<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: DECEMBER 28, 1996 Commission file No. 0-15338
----------------- -------
SEATTLE FILMWORKS, INC.
------------------------
(Exact name of registrant as specified in its charter.)
<TABLE>
<S> <C>
WASHINGTON 91-0964899
------------------------------- ----------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1260 16TH AVENUE WEST, SEATTLE, WA 98119
- --------------------------------------- ---------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (206) 281-1390
--------------
</TABLE>
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 the
filing requirements for the past 90 days.
Yes X No
___ ___
As of January 31, 1997, there were issued and outstanding 10,859,255 shares
of common stock, par value $.01 per share.
Index to Exhibits at Page 13
Page 1 of 14
<PAGE>
SEATTLE FILMWORKS, INC.
INDEX
-----
Page No.
--------
PART I -- FINANCIAL INFORMATION
<TABLE>
<CAPTION>
<S> <C>
Item 1 - Financial Statements 3-7
Balance Sheets as of December 28, 1996
and September 28, 1996 3-4
Statements of Income for the first quarter
ended December 28, 1996 and December 30, 1995 5
Statements of Cash Flows for the first quarter ended
December 28, 1996 and December 30, 1995 6
Notes to Financial Statements 7
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-11
PART II -- OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K 11
SIGNATURES 12
INDEX TO EXHIBITS 13
EXHIBITS 14
</TABLE>
Page 2 of 14
<PAGE>
PART I -- FINANCIAL INFORMATION
-------------------------------
ITEM 1 - FINANCIAL STATEMENTS
SEATTLE FILMWORKS, INC.
BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
(UNAUDITED) (NOTE)
December 28, September 28,
ASSETS 1996 1996
=============================================================== ============= ==============
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 2,480 $ 6,135
Securities available-for-sale 7,842 4,559
Accounts receivable, net of allowance for doubtful accounts 1,920 1,980
Inventories 8,727 6,577
Capitalized promotional expenditures 146 238
Prepaid expenses and other 559 351
Deferred income taxes 311 311
------- -------
TOTAL CURRENT ASSETS 21,985 20,151
FURNITURE, FIXTURES, AND EQUIPMENT,
at cost, less accumulated depreciation 5,123 5,337
CAPITALIZED CUSTOMER ACQUISITION EXPENDITURES 12,675 11,334
DEPOSITS AND OTHER ASSETS 373 253
NON-COMPETE AGREEMENT,
net of accumulated amortization 657 751
------- -------
TOTAL ASSETS $40,813 $37,826
======= =======
</TABLE>
Note: The September 28, 1996 balance sheet has been derived from audited
financial statements.
See notes to financial statements.
Page 3 of 14
<PAGE>
SEATTLE FILMWORKS, INC.
BALANCE SHEETS (CONTINUED)
(in thousands, except per share and share data)
<TABLE>
<CAPTION>
(UNAUDITED) (NOTE)
December 28, September 28,
LIABILITIES AND SHAREHOLDERS' EQUITY 1996 1996
======================================================= ============= ==============
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 6,329 $ 3,490
Accrued expenses 853 1,086
Accrued compensation 1,090 2,001
Income taxes payable 109 972
------- -------
TOTAL CURRENT LIABILITIES 8,381 7,549
DEFERRED INCOME TAXES 4,209 3,602
------- -------
TOTAL LIABILITIES 12,590 11,151
SHAREHOLDERS' EQUITY
Preferred Stock, $.01 par value,
authorized 2,000,000 shares, none issued
Common Stock, $.01 par value, authorized 67,500,000
shares, issued and outstanding 10,848,155 108 108
Additional paid-in capital 1,871 1,680
Retained earnings 26,244 24,887
------- -------
TOTAL SHAREHOLDERS' EQUITY 28,223 26,675
------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $40,813 $37,826
======= =======
</TABLE>
Note: The September 28, 1996 balance sheet has been derived from audited
financial statements.
See notes to financial statements.
Page 4 of 14
<PAGE>
SEATTLE FILMWORKS, INC.
