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 : June 30, 1997
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 July 31, 1997:
7,793,573 - Voting Common, 0 - Non - Voting Common
<TABLE>
MOTO PHOTO, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
<S> <C> <C>
Assets
Current assets:
Cash $ 1,255,723 $ 1,398,944
Accounts receivable, less allowances of
$1,218,000 in 1997 and 1996 4,682,899 5,518,380
Notes receivable, less allowances of
$133,000 in 1997 and 1996 294,669 292,419
Inventory 1,839,942 1,794,335
Deferred tax assets 316,000 316,000
Prepaid expenses 99,775 47,176
Total current assets 8,489,008 9,367,254
Property and equipment 3,058,769 2,828,830
Other assets:
Notes receivable, less allowances of
$860,000 in 1997 and 1996 1,948,087 1,876,444
Cost of franchises and contracts acquired 191,110 214,479
Goodwill 4,356,838 4,407,058
Deferred tax assets 766,000 766,000
Other assets 1,008,384 1,025,147
Total assets $ 19,818,196 $ 20,485,212
</TABLE>
<TABLE>
MOTO PHOTO INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
<S> <C> <C>
Liabilities and stockholders' equity
Current liabilities:
Line of credit $ 0 $ 0
Note payable 0 250,000
Accounts payable 3,057,001 6,245,879
Accrued payroll and benefits 923,294 1,167,112
Accrued expenses 1,180,775 1,213,765
Current portion of long-term obligations 1,094,200 587,859
Deferrred Revenue 292,135 62,000
Other 131,747 91,250
Total current liabilities 6,679,152 9,617,865
Long-term debt 9,980,396 7,752,070
Capitalized leases 383,346 455,692
Deferred revenue 121,387 121,387
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 - 7,793,573 in 1997
and 7,785,973 in 1996 77,936 77,860
Paid-in capital 6,715,318 6,858,900
(Deficit)retained earnings subsequent to June 30,
1991 (4,149,339) (4,408,562)
Total stockholders' equity 2,653,915 2,538,198
Total liabilities and stockholders' equity $19,818,196 $20,485,212
</TABLE>
<TABLE>
MOTO PHOTO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<CAPTION>
Three Three Six Months Six Months
Months Months Ended Ended
Ended Ended June 30, June 30,
June 30, June 30, 1997 1996
1997 1996
<S> <C> <C> <C> <C>
REVENUES
Company store sales $ 4,491,315 $ 4,774,962 $ 8,032,902 $ 8,611,893
Merchandise sales 4,751,845 4,442,147 8,251,984 7,843,755
Royalties 1,239,749 1,082,903 2,309,541 2,024,755
Franchise fees 214,435 266,529 260,205 345,447
Investment income 60,228 62,205 149,814 102,204
Telemarketing revenue 233,846 161,098 448,720 283,095
10,991,418 10,789,844 19,453,166 19,211,149
EXPENSES
Company store cost of sales and
operating expenses 3,614,868 3,809,987 6,909,577 7,451,475
Merchandise cost of sales and
operating expenses 4,144,429 3,811,314 7,230,816 6,795,897
Selling, general, and
administrative costs 1,790,432 1,816,412 3,490,659 3,517,872
Advertising
351,710 442,608 636,652 802,226
Depreciation and amortization
203,827 181,752 403,022 363,751
Interest expense 120,062 147,415 200,283 255,095
10,225,328 10,209,488 18,871,009 19,186,316
Income (loss) before income
taxes 766,090 580,356 582,157 24,833
Income tax benefit (expense) (237,500) (271,000) (180,500) (10,000)
Net income (loss) 528,590 309,356 401,657 14,833
Preferred stock dividend
requirements (70,964) (72,493) (142,434) (145,323)
Net income (loss) applicable to
common stock $ 457,626 $ 236,863 $ 259,223 $(130,490)
Net income (loss) per common
share $ 0.06 $ 0.03 $ 0.03 $ (0.02)
Average shares outstanding 7,791,832 7,785,973 7,789,869 7,785,973
</TABLE>
<TABLE>
MOTO PHOTO INC AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASHFLOWS
(UNAUDITED)
<CAPTION>
Six Months Six Months
Ended Ended
June 30, 1997 June 30, 1996
<S> <C> <C>
Operating Activities
Net income (loss) $ 401,657 $ 14,833
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision for income taxes 180,500 10,000
Depreciation and amortization 403,022 363,751
Provision for losses on inventory and
