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, 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
Incorporation or organization) Number)
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 November 11, 1997:
7,797,373 - Voting Common, 0 - Non - Voting Common
<TABLE>
MOTO PHOTO, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<CAPTION>
September 30, December 31,
1997 1996
<S> <C> <C>
Assets
Current assets:
Cash $ 1,919,309 $ 1,398,944
Accounts receivable, less allowances of
$1,218,000 in 1997 and 1996 4,306,777 5,518,380
Notes receivable, less allowances of $133,000 in
1997 and 1996 422,669 292,419
Inventory 1,712,528 1,794,335
Deferred tax assets 316,000 316,000
Prepaid expenses 146,628 47,176
Total current assets 8,823,911 9,367,254
Property and equipment 3,005,878 2,828,830
Other assets:
Notes receivable, less allowances of $860,000 in
1997 and 1996 2,006,392 1,876,444
Cost of franchises and contracts acquired 179,425 214,479
Goodwill 4,320,782 4,407,058
Deferred tax assets 766,000 766,000
Other assets 1,028,763 1,025,147
Total assets $20,131,151 $20,485,212
</TABLE>
<TABLE>
MOTO PHOTO INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<CAPTION>
SEPTEMBER 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 2,919,512 6,245,879
Accrued payroll and benefits 904,620 1,167,112
Accrued expenses 1,543,279 1,213,765
Current portion of long-term obligations 1,176,000 587,859
Deferred Revenue 166,115 62,000
Other 110,940 91,250
Total current liabilities 6,820,466 9,617,865
Long-term debt 9,386,000 7,752,070
Capitalized leases 594,973 455,692
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 - 7,797,373 in 1997
and 7,785,973 in 1996 77,974 77,860
Paid-in capital 6,643,096 6,858,900
(Deficit)retained earnings subsequent to (3,522,745) (4,408,562)
June 30,1991
Total stockholders' equity 3,208,325 2,538,198
Total liabilities and stockholders' equity $20,131,151 $20,485,212
</TABLE>
<TABLE>
MOTO PHOTO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<CAPTION>
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
September September September September
30, 1997 30, 1996 30, 1997 30, 1996
<S> <C> <C> <C> <C>
Revenues
Company store sales $ 4,535,304 $ 4,903,101 $12,568,206 $13,514,994
Merchandise sales 4,632,671 4,642,682 12,884,655 12,486,437
Royalties 1,329,586 1,309,681 3,639,127 3,334,436
Franchise fees 145,250 158,119 405,455 503,566
Investment income 96,471 51,721 246,285 153,925
Gain on sale of stores 0 444,270 0 444,270
Telemarketing revenue 234,657 184,968 683,377 468,063
10,973,939 11,694,542 30,427,105 30,905,691
Expenses
Company store cost of sales
and operating expenses 3,572,534 3,934,746 10,482,111 11,386,221
Merchandise cost of sales
and operating 3,954,975 4,597,439 11,185,791 11,393,336
expenses
Selling, general, and
administrative costs 1,729,228 1,512,648 5,219,887 5,030,520
Advertising 369,001 337,223 1,005,653 1,139,449
Depreciation and amortization 213,843 191,489 616,865 555,240
Interest expense 123,810 116,711 324,093 371,806
9,963,391 10,690,256 28,834,400 29,876,572
Income (loss) before incomes 1,010,548 1,004,286 1,592,705 1,029,119
taxes
Income tax benefit (expense) (313,500) (351,000) (494,000) (361,000)
Net income (loss) 697,048 653,286 1,098,705 668,119
Preferred stock dividend (70,454) (72,154) (212,888) (217,477)
requirements
Net income (loss) applicable
to common stock $ 626,594 $ 581,132 $ 885,817 $ 450,642
Net income (loss) per $ 0.08 $ 0.07 $ 0.11 $ 0.06
common share
Average shares outstanding 7,795,514 7,785,973 7,791,772 7,785,973
</TABLE>
<TABLE>
MOTO PHOTO INC AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASHFLOWS
(UNAUDITED)
<CAPTION>
Nine Months Ended Nine Months Ended
September 30, September 30,
1997 1996
<S> <C> <C>
Operating Activities
Net income (loss) $ 1,098,705 $ 668,119
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for income taxes 494,000 361,000
Depreciation and amortization 616,865 555,240
Provision for losses on inventory and
receivables 586,724 560,219
Notes receivable increase from sale of
franchise (19,000) (100,000)
Provision for (gain) or loss on disposition
of assets 33,974 (382,812)
Increase (decrease) resulting from changes