STATEMENTS OF INCOME (UNAUDITED)
(in thousands, except per share and share data)
<TABLE>
<CAPTION>
First Quarter Ended
--------------------------
Deccember 28, December 30,
1996 1995
===============================================================================
<S> <C> <C>
Net revenues $21,236 $16,689
Cost of goods and services 12,982 10,397
------- -------
GROSS PROFIT 8,254 6,292
Operating expenses:
Customer acquisition costs 3,482 2,538
Other selling expenses 1,760 1,332
Research and development 173 247
General and administrative 907 768
------- -------
Total operating expenses 6,322 4,885
------- -------
INCOME FROM OPERATIONS 1,932 1,407
Other income (expense):
Interest income 146 142
Nonoperating income (expense), net 2 (93)
------- -------
Total other income 148 49
------- -------
INCOME BEFORE INCOME TAXES 2,080 1,456
Provision for income taxes (723) (505)
------- -------
NET INCOME $ 1,357 $ 951
======= =======
EARNINGS PER SHARE $ .11 $ .08
======= ========
WEIGHTED AVERAGE SHARES AND
EQUIVALENTS OUTSTANDING 11,883,352 11,771,703
========== ==========
</TABLE>
See notes to financial statements.
Page 5 of 14
<PAGE>
SEATTLE FILMWORKS, INC.
STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
<TABLE>
<CAPTION>
First Quarter Ended
-----------------------------
December 28, December 30,
1996 1995
==============================================================================================
<S> <C> <C>
OPERATING ACTIVITIES:
- ---------------------
Net income $ 1,357 $ 951
Charges to income not affecting cash:
Depreciation and amortization 697 537
Amortization of capitalized customer
acquisition expenditures 3,214 2,165
Deferred income taxes 607 744
Loss on disposal of equipment 90
Net change in receivables, inventories, payables and other (1,466) (2,077)
Capitalized promotional expenditures, net 92 56
Additions to capitalized customer acquisition expenditures (4,555) (4,417)
------- -------
NET CASH USED IN OPERATING ACTIVITIES (54) (1,951)
INVESTING ACTIVITIES:
- --------------------
Purchase of furniture, fixtures, and equipment (509) (877)
Purchases of securities available for sale (3,283) (1,850)
------- -------
NET CASH USED IN INVESTING ACTIVITIES (3,792) (2,727)
FINANCING ACTIVITY: Proceeds from issuance of Common Stock 191 22
- ----------------------------------------------------------- ------- -------
DECREASE IN CASH AND CASH EQUIVALENTS (3,655) (4,656)
Cash and cash equivalents at beginning of period 6,135 8,560
------- -------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 2,480 $ 3,904
======= =======
</TABLE>
See notes to financial statements.
Page 6 of 14
<PAGE>
SEATTLE FILMWORKS, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
NOTE A -- BASIS OF PRESENTATION
Seattle FilmWorks, Inc. (the "Company") is a leading direct-to-consumer
marketer and provider of high-quality amateur photofinishing services and
products. The Company offers an array of complementary services and products,
primarily on a mail-order basis, under the brand name Seattle FilmWorks(R). To
a lesser extent, the Company provides services, products and photofinishing
supplies on a wholesale basis to a variety of commercial customers.
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Rule 10-01 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of normal
recurring adjustments) considered necessary for fair presentation of interim
results have been included. The Company follows a policy of recording its
interim periods and year-end on a 5 week, 4 week and 4 week basis for
comparability of results and to be consistent with its internal weekly
reporting. Operating results for the first quarter ended December 28, 1996 are
not necessarily indicative of the results that may be expected for the fiscal
year ending September 27, 1997. For further information, refer to the
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and financial statements and footnotes thereto included in the
Company's Annual Report on Form 10-K for the year ended September 28, 1996.
NOTE B -- STOCK SPLIT
On March 15, 1996 the Company effected a three-for-two stock split by
declaring a stock dividend of one share for every two shares outstanding. All
share data, per share data and related accounts in the accompanying financial
statements have been retroactively adjusted for this stock split.
NOTE C -- CHANGE IN ESTIMATES
Effective as of the beginning of the second quarter of fiscal 1996, the
Company changed from twelve months to six months the period over which it
amortizes certain capitalized customer acquisition expenditures related to
groups of existing customers. This change in accounting estimate was made to
more accurately match incremental revenues and expenses. The Company also
changed the estimated life of the benefit of a non-compete agreement from ten
years to five years.