receivables 397,178 367,897
Notes receivable increase from sale of franchise 0 (30,000)
Provision for (gain) or loss on disposition of
assets 43,432 0
Increase (decrease) resulting from changes in:
Accounts receivable (61,214) (662,929)
Inventory and prepaid expenses (170,206) 523,854
Other assets 3,735 15,502
Accounts payable and accrued expenses (3,472,584) (1,169,801)
Deferred revenues and other liabilities 381,396 (3,743)
Net cash provided by (used in) operating
activities (1,893,084) (570,636)
Investing Activities
Purchases of equipment and leaseholds (96,292) (50,474)
Proceeds from sale of assets 0 68,000
Payments received on notes receivable 233,666 134,580
Net cash provided by (used in) investing
activities 137,374 152,106
Financing Activities
Proceeds from revolving line of credit and
borrowings 8,824,274 4,100,000
Principal payments on revolving line of credit,
long-term debt and capital lease obligations (6,925,845) (4,310,209)
Payments of preferred dividends (300,000) (250,000)
Common Shares Issued 14,060 0
Net cash provided by (used in) financing
activities 1,612,489 (460,209)
Increase (decrease) in cash and equivalents (143,221) (878,739)
Cash and cash equivalents at beginning of
period 1,398,944 1,539,688
Cash and cash equivalents at end of period $ 1,255,723 $ 660,949
</TABLE>
MOTO PHOTO, INC AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1997
``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 31,1996.
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. June 28 vs. June 30 for the second quarter 1997), except for the
fourth quarter which ends on December 31. The differences in interim
periods are immaterial.
2.The first six months of the year are seasonally slower and do not
represent 50% of the year.
3.In the first six months of 1997 $300,000 of dividends were paid on the
Series G preferred shares. Of this amount $157,566 was for previously
reported and accreted dividends.
4.In the first six months of 1997, the Company incurred capital lease
obligations totaling $452,000 in connection with equipment purchases.
5.The Comany anticipates that the effects of applying Statement of Financial
Accounting Standards No. 128 will have no material impact on earnings per
share.
6.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.
MANAGEMENT DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS SECOND QUARTER AND SIX MONTHS 1997 VS SECOND QUARTER AND
SIX MONTHS 1996
The Company reported net income of $528,590 and income per common share of
$.06 for the second quarter 1997, compared to net income of $309,356 and
income per common share of $.03 for the second quarter 1996. For the six
months ended June 30, 1997, the Company recorded net income of $401,657 and
earnings per common share of $.03, compared to net income of $14,833 and a
loss per common share of $.02 for the same period a year ago. Per share
calculations are made after provision for Series G preferred dividend
requirements.
Sales from Company stores were down $284,000, or 6% for the second quarter
1997, and down $579,000, 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 stores were up approximately 1%.
Fewer Company stores also accounted for reduced Company store cost of sales
and operating expenses which fell $195,000, or 5% for the second quarter, and
$522,000, or 7% for the six months ended June 30, 1997.
Compared to the same period a year ago merchandise sales increased $310,000,
or 7% for the second quarter 1997, and $408,000, or 5% on a year-to-date
basis, as a result of increasing franchisee comparable store sales offset by
lower paper prices.
Merchandise cost of sales and expenses increased $333,000, or 8% for the
second quarter, and $106,000, or 2% through June 1997, as the cost of
increased merchandise sales was offset by the Company's first quarter
temporary reduction to overhead.
