeds from the sale of assets and
increased collections on notes receivable.
Cash used in financing activities increased $2.2 million for the first nine
months of 1996 compared to the same period a year ago primarily due to
increased dividend and principal payment requirements offset by payments
related to the redemption of preferred stock in 1995.
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 29 Company stores, however, this process is
anticipated to take up to two years to complete.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
On August 7, 1996, the Company signed a settlement agreement in Moto Photo, Inc.
v. James Monsour (United States District Court for the Eastern Division of
Missouri, Case No. 94V1549 CAS). The Company filed the lawsuit August 8, 1994
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 alleged that the
defendant was using its trademarks and service marks without license and also
alleged violation of the Federal trademark Act for trademark infringement and
other claims relating to the defendant's unauthorized use of the Company's
marks. The Company sought an injunction against continued use of the marks,
damages, treble damages, costs of suit, and attorney fees. The defendant
counterclaimed against the Company and the former Area Developer, and alleging
against the Company, primarily on the basis of the alleged acts of the former
Area Developer, negligent misrepresentation, fraudulent misrepresentation and
fraud, negligence, breach of the federal franchise laws, tortious interference
with contract, and breach of the Missouri Franchise Act. The defendant sought
actual damages of $232,886.55, punitive damages of at least $500,000, costs of
suit, and attorney fees. The Company denies all of the allegations. Pursuant
to the settlement agreement signed August 7, 1996, the defendant agreed to
dismiss all of his claims against the Company, immediately and permanently to
cease to use any of the Company's proprietary marks or confidential information,
to de-identify the store and to submit to an inspection of the store to verify
that he has de-identified it, and never to hold himself out as a present of
former franchisee of the Company. In return, the Company agreed to dismiss its
claims against the defendant.
The Company has pending against it a small number of claims which it believes
are routine and incidental the business. These actions are being contested and
defended. Management of the Company is of the opinion that such actions are not
likely to result in any liability which would hav a material adverse effect on
the consolidated financial position of the Company.
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, 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
thereunto duly authorized.
MOTO PHOTO, INC.
By /s/ David A. Mason
David A. Mason
Executive Vice President,
Treasurer, and Chief
Financial Officer
Date: October 31, 1996
EXHIBITS TO
FORM 10-Q
for the quarter ended
September 30, 1996
Copies of the following documents are filed as exhibits to this report:
No. Description
11 Computation of Per Share Earnings
27 Financial Data Schedule
EXHIBIT 11
Moto Photo, Inc. and Subsidiaries
Exhibit 11 - Computation of Per Share Earnings
<TABLE>
Three Three Nine Months Nine Months
Months Months Ended Ended
Ended Ended Sep 30, Sep 30,
Sep 30, Sep 30, 1996 1995
1996 1995
<S> <C> <C> <C> <C>
PRIMARY 7,785,973 7,785,973 7,785,973 7,653,980
Average Shares outstanding
Net effect of dilutive common
equivalents --
based on the treasury stock
method using
average market price (B) (B) (B) (B)
TOTAL 7,785,973 7,785,973 7,785,973 7,653,980
Net Income (Loss) $ 653,286 $ 180,245 $ 668,119 $ (154,064)
Adjustment to Income Applicable
to Common 0 0 0 673,219
Less Preferred Stock dividend
requirements (72,154) (73,177) (217,477) (234,350)
Net Loss applicable to Common
Stock 581,132 107,068 450,642 284,805
Per share amount $ 0.07 $ 0.01 $ 0.06 $ 0.04
FULLY DILUTED
Average shares outstanding 7,785,973 7,785,973 7,785,973 7,653,980
Net effect of dilutive common
stock equivalents -- based
on the
treasury
stock method using the
quarter - end market
price, if higher than average
market price. (B) (B) (B) (B)
Assumed conversion of Series G.
Convertible preferred shares 6,093,723 5,732,758 7,214,323 5,516,406
TOTAL 13,879,696 13,518,731 15,000,296 13,170,386
Net Income (Loss)
Pref Series E, F & G Previously
Accreted Dividends $ 653,286 $ 180,245 $ 668,119 $ (154,064)
Pref $1.20 Previously Accredited
Dividends 1,183,530 1,342,026 1,183,530 1,342,026
Fully Diluted Net Income (Loss) 0 0 0 673,219
1,836,816 1,522,271 1,851,649 1,861,181
Per share amount $ 0.13 $ 0.11 $ 0.12 $ 0.14
</TABLE>
(A) The effects of conversion of common stock equivalents to common
stock are antidilutive to the earnings per share calculations
(B) Less than 3%
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information from Moto Photo Inc's 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-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 467,361
<SECURITIES> 0
<RECEIVABLES> 6,979,368
<ALLOWANCES> 1,429,000
<INVENTORY> 1,656,950
<CURRENT-ASSETS> 8,127,902
<PP&E> 3,076,644
<DEPRECIATION> 8,452,129
<TOTAL-ASSETS> 19,581,709
<CURRENT-LIABILITIES> 9,978,658
<BONDS> 0
0
10,000
<COMMON> 77,860
<OTHER-SE> 2,113,584
<TOTAL-LIABILITY-AND-EQUITY> 19,581,709
<SALES> 26,001,431
<TOTAL-REVENUES> 30,905,691
<CGS> 13,884,404
<TOTAL-COSTS> 22,779,557
<OTHER-EXPENSES> 1,694,689
<LOSS-PROVISION> 382,812
<INTEREST-EXPENSE> 371,806
<INCOME-PRETAX> 1,029,119
<INCOME-TAX> 361,000
<INCOME-CONTINUING> 668,119
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 668,119
<EPS-PRIMARY> .06
<EPS-DILUTED> .12
</TABLE>