Page 7 of 14
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Forward-Looking Information
- ---------------------------
Statements in this report concerning expectations for the future constitute
forward-looking statements which are subject to a number of known and unknown
risks, uncertainties and other factors which may cause actual results,
performance or achievements of the Company or industry trends to differ
materially from those expressed or implied by such forward-looking statements.
Relevant risks and uncertainties include, among others, those described below,
those stated in the Company's Annual Report on Form 10-K and those identified by
the Company from time to time in other filings with the Securities and Exchange
Commission, press releases and other communications.
General
- -------
Seattle FilmWorks, Inc. (the "Company") is a leading direct-to-consumer
marketer and provider of high-quality amateur photofinishing services and
products. The Company offers an array of complementary services and products
primarily on a mail-order basis under the brand name Seattle FilmWorks(R). The
Company has experienced an increase in net revenues in each year since 1990.
Management believes this growth is attributable principally to its direct-
marketing programs, including the customer acquisition technique of offering two
rolls of film for $2.00 or less (the "Introductory Offer"). The Introductory
Offer has been nationally advertised in package inserts, newspaper supplements
and magazines and through various other direct-response media.
Beginning in fiscal 1995, the Company shifted the focus of, and
substantially expanded, its customer acquisition programs. Management believes
that these steps are the primary reasons for the growth of net revenues and net
income during fiscal 1995, 1996 and the first three months of fiscal 1997. In
addition, management believes its core photofinishing business has benefited
from the introduction of new products, such as the January 1994 introduction of
Pictures On Disk/TM/ and PhotoWorks(R).
Customer acquisition costs are comprised of the costs of generating a lead
and the amortization of direct costs associated with the Company's promotional
offers sent to prospective and existing customers. The costs of generating a
lead include all direct-response media, advertising and other costs associated
with developing target customer lists. These costs per lead have declined
during each of the last three fiscal years. The direct costs of customer
acquisition include film, postage and printed material costs associated with
mailings to prospective and existing customers. These direct costs per
recipient of the Introductory Offer have also declined during each of the last
three fiscal years.
The direct costs of customer acquisition are capitalized as an asset on the
Company's balance sheet as "capitalized customer acquisition expenditures."
Capitalized customer acquisition expenditures relating to prospective customers
are amortized over three years, and capitalized customer acquisition
expenditures relating to certain marketing activities to groups of existing
customers are amortized over six months. These amortization rates are based on
estimates of the timing of future roll processing volumes per customer. The
proportion of capitalized customer acquisition expenditures to be amortized over
three years relative to those to be amortized over six months will vary from
period to period based on the timing and mix of promotional activities. Rates
of amortization are compared from time to time with the actual timing of roll
processing volumes in order to assess whether the amortization rates
appropriately match the direct costs of customer acquisition with the related
revenues. If the Company were to experience a material change in the timing of
roll processing volumes, it could be required to accelerate the rate of
amortization of capitalized customer acquisition expenditures, which could have
a material adverse effect on the Company's business, financial condition and
operating results.
Page 8 of 14
<PAGE>
Customer acquisition costs as a percentage of net revenues have increased
to 16.4% in the first quarter of fiscal 1997 as compared to 15.2% in the first
quarter of fiscal 1996. Management believes this increase in customer
acquisition costs as a percentage of net revenues was due primarily to expansion
of the Company's customer acquisition programs. Future periods may reflect
increased customer acquisition costs due to timing of the amortization of
capitalized expenditures or the development and initiation of additional
marketing programs. For tax purposes, customer acquisition expenditures are
expensed as incurred, thereby reducing current federal income tax liabilities
and increasing deferred federal income tax liabilities.
Net income as a percentage of net revenues increased to 6.4% for the first
three months of fiscal 1997 as compared to 5.7% for the same period of fiscal
1996 primarily due to the relationship between changes in costs of goods sold,
customer acquisition costs and other selling expenses which in turn are
primarily driven by changes in sales mix and the Company's customer acquisition
strategy. Operating results will fluctuate in the future due to changes in the
mix of sales, intensity and effectiveness of promotional activities, price
increases by suppliers, introductions of new products, research and development
requirements, actions by competitors, foreign currency exchange rates,
conditions in the direct-to-consumer market and the photofinishing industry in
general, national and global economic conditions and other factors.
