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, 2001
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.
YesX 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 May 11, 2001:
7,809,338 - Voting Common, 0 - Non - Voting Common
Index
Moto Photo, Inc. and Subsidiaries
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets - March 31, 2001 and December 31, 2000
Consolidated Statements of Operations - Three months ended March 31, 2001 and 2000
Consolidated Statements of Cash Flows - Three months ended March 31, 2001 and 2000
Notes to Consolidated Financial Statements - March 31, 2001
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Part II. Other Information
Item 3. Defaults Upon Senior Securities
Item 6. Exhibits and Reports on Form 8-K
Signature
Part I. Financial Information
Item 1. Financial Statements
Moto Photo, Inc. and Subsidiaries
Consolidated Balance Sheets
(Unaudited)
| March 31,
2001 | December 31,
2000 |
| | |
Assets | | |
Current Assets: | | |
Cash | $476,974 | $1,504,233 |
Accounts receivable, less allowances of $721,000 in
2001 and $822,000 in 2000 |
2,232,431
|
3,475,782
|
Notes receivable, less allowances of $41,000 in 2001 and 2000 |
190,669
|
190,669
|
Inventory | 1,874,961 | 1,875,500 |
Income taxes receivable | - | 240,784 |
Deferred club costs | 160,305 | 160,305 |
Prepaid expenses | 142,008 | 218,817 |
Total current assets | 5,077,348 | 7,666,090 |
| | |
Property and equipment | 4,834,591 | 4,955,205 |
| | |
Other assets: | | |
Notes receivable, less allowances of $1,585,000 in
2001 and $1,861,000 in 2000 |
638,824
|
671,282
|
Cost of franchises and contract acquired | 77,228 | 86,424 |
Goodwill, net | 3,246,898 | 3,282,415 |
Other assets | 747,895 | 754,470 |
Total assets | $14,622,784 | $17,415,886 |
| | |
See accompanying notes.
Moto Photo, Inc. and Subsidiaries
Consolidated Balance Sheets, continued
(Unaudited)
| March 31,
2001 | December 31,
2000 |
| | | |
Liabilities and stockholders' equity | | |
Current liabilities: | | |
Accounts payable | $ 882,576 | $ 1,628,098 |
Accrued payroll and benefits | 671,704 | 964,735 |
Accrued expenses | 594,264 | 888,314 |
Deferred club revenue | 275,231 | 275,231 |
Current portion of long-term obligations | 5,636,800 | 5,644,600 |
Other | 145,168 | 132,580 |
Total current liabilities | 8,205,743 | 9,533,558 |
| | |
Long-term debt | 4,432,557 | 5,272,046 |
Capitalized leases | 9,548 | 19,058 |
Total liabilities | 12,647,848 | 14,824,662 |
| | |
Stockholders' equity: | | |
Preferred stock $.01 par value: | | |
Authorized shares - 2,000,000: | | |
Amended 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 - 31,000,000 | | |
Issued and outstanding shares - 7,884,565
in 2001 and 2000 | 78,845 | 78,845 |
Treasury stock (75,227 shares in 2001 and 101,551
shares in 2000, at par) | (752) | (1,016) |
Paid-in capital | 7,020,648 | 6,818,059 |
Accumulated deficit subsequent to June 30, 1991 | ( 5,133,805) | (4,314,664) |
Total stockholders' equity | 1,974,936 | 2,591,224 |
Total liabilities and stockholders' equity | $ 14,622,784 | $ 17,415,886 |
| | |
See accompanying notes.
Moto Photo, Inc. and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
| 3 months | 3 months |
| Ended | Ended |
| March 31, 2001 | March 31, 2000 |
| | | |
Revenues | | |
| | |
Sales and other revenue | $6,385,173 | $7,281,907 |
Interest income | 43,412 | 71,864 |
| 6,428,585 | 7,353,771 |
| | |
Expenses | | |
| | |
Cost of sales and operating expenses | 5,221,657 | 5,921,670 |
Selling, general, and administrative expenses | 1,184,998 | 1,418,369 |
Advertising expense | 176,459 | 329,834 |
Depreciation and amortization | 354,749 | 370,476 |
Interest expense | 113,181 | 153,663 |
| 7,051,044 | 8,194,012 |
| | |
Loss before income taxes | (622,459) | (840,241) |
| | |
Income tax benefit | - | 294,000 |
Net loss | (622,459) | (546,241) |
| | |
Dividend accretion: | | |
Preferred shares | (196,682) | (175,404) |
Net loss applicable to common shares | $(819,141) | $(721,645) |
| | |
Net loss per common share - basic and diluted | $(0.11) | $(0.09) |
| | |
Weighted average shares outstanding - basic and diluted | 7,794,714 | 7,734,203 |
See accompanying notes.