Royalty revenues increased $157,000, or 14% for the second quarter, and
$285,000, or 14% for the six months ended June 30, 1997, compared to the same
period a year ago primarily due to increased franchisee store sales and more
stores contributing royalties.
Franchise fees were down $52,000, or 20% for the quarter, and $85,000, or 25%
for the six months ended June 30, 1997, compared to the same period a year
ago due to fewer franchise store openings in 1997.
Investment income was down $2,000, or 3% for the quarter, but increased
$48,000, or 47% on a year-to-date basis, compared to the same period a year
ago primarily due to more notes receivable outstanding.
Telemarketing revenues were up $73,000, or 45% for the second quarter, and
$166,000, or 59% as of June 30, 1997, compared to the same period a year ago
primarily due to the Company obtaining additional accounts other than
franchise portrait marketing.
Advertising costs were down $91,000, or 21% for the quarter, and $166,000, or
21% year-to-date due to planned reduced levels of Company store advertising.
Interest expense decreased $27,000, or 19% for the quarter, and $55,000, or
21% year-to-date due to lower levels of interest bearing debt.
LIQUIDITY AND CAPITAL RESOURCES
Cash used in operating activities increased by $1.3 million primarily due to
payment of $2.3 million of additional accounts payable and $960,000 accrued
income taxes and accrued bonuses, offset by increased operating income.
Inventories increased due to special buy-ins of film which will be sold
during the year. The increase in other liabilities is primarily due to an
increase in deferred revenues, $230,000 of which will be recognized as
revenue during the year.
Cash provided by financing activities increased $2.1 million due to increased
proceeds from bank borrowings. The proceeds were used to prepay $2.3 million
of existing debt and to fund cash used in operating activities.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
Moto Photo, Inc. v. Foureff Investment Company (American Arbitration
Association, Case No. 52 144 00218 95). In December 1995 the Company filed this
action against Foureff Investment Company ("Foureff"), a franchisee of five
stores in Missouri and Kansas, for failure to pay royalty and advertising fees
and trade amounts due and to comply with an earlier arbitration award against
Foureff. The Company sought an accounting and payment of the award, royalty and
advertising fees, trade amounts, costs, and attorney fees. On February 7, 1996,
Foureff filed a counterclaim against the Company, alleging that it had failed to
provide certain services as required by the franchise agreements, and seeking
damages of $220,031, interest, costs, and attorney fees. The Company denies all
of the allegations. On May 19, 1997, the arbitrators denied Foureff's
counterclaim and awarded the Company damages of $271,433 and costs of the
arbitration proceeding.
The Company has pending against it a small number of claims which it believes
are routine and incidental to 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 have a material adverse effect
on the consolidated financial position of the Company.
Item 4. Submission of Matters to a Vote of Security Holders.
(a) On June 25, 1997, the Company held its annual meeting of
shareholders.
(c) At the meeting the shareholders voted on the election of the
following directors. The voting tabulation for each director is set
next to his name.
Votes For Votes Withheld
Michael F. Adler 5,517,463 269,107
Frank W. Benson 5,504,213 282,357
Leslie Charm 5,506,113 280,457
Dexter B. Dawes 5,506,213 280,357
Harry D. Loyle 5,729,768 56,802
David A. Mason 5,521,513 265,057
Douglas M. Thomsen 5,503,363 283,207
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 June 30, 1997.
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: August 7, 1997
EXHIBITS TO
FORM 10-Q
for the quarter ended
June 30, 1997
Copies of the following documents are filed as exhibits to this report:
No. Description
10.1 Amendment to Employment Agreement, dated as of June 25, 1997, with
Michael F. Adler
11.0 Computation of Per Share Earnings
27.0 Financial Data Schedule
AMENDMENT TO EMPLOYMENT AGREEMENT
This Amendment is made June 25, 1997, to the Employment Agreement dated April 1,
1997 (`the Agreement''), by and between Moto Photo, Inc. (``Employer'') and
Michael F. Adler (`Employee''). This Amendment is made to correct an error in
the Agreement and to make another change to which the parties have agreed.