Demand for the Company's photo-related services and products is highly
seasonal, with the highest volume of photofinishing activity occurring during
the summer months. However, seasonality of demand may be offset by the
introduction of new services and products, changes in the level of effectiveness
of customer acquisition programs and other factors. This seasonality, when
combined with the general growth of the Company's photofinishing business, has
produced greater photofinishing net revenues during the last half of the
Company's fiscal year (April through September), with a peak occurring in the
fourth fiscal quarter. Net income is affected by the seasonality of the
Company's net revenues due to the fixed nature of a portion of the Company's
operating expenses, seasonal variation in sales mix and the Company's practice
of relatively higher expenditures on marketing programs prior to the summer
months.
RESULTS OF OPERATIONS
The following table presents information from the Company's statements of
income, expressed as a percentage of net revenues for the periods indicated.
<TABLE>
<CAPTION>
First Quarter Ended
-----------------------------
December 28, December 30,
1996 1995
==============================================================
<S> <C> <C>
Net revenues 100.0% 100.0%
Cost of goods and services 61.1 62.3
----- -----
GROSS PROFIT 38.9 37.7
Operating expenses:
Customer acquisition costs 16.4 15.2
Other selling expenses 8.3 8.0
Research and development .8 1.5
General and administrative 4.3 4.6
----- -----
Total operating expenses 29.8 29.3
----- -----
INCOME FROM OPERATIONS 9.1 8.4
Total other income .7 .3
----- -----
INCOME BEFORE INCOME TAXES 9.8 8.7
----- -----
Provision for income taxes 3.4 3.0
----- -----
NET INCOME 6.4% 5.7%
===== =====
</TABLE>
Page 9 of 14
<PAGE>
Net revenues for the first quarter of fiscal 1997 increased 27.2% to
$21,236,000 as compared to net revenues of $16,689,000 in the first quarter of
fiscal 1996. The increased net revenues in fiscal 1997 were primarily due to
expanded customer acquisition activities and marketing to existing customers
during fiscal year 1996 and the first three months of fiscal year 1997 which
have resulted in increased net revenues from photofinishing services and
products. Management believes that its Seattle FilmWorks(R) branded business
has benefited from the Company's entry into the personal computer market with
its PhotoWorks(R) and Pictures On Disk/TM/products, which were first introduced
in January 1994. Management also believes net revenues were negatively affected
by heavy snowfall in the Pacific Northwest which delayed receipt and processing
of nearly two days of customers orders at the close of the quarter.
Cost of goods and services consist of labor, postage and supplies related
to the Company's services and products. Gross profit in the first quarter of
fiscal 1997 increased to 38.9% of net revenue compared to 37.7% in the first
quarter of fiscal 1996. The increase in fiscal 1997 was due primarily to a
product mix containing a higher percentage of the Company's Seattle FilmWorks(R)
branded products, which carry a higher gross profit margin than the Company's
other services and products. Fluctuations in gross profit will occur in future
periods due to the seasonal nature of revenues, mix of product sales, intensity
of promotional activities and other factors.
Total operating expenses in the first quarter of fiscal 1997 increased to
29.8% of net revenue compared to 29.3% in the first quarter of fiscal 1996.
This increase was due primarily to an increase in customer acquisition and other
selling activities, which affect revenues in current and future periods. The
Company's principal technique for acquiring new customers is its Introductory
Offer of two rolls of 35 mm film for $2.00 or less. Effective as of the
beginning of the second quarter of fiscal 1996 the Company reduced from twelve
to six months the amortization period for certain marketing activities to
specific groups of existing customers. The Company capitalized $4,555,000 of
customer acquisition expenditures in the first quarter of fiscal 1997 compared
to $4,417,000 for the first quarter of fiscal 1996. Capitalized customer
acquisition expenditures as of December 28, 1996, increased to $12,675,000
compared to $11,334,000 as of September 28, 1996. Management believes this
increased investment in customer acquisition combined with new service and
product introductions are the primary reasons for the increase in
photofinishing-related revenues. Each year the Company prepares detailed plans
for its various marketing activities, including the mix between customer
acquisition expenditures and other selling expenses. However, the Company
occasionally changes both the mix and total marketing expenditures between
periods to take advantage of marketing opportunities as they become available.