Moto Photo, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
| 3 Months | 3 Months |
| Ended | Ended |
| March 31, 2001 | March 31, 2000 |
| | | |
Operating activities | | |
Net loss | $ (622,459) | $ (546,241) |
Adjustments to reconcile net cash utilized by operating activities: | | |
Depreciation and amortization | 354,749 | 370,476 |
Provision for losses on inventory and receivables | 80,737 | 44,918 |
Notes receivable increases as a result of franchise activities | (15,113) | (15,000) |
Loss on disposition of assets | 2,026 | - |
Noncash directors fees expense | 6,170 | 19,608 |
Increase (decrease) resulting from changes in: | | |
Income tax receivable | 240,784 | 291,048 |
Accounts receivable | 1,157,716 | 406,323 |
Inventory, prepaid expenses and deferred club costs | 75,977 | 71,308 |
Accounts payable, accrued payroll, benefits, and accrued expenses | (1,332,602) | (2,942,739) |
Deferred revenue and other liabilities | 12,588 | (65,874) |
Net cash utilized in operating activities | (39,427) | (2,366,173) |
| | |
Investing activities | | |
Purchases of property and equipment | (186,073) | (146,660) |
Payments received on notes receivable | 53,840 | 491,472 |
Other assets | 1,200 | 11,293 |
Net cash provided by (utilized in) investing activities | (131,033) | 356,105 |
| | |
Financing activities | | |
Proceeds from long-term debt and capital leases | - | 365,892 |
Principal payments on long-term debt and capital
lease obligations | (856,799) | (1,418,514) |
Purchase of common shares for treasury stock | - | (9,772) |
Contributed capital | - | 1,413 |
Net cash utilized in financing activities | (856,799) | (1,060,981) |
| | |
Decrease in cash | (1,027,259) | (3,071,049) |
Cash at beginning of period | 1,504,233 | 3,953,375 |
Cash at end of period | $ 476,974 | $ 882,326 |
See accompanying notes.
Moto Photo, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
March 31, 2001 and March 31, 2000
"Unaudited"
A. Basis of Presentation
The accompanying unaudited consolidated financial statements have been derived from the unaudited accounting records of the Company and have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (all of which are of a normal recurring nature) considered necessary for a fair presentation have been included. Operating results for the three-month period ended March 31, 2001 are not necessarily indicative of the results that may be expected for the year ended December 31, 2001.
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., April 1 vs. March 31 for the first quarter 2000), except for the fourth quarter which ends on December 31. The differences in ending dates are immaterial.
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates that affect amounts reported in the financial statements. Actual results could differ from those estimates.
The accompanying consolidated financial statements have been prepared on a going concern basis of accounting and do not reflect any adjustments that might result if the Company is unable to continue as a going concern. The Company expects to generate sufficient cash to meet its obligations as they come due, assuming the Company's debt payments are not accelerated. However, to maintain sufficient liquidity in the event of a downturn in Company performance beyond current expectations, the Company elected in April 2001 to suspend its quarterly principal payments to Fuji Photo Film U.S.A., Inc. ("Fuji") on a $1.9 million promissory note. The Company has also entered into negotiations with Fuji to renegotiate its supply contract, the payment schedule on the $1.9 million note, and the terms of its Amended Series G Preferred Stock (the "Amended Series G Stock"), all of which is held by Fuji. The Company has been unable to obtain agreement at this point, and there can be no assurance agreement can be reached. If no agreement is reached on the supply contract, either party could cancel the supply contract and the Company would likely seek another supplier. If the supply contract is terminated, the balance outstanding under the revolving credit arrangement, which currently is approximately $3.4 million, would become payable according to its terms over the approximately 120 day period following termination of the supply contract. This change could also result in Fuji ultimately requiring redemption of the Amended Series G Stock (see Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources).