The parties agree as follows:
1.Section 6 of the Agreement shall be amended by the addition of
the following as its last sentence:
During the term of this Agreement, Employer shall purchase and
maintain on the life of Employee a 10-year term life insurance
policy in the amount of $500,000, with the beneficiary to be
designated by Employee.
2.Section 8 of the Agreement shall be amended to read as follows:
8. Automobile. Employer shall furnish Employee with the use
of an automobile or an automobile allowance of $1,250.00 per
month during the term of this contact, subject to company
policy.
3.This Amendment shall be effective as of April 1, 1997.
4.Except as modified by this Amendment, the Agreement is affirmed.
EMPLOYER: MOTO PHOTO, INC.
By /s/ Frank W. Benson
Frank W. Benson, Chairman of the
Compensation Committee of the
Board of Directors of Moto Photo, Inc.
EMPLOYEE: MICHAEL F. ADLER
<TABLE>
MOTO PHOTO, INC. AND SUBSIDIARIES
EXHIBIT 11 - COMPUTATION OF PER SHARE EARNINGS
<CAPTION>
Three Three Six Months Six Months
Months Months
Ended Ended Ended Ended
30-Jun-97 30-Jun-96 30-Jun-97 30-Jun-96
<S> <C> <C> <C> <C>
PRIMARY
Average shares outstanding 7,791,832 7,785,973 7,789,869 7,785,973
Net effect of dilutive common
equivalents --
based on the treasury
stock method using
average market price (B) (B) (B) (A)
TOTAL 7,791,832 7,785,973 7,789,869 7,785,973
Net income (loss) $ 528,590 $ 309,356 $ 401,657 $ 14,833
Less preferred stock dividend
requirements (70,964) (72,493) (142,434) (145,323)
Net income (loss) applicable
to common stock $ 457,626 $ 236,863 $ 259,223 $(130,490)
Per share amount $ 0.06 $ 0.03 $ 0.03 $ (0.02)
FULLY DILUTED
Average shares outstanding 7,791,832 7,785,973 7,789,869 7,785,973
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 Series
G convertible preferred
shares 6,078,288 7,388,802 6,111,050 7,953,677
TOTAL 13,870,120 15,174,775 13,900,919 15,739,650
Net income (loss) $ 528,590 $ 309,356 $ 401,657 $ 14,833
Pref Series G previously
accreted dividends 998,968 1,236,037 998,968 1,236,037
Fully Diluted Net income
(loss) $1,527,558 $1,545,393 $1,400,625 $1,250,870
Per share amount $ 0.11 $ 0.10 $ 0.10 $ 0.08
</TABLE>
(A)The effects of conversion of common stock equivalents to common stock
are antidilutive to the earnings per share calculation.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information from Moto Photo Inc's
1997 Second Quarter 10-Q and is qualified in its entirety by reference to
such 10-Q filing.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 1,255,723
<SECURITIES> 0
<RECEIVABLES> 6,925,655
<ALLOWANCES> 2,211,000
<INVENTORY> 1,839,942
<CURRENT-ASSETS> 8,489,008
<PP&E> 3,058,769
<DEPRECIATION> 8,764,790
<TOTAL-ASSETS> 19,818,196
<CURRENT-LIABILITIES> 6,679,152
<BONDS> 0
0
10,000
<COMMON> 77,936
<OTHER-SE> 2,565,979
<TOTAL-LIABILITY-AND-EQUITY> 19,818,196
<SALES> 16,284,886
<TOTAL-REVENUES> 19,453,166
<CGS> 8,670,791
<TOTAL-COSTS> 14,140,393
<OTHER-EXPENSES> 1,039,674
<LOSS-PROVISION> 397,178
<INTEREST-EXPENSE> 200,283
<INCOME-PRETAX> 582,157
<INCOME-TAX> 180,500
<INCOME-CONTINUING> 401,657
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 401,657
<EPS-PRIMARY> 0.03
<EPS-DILUTED> 0.10
</TABLE>