Future periods may reflect increased customer acquisition costs due to the
timing of the amortization of capitalized expenditures or the development and
initiation of additional marketing programs.
Other selling expenses include marketing costs associated with building
brand awareness, testing of new marketing strategies and marketing to existing
customers, as well as certain costs associated with acquiring new customers.
Other selling expenses in the first quarter of fiscal 1997 increased to 8.3% of
net revenues compared to 8.0% of net revenues for the first quarter of fiscal
1996. This increase was primarily due to increased marketing activities
associated with expanded promotional activities to new and existing customers
compared to the fiscal 1996 period.
Research and development expenses decreased to $173,000 in the first
quarter of fiscal 1997 as compared to $247,000 for the first quarter of fiscal
1996. The decrease resulted primarily from lower contract service costs for the
first quarter of fiscal 1997. Research and development expenses consist
primarily of costs incurred in researching new computerized digital imaging
concepts, developing computer software products and creating equipment necessary
to provide customers with new computer-related photographic services and
products.
General and administrative expenses increased to $907,000 for the first
quarter of fiscal 1997 as compared to $768,000 for the first quarter of fiscal
1996. This increase was due to increased compensation expenses based on the
Company's profitability, increased costs related to the Company's management
information systems and increased legal and accounting costs. General and
administrative expenses as a percent of net revenues decreased to 4.3% for the
first quarter of fiscal 1997 as compared to 4.6% for the first quarter of fiscal
1996. General and administrative expenses consist of costs related to computer
operations, human resource functions, finance, accounting, investor relations
and general corporate activities.
Page 10 of 14
<PAGE>
Total other income for the first quarter of fiscal 1997 increased to
$148,000 as compared to $49,000 for the first quarter of fiscal 1996. The
increase resulted from higher interest income and from a $90,000 loss on
equipment disposals during the first quarter of fiscal 1996.
The federal income tax rate for the first three months of fiscal 1997 as
compared to the first three months of fiscal 1995 increased to 34.8% from 34.7%.
The increase in the effective tax rate was due primarily to an increase in the
marginal federal corporate tax rate due to expected income levels.
Net income in the first quarter of fiscal 1997 was $1,357,000, or $.11 per
share, compared to $951,000 or $.08 per share for the first quarter of fiscal
1996. The increase in net income was primarily attributable to the increase in
net revenues and gross profit partially offset by the increase in operating
expenses.
LIQUIDITY AND CAPITAL RESOURCES
As of January 31, 1997, the Company's principal sources of liquidity
included cash and short-term investments of $11,501,922 and an unused revolving
line of credit of $6,000,000. The ratio of current assets to current
liabilities for the Company was 2.6 to 1 at the end of the first quarter of
fiscal 1997, down slightly from the current ratio of 2.7 to 1 at September 28,
1996. During the first quarter of fiscal 1997 the Company increased its
investment in securities available-for-sale by $3,283,000 which was the primary
reason for the decrease in cash and cash equivalents. The Company also
increased inventory levels by $2,150,000 to accommodate expanded marketing
plans, achieve faster turnaround of customer orders, and support increased
photofinishing volume. This increase in inventory was also the principal reason
for the $2,839,000 increase in accounts payable at the end of the first quarter.
Federal income taxes payable were favorably affected by the increase in
capitalized customer acquisition expenditures which are expensed as incurred for
federal income tax purposes, thereby having the effect of reducing current
federal income tax liabilities and increasing deferred federal income tax
liabilities.
On January 22, 1997, the Company announced that it may repurchase shares of
its Common Stock, either through open market purchases at prevailing market
prices, through block purchases or in privately negotiated transactions.
Repurchases may be commenced or discontinued by the Company at any time.