in:
Accounts receivable (119,454) (785,275)
Inventory and prepaid expenss (95,645) 365,421
Other assets (26,781) 22,710
Accounts payable and accrued expenses (3,559,796) (564,151)
Deferred revenues and other liabilities 234,569 (283,821)
Net cash provided by (used in) operating
activities (755,839) 416,650
Investing Activities
Purchases of equipment and leaseholds (213,270) (220,285)
Proceeds from sale of assets 0 540,564
New notes receivable 0 (15,000)
Payments received on notes receivable 321,592 367,830
Net cash provided by (used in) investing
activities 108,322 673,109
Financing Activities
Proceeds from revolving line of credit and
borrowings 8,824,274 5,600,000
Principal payments on revolving line of credit,
long-term debt and capital lease obligations (7,227,814) (7,387,086)
Payments of preferred dividends (450,000) (375,000)
Common shares issued 21,422 0
Net cash provided by (used in) financing
activities 1,167,882 (2,162,086)
Increase (decrease) in cash and equivalents 520,365 (1,072,327)
Cash and cash equivalents at beginning of
period 1,398,944 1,539,688
Cash and cash equivalents at end of period $ 1,919,309 $ 467,361
</TABLE>
MOTO PHOTO, INC AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
``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 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. September 27 vs. September 30 for the third quarter 1997), 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 1997 $450,000 of dividends were paid on the
Series G preferred shares. Of this amount $237,112 was for previously
reported and accreted dividends.
4.In the first nine months of 1997, the Company incurred capital lease
obligations totaling $452,000 in connection with equipment purchases.
5.The Company 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 THIRD QUARTER 1997 AND NINE MONTHS VS THIRD QUARTER AND
NINE MONTHS 1996
The Company reported net income of $697,048 and income per common share of
$.08 for the third quarter 1997, compared to net income of $653,286 and income
per common share of $.07 for the third quarter 1996. For the nine months
ended September 30, 1997, the Company recorded net income of $1,098,705 and
earnings per common share of $.11, compared to net income of $668,119 and
income per common share of $.06 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 $368,000, or 8% for the third quarter
1997, and down $947,000, or 7% on a year-to-date basis, compared to the same
period a year ago due to fewer Company stores in operation. Sales from
comparable stores were flat.
Fewer Company stores also accounted for reduced Company store cost of sales
and operating expenses which fell $362,000, or 9% for the third quarter, and
$904,000, or 8% for the nine months ended September 30, 1997.
Compared to the same period a year ago merchandise sales were flat for the
third quarter 1997, but increased $398,000, or 3% 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 declined $208,000, or 2% through
September 1997, as the cost of increased merchandise sales was offset by the
Company's first quarter temporary reduction to overhead. In the third quarter
of 1996 $363,000 was reclassified into merchandise cost of sales from selling,
general, and administrative expenses. Lower costs of certain products
primarily accounted for the balance of the $642,000 decrease in this category.
Royalty revenues increased $20,000, or 2% for the third quarter, and $305,000,
or 9% for the six months ended September 30, 1997, compared to the same period
a year ago primarily due to increased franchisee store sales.
Franchise fees were down $13,000, or 8% for the quarter, and $98,000, or 19%
for the nine months ended September 30, 1997, compared to the same period a
year ago due to fewer franchise store openings in 1997.
Investment income increased $45,000, or 87% for the quarter, and $92,000, or
60% 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 $50,000, or 27% for the third quarter, and
$215,000, or 46% as of September 30, 1997, compared to the same period a year
ago primarily due to the Company obtaining additional accounts other than
portrait marketing for franchisees.
