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, 1998
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
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
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APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes of
common stock:
As of May 12, 1998:
7,805,973 - Voting Common, 0 - Non - Voting Common
<TABLE>
MOTO PHOTO, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<CAPTION>
March 31, December 31,
1998 1997
<S> <C> <C>
Assets
Current assets:
Cash $ 1,734,754 $ 3,139,252
Accounts receivable, less allowances of $1,628,000
in 1998 and $1,590,000 in 1997 3,516,163 4,416,899
Notes receivable, less allowances of $125,000 in
1998 and 1997 425,669 403,669
Inventory 1,950,066 1,388,010
Deferred tax assets 1,025,000 1,025,000
Prepaid expenses 236,178 223,176
Total current assets 8,887,830 10,596,006
Property and equipment 3,029,819 3,095,006
Other assets:
Notes receivable, less allowances of $893,000 in
1998 and 1997 1,962,054 2,157,360
Cost of franchises and contracts acquired 186,214 167,741
Goodwill 3,839,574 3,932,883
Deferred tax assets 57,000 57,000
Other assets 998,417 1,032,119
Total assets $18,960,908 $21,038,115
<FN>
See notes to financial statements.
</TABLE>
<TABLE>
MOTO PHOTO INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<CAPTION>
March 31, December 31,
1998 1997
<S> <C> <C>
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 2,458,552 $ 3,206,342
Accrued payroll and benefits 691,567 1,060,188
Accrued expenses 1,131,194 1,472,306
Current portion of long-term obligations 1,432,000 1,444,000
Other 175,007 181,286
Total current liabilities 5,888,320 7,364,122
Long-term debt 9,050,206 9,220,469
Capitalized leases 470,935 563,336
Deferred revenue 119,032 119,032
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 - 7,805,973 in
1998 and 7,802,973 in 1997 78,060 78,030
Paid-in capital 6,597,874 6,670,981
(Deficit) retained earnings subsequent to
June 30, 1991 (3,257,519) (2,987,855)
Total stockholders' equity 3,428,415 3,771,156
Total liabilities and stockholders' equity $18,960,908 $21,038,115
<FN>
See notes to financial statements.
</TABLE>
<TABLE>
MOTO PHOTO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<CAPTION>
Three Months Three Months
Ended Ended
March 31, 1998 March 31, 1997
<S> <C> <C>
Revenues
Company store sales $ 2,735,581 $ 3,541,587
Merchandise sales 3,093,683 3,500,139
Royalties 1,033,257 1,069,792
Franchise fees 22,250 45,770
Investment income 94,467 89,586
Telemarketing Revenue 112,203 214,874
7,091,441 8,461,748
Expenses
Company store cost of sales and operating
expenses 2,617,151 3,294,709
Merchandise cost of sales and operating
expenses 2,825,482 3,086,387
Selling, general, and administrative costs 1,349,866 1,700,227
Advertising 257,684 284,942
Depreciation and amortization 210,760 199,195
Interest expense 97,740 80,221
7,291,683 8,645,681
(Loss) Before Income Taxes (267,242) (183,933)
Income tax benefit 67,000 57,000
Net (Loss) (200,242) (126,933)
Preferred Stock Dividend Requirements (69,344) (71,470)
Net (loss) Applicable to Common Stock $ (269,586) $ (198,403)
Net (loss) Per Common Share - Basic and Diluted $ (0.03) $ (0.03)
Average Shares Outstanding - Basic and Diluted 7,804,540 7,787,884
<FN>
See notes to financial statements.
</TABLE>
<TABLE>
MOTO PHOTO INC AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASHFLOWS
(UNAUDITED)
<CAPTION>
Three Months Three Months
Ended Ended
March 31, 1998 March 31, 1997
<S> <C> <C>
Operating Activities
Net (loss) $ (200,242) $ (126,933)
Adjustments to reconcile net (loss) to net cash
provided by operating activities:
Provision for income taxes (67,000) (57,000)
Depreciation and amortization 210,760 199,195
Provision for losses on inventory and 154,145 179,646
receivables
Provision for (gain) loss on disposition 65,672 7,937
of assets
Write off of assets due to store closings 32,258
Increase (decrease) resulting from changes
in:
Accounts receivable 767,943 177,150
Inventory and prepaid expenses (587,058) (386,850)
Other assets (10,563) (62,032)
Accounts payable and accrued expenses (1,450,023) (3,279,592)
Deferred revenues and other liabilities (6,278) 545,310
Net cash (used in) operating activities (1,090,386) (2,803,169)
Investing Activities
Purchases of equipment and leaseholds (66,753) (29,542)
Payments received on notes receivable 173,306 186,635
Net cash provided by investing activities 106,553 157,093
Financing Activities
Proceeds from revolving line of credit and
borrowings - 4,887,098
Principal payments on revolving line of credit,
long-term debt and capital lease obligations (270,665) (2,961,381)
Payments of preferred dividends (150,000) (150,000)
Net cash provided by (used in) financing (420,665) 1,775,717
activities (420,665) 1,775,717
Increase (decrease) in cash and equivalents (1,404,498) (870,359)
Cash and cash equivalents at beginning of year 3,139,252 1,398,944
Cash and cash equivalents at end of period $ 1,734,754 $ 528,585
Non-cash transactions
Issuance of stock for directors fees $ 3,000 $ 7,760
<FN>
See notes to financial statements.
</TABLE>
MOTO PHOTO, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998
``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, 1997.
2.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. March 28 vs. March 31 for the first quarter 1998), except for the
fourth quarter which ends on December 31. The differences in interim periods
are immaterial.