Although the number of shares to be repurchased is uncertain, any repurchased
shares will serve to offset the dilutive effect of shares of Common Stock issued
under the Company's stock option and stock purchase plans.
Although the Company does not currently have any fixed material commitments
with regard to capital expenditures, it currently expects to spend approximately
$3,500,000 during the remainder of fiscal 1997, principally for photofinishing
equipment and for leasehold improvements.
The Company currently anticipates that existing funds together with
anticipated cash flow from operations and the Company's available line of credit
of $6,000,000 will be sufficient to finance its operations and planned capital
expenditures and to service its indebtedness for the foreseeable future.
However, if the Company does not generate sufficient cash from operations to
satisfy its ongoing expenses, the Company will be required to seek external
sources of financing or to refinance its obligations. Possible sources of
financing include the sale of equity securities or additional bank borrowings.
There can be no assurance that the Company will be able to obtain adequate
financing in the future.
PART II -- OTHER INFORMATION
----------------------------
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS.
---------
11 Computation of Earnings Per Share
(b) REPORTS ON FORM 8-K.
--------------------
None
Page 11 of 14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SEATTLE FILMWORKS, INC.
DATED: February 10, 1997 /s/ Gary R. Christophersen
--------------------------------------
Gary R. Christophersen
President/Chief Executive Officer
(Principal Executive Officer)
/s/ Case H. Kuehn
--------------------------------------
Case H. Kuehn
Vice President-Finance/Treasurer
(Principal Financial and Chief
Accounting Officer)
Page 12 of 14
<PAGE>
INDEX TO EXHIBITS
SEATTLE FILMWORKS, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED DECEMBER 28, 1996
Exhibit Description Page No.
- ------- ----------- --------
11 Computation of Earnings Per Share 14
Page 13 of 14
<PAGE>
EXHIBIT 11
SEATTLE FILMWORKS, INC.
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
First Quarter Ended
---------------------------
December 28, December 30,
1996 1995
==================================================================================
<S> <C> <C>
COMPUTATION OF PRIMARY EARNINGS PER SHARE:
- ------------------------------------------
Weighted average shares outstanding 10,835,277 10,727,024
Net effect of dilutive stock options based on the
treasury stock method using average market price 1,048,075 1,044,679
----------- -----------
Total shares and equivalents 11,883,352 11,771,703
=========== ===========
Net income $ 1,356,919 $ 950,711
=========== ===========
PRIMARY EARNINGS PER SHARE $ .11 $ .08
=========== ===========
COMPUTATION OF FULLY DILUTED EARNINGS PER SHARE:
- ------------------------------------------------
Weighted average shares outstanding 10,835,277 10,727,024
Net effect of dilutive stock options based on the
treasury stock method using the higher of quarter-end
market price or average market price 1,048,075 1,044,679
----------- -----------
Total shares and equivalents 11,883,352 11,771,703
=========== ===========
Net income $ 1,356,919 $ 950,711
=========== ===========
FULLY DILUTED EARNINGS PER SHARE $ .11 $ .08
=========== ===========
</TABLE>
Page 14 of 14
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
Seattle FilmWorks, Inc. first quarter 1997 10-Q.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-27-1997
<PERIOD-START> SEP-29-1996
<PERIOD-END> DEC-28-1996
<CASH> 10,322
<SECURITIES> 0
<RECEIVABLES> 1,920<F1>
<ALLOWANCES> 0
<INVENTORY> 8,727
<CURRENT-ASSETS> 21,985
<PP&E> 5,123<F1>
<DEPRECIATION> 0
<TOTAL-ASSETS> 40,813
<CURRENT-LIABILITIES> 8,381
<BONDS> 0
0
0
<COMMON> 108
<OTHER-SE> 28,115
<TOTAL-LIABILITY-AND-EQUITY> 40,813
<SALES> 0
<TOTAL-REVENUES> 21,236
<CGS> 12,982
<TOTAL-COSTS> 6,322
<OTHER-EXPENSES> (148)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,080
<INCOME-TAX> 723
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,357
<EPS-PRIMARY> .11
<EPS-DILUTED> .11
<FN>
<F1>Asset Values Represent Net Amounts
</FN>
</TABLE>