Advertising costs were up $32,000, or 9% for the quarter, primarily due to the
timing of expenditures. As of September 30, 1997 advertising costs declined
$134,000, or 12% compared to the same period a year ago, due to planned
reductions to Company store advertising.
Interest expense increased $7,000, or 6% for the quarter, but decreased
$48,000, or 13% year-to-date due to lower levels of interest bearing debt.
LIQUIDITY AND CAPITAL RESOURCES
Cash used in operating activities increased by $1.2 million primarily due to
payment of $3 million of additional accounts payable and $960,000 in accrued
income taxes and accrued bonuses, offset by increased operating income. 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 $3.3 million due to increased
proceeds from bank borrowings. The proceeds were used to prepay $3 million of
existing debt and to fund cash used in operating activities.
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, 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
------------------------
David A. Mason
Executive Vice President,
Treasurer, and Chief
Financial Officer
Date: November 14, 1997
EXHIBITS TO
FORM 10-Q
for the quarter ended
September 30, 1997
Copies of the following documents are filed as exhibits to this report:
No. Description
11.0 Computation of Per Share Earnings
27.0 Financial Data Schedule
<TABLE>
MOTO PHOTO, INC. AND SUBSIDIARIES
EXHIBIT 11 - COMPUTATION OF PER SHARE EARNINGS
<CAPTION>
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
30-Sep-97 30-Sep-96 30-Sep-97 30-Sep-96
<S> <C> <C> <C> <C>
PRIMARY
Average shares outstanding 7,795,514 7,785,973 7,791,772 7,785,973
Net effect of dilutive common
equivalents --
based on the treasury stock
method using
average market price (B) (B) (B) (B)
TOTAL 7,795,514 7,785,973 7,791,772 7,785,973
Net income (loss) $ 697,048 $ 653,286 $ 1,098,705 $ 668,119
Less preferred stock (70,454) (72,154) (212,888) (217,477)
dividend requirements
Net income (loss) $ 626,594 $ 581,132 $ 885,817 $ 450,642
applicable to common stock
Per share amount $ 0.08 $ 0.07 $ 0.11 $ 0.06
FULLY DILUTED
Average shares outstanding 7,795,514 7,785,973 7,791,772 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 5,806,999 6,093,723 6,005,032 7,214,323
preferreed Shares
TOTAL 13,602,513 13,879,696 13,796,804 15,000,296
Net income (loss) $ 697,048 $ 653,286 $ 1,098,705 $ 668,119
Pref Series G previously 919,932 1,183,530 919,932 1,183,530
accreted dividends
Fully Diluted Net income $ 1,616,980 $ 1,836,816 $ 2,018,637 $ 1,851,649
(loss)
Per share amount $ 0.12 $ 0.13 $ 0.15 $ 0.12
<FN>
(A) The effects of conversion of common stock equivalents to common stock
are antidilutive to the earnings per share calculation.
(B) Less than 3%
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contians summary financial information from Moto Photo
Inc.'s 1997 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-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 1,919,309
<SECURITIES> 0
<RECEIVABLES> 6,735,838
<ALLOWANCES> 2,211,000
<INVENTORY> 1,712,528
<CURRENT-ASSETS> 8,823,911
<PP&E> 3,005,878
<DEPRECIATION> 8,850,571
<TOTAL-ASSETS> 20,131,151
<CURRENT-LIABILITIES> 6,820,466
<BONDS> 0
0
10,000
<COMMON> 77,974
<OTHER-SE> 3,120,351
<TOTAL-LIABILITY-AND-EQUITY> 20,131,151
<SALES> 25,452,861
<TOTAL-REVENUES> 30,427,105
<CGS> 13,492,198
<TOTAL-COSTS> 21,667,902
<OTHER-EXPENSES> 1,622,518
<LOSS-PROVISION> 586,724
<INTEREST-EXPENSE> 324,093
<INCOME-PRETAX> 1,592,705
<INCOME-TAX> 494,000
<INCOME-CONTINUING> 1,098,705
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,098,705
<EPS-PRIMARY> 0.11
<EPS-DILUTED> 0.15
</TABLE>