3.The first three months of the year are seasonally slower and do not represent
25% of the year.
4.In the first quarter 1998, $150,000 of dividends were paid on the Series G
preferred shares. Of this amount $80,576 was for previously reported and
accreted dividends.
5.In May 1998, the Company obtained a commitment for a new revolving line of
credit which expires April 30, 2000. The line of credit provides for
borrowings up to $2.0 million at prime rate plus .50%. The Company also
received a commitment for a $1,250,000 term loan for capital expenditures.
6.Certain amounts from prior periods have been restated to conform to the
current period presentation.
7.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 FIRST QUARTER 1998 VS FIRST QUARTER 1997
The Company reported a net loss of $269,586 and a loss per common share,
basic and diluted, of $.03 for the first quarter 1998 compared to a net loss
of $126,833, and loss per common share, basic and diluted, of $.03 for the
first quarter 1997. Per share calculations are made after provision for
Series G preferred dividend requirements.
Sales from Company stores were down 22.8% for the first quarter 1998 compared
to the same period a year ago primarily due to fewer stores in operation.
The decrease was anticipated due to the sale of certain stores as franchises
and the planned closing of other Company stores. Sales from comparable
stores were 3.7% less in 1998 compared to 1997 due to a shift in the Easter
holiday from March in 1997 to April in 1998 and a weak overall market.
Company store cost of sales and operating expenses fell $678,000, or 20.6%,
primarily due to fewer stores in operation. The cost of sales for comparable
stores increased 2.1% as a percent of sales in 1998 compared to 1997 due
primarily to heavier discounting.
Merchandise sales decreased $406,000 or 11.6%, for the first quarter 1998
compared to the first quarter 1997 as a result of fewer system stores and
weaker demand in the first quarter of 1998 compared to 1997.
Royalty revenues decreased $37,000, or 3.4%, for the first quarter 1998
compared to the first quarter 1997, primarily due to fewer reporting
franchise stores.
Franchise fees were down $24,000, or 51%. The company had two more franchise
store openings in the first quarter 1997 than in the first quarter 1998.
Investment income increased 5.4%, compared to the same period a year ago
primarily due higher cash balance generating additional interest income.
Telemarketing revenues were down $103,000 or 48% compared to the same period
a year ago, primarily due to emphasis on other marketing programs and planned
reliance on less sales to non-franchisees.
Advertising costs were down $27,000, or 9.6% due to reduced levels of Company
store advertising.
Interest expense is up $18,000, or 22%, due to higher levels of interest
bearing debt.
MANAGEMENT DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
Cash used in operating activities decreased by $1.7 million in 1998 compared
to 1997 as the company reduced accounts payable and accrual balances in 1997.
Reduction of accounts receivable on lower sales and tighter credit generated
$590,000 more cash in 1998 compared to 1997 while an increase in inventory
due to an atypical buy in of film required $200,000 of additional cash in
1998 compared to 1997.
Cash of $420,000 was required for financing activities in 1998 to make debt
payments of $270,000 and to pay preferred dividends of $150,000. In 1997,
the Company had net borrowing of $1.9 million which was used to reduce
accounts payable and accrued liabilities.
In May 1998, the Company obtained a commitment for a new revolving line of
credit which expires on April 30, 2000. The line provides for borrowing up
to $2.0 million at prime rate plus .50%. The Company has also received a
commitment for a $1,250,000 term loan for capital expenditures.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
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 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, 1998.
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: May 14, 1998
EXHIBITS TO
FORM 10-Q
for the quarter ended
March 31, 1998
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>
EXHIBIT 11.0
COMPUTATION OF PER SHARE EARNINGS
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
31-MARCH-98 31-MARCH-97
<S> <C> <C>
Numerator:
Net (loss) ($200,242) ($126,933)
Preferred stock dividend requirement ($69,344) ($71,470)
Numerator for basic earnings per share--
income available to common shareholders ($269,586) ($198,403)
Effect of dilutive securities: - -
Numerator for diluted earnings per share--
income available to common stockholders
after assumed conversions ($269,586) ($198,403)
Denominator:
Denominator for basic earnings per share--
weighted average shares outstanding 7,804,540 7,787,884
Effect of dilutive securities:
Employee stock options - -
Dilutive potential common shares
Denominator for diluted earnings
per share--adjusted weighted average
shares and assumed conversions 7,804,540 7,787,884
Basic earnings per share ($0.03) ($0.03)
Diluted earnings per share ($0.03) ($0.03)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information from Moto Photo
Inc.'s 1998 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-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 1,734,754
<SECURITIES> 0
<RECEIVABLES> 8,549,886
<ALLOWANCES> 2,646,000
<INVENTORY> 1,950,066
<CURRENT-ASSETS> 8,887,830
<PP&E> 10,935,174
<DEPRECIATION> 7,905,355
<TOTAL-ASSETS> 18,960,908
<CURRENT-LIABILITIES> 5,888,320
<BONDS> 0
0
10,000
<COMMON> 78,060
<OTHER-SE> 3,340,355
<TOTAL-LIABILITY-AND-EQUITY> 18,960,908
<SALES> 5,829,264
<TOTAL-REVENUES> 7,091,441
<CGS> 3,204,789
<TOTAL-COSTS> 5,442,635
<OTHER-EXPENSES> 468,444
<LOSS-PROVISION> 142,145
<INTEREST-EXPENSE> 97,740
<INCOME-PRETAX> (267,242)
<INCOME-TAX> (67,000)
<INCOME-CONTINUING> (200,242)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (200,242)
<EPS-PRIMARY> (0.03)
<EPS-DILUTED> (0.03)
</TABLE>