In May 2001, the Company's primary bank declared the Company to be in default of certain financial covenants under an agreement with the bank, although the Company remains current with its bank payment obligations. The bank therefore has the right to accelerate repayments of the bank debt and lease obligations; however, the bank has not given notice of any intent to accelerate these payments. The Company is seeking amendment or waiver of the covenants. The bank has also prohibited principal payments on the note payable to Fuji of $1.9 million beyond March 31, 2001. Future principal payments on the Fuji note may not occur until covenant compliance is achieved, or December 31, 2001, whichever is later.
The Company has taken significant steps in the last six months to reduce expenses, including the closure or sale of seven company stores and other corporate headcount and cost reductions.
The ability of the Company to continue as a going concern depends upon, among other things, (i) the Company's ability to obtain satisfactory repayment terms on the Company's indebtedness to Fuji, (ii) the Company obtaining an amendment or waiver from the bank concerning its financial covenants or the bank refraining from accelerating repayment of the Company's indebtedness to the bank, and (iii) the Company's ability to generate sufficient cash from operations and/or other sources to meet its obligations. The Company believes that its revised organizational structure, adherence to its operational plan, and the closure of unprofitable company stores will provide liquidity to allow the Company to repay its obligations as they become due, assuming no acceleration of indebtedness and no significant decrease in future revenue. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts, or the amount and classification of liabilities, that might be necessary should the Company be unable to continue as a going concern, except for an increased deferred tax valuation allowance and the classification of all of the primary bank debt and capitalized lease obligations as current.
For further information, refer to the consolidated financial statements and footnotes thereto included in the annual report on Form 10-K of Moto Photo, Inc. and Subsidiaries for the year ended December 31, 2000.
B. Reclassification
Certain amounts from the prior period have been reclassified to conform to the current period presentation.
C. Supplemental Noncash Investing and Financing Cash Flow Information
There were no significant noncash items in the first quarter of 2001. Noncash items in the first quarter of 2000 included $220,144 of capital expenditures resulting from entering into capitalized leases and trade-in of equipment.
D. Segment Information
Three Months Ended March 31, 2001
| Development | Company Stores | Royalties and Advertising | Wholesale | Total |
| | | | | | |
Sales and other revenue | $ 19,863 | $ 2,655,874 | $ 985,551 | $2,723,885 | $6,385,173 |
| | | | | | |
Depreciation | 425 | 299,459 | 2,929 | 2,332 | 305,145 |
| | | | | | |
Operating segment contribution prior
to interest income and expense,
income taxes and unallocated
corporate expenses | (93,477) | (901,967) | 661,858 | (184,880) | (518,466) |
| | | | | | |
Identifiable segment assets | 53,380 | 9,417,334 | 749,033 | 2,377,269 | 12,597,016 |
| | | | | | |
Capital expenditures | - | 186,073 | - | - | 186,073 |
| | | | | | |
| | | | | | |
Three Months Ended March 31, 2000
| Development | Company Stores | Royalties and Advertising | Wholesale | Total |
| | | | | | |
Sales and other revenue | $50,750 | $3,073,908 | $1,053,003 | $3,104,246 | $7,281,907 |
| | | | | | |
Depreciation | 879 | 300,999 | 2,993 | 1,497 | 306,368 |
| | | | | | |
Operating segment contribution prior
to interest income and expense,
income taxes and unallocated
corporate expenses | (165,675) | (956,900) | 656,513 | (228,174) | (694,236) |
| | | | | | |
Identifiable segment assets | 47,067 | 10,431,959 | 714,472 | 3,546,171 | 14,739,669 |
| | | | | | |
Capital expenditures | - | 356,255 | - | - | 356,255 |
| | | | | | |
| | Three Months Ended March 31, 2001 | | Three Months Ended March 31, 2000 | | |
REVENUE | | | | | |
Total sales and other revenue for
reportable segments | $6,385,173 | | $7,281,907 | | |
Interest income | 43,412 | | 71,864 | | |
| $6,428,585 | | $7,353,771 | | |
| | | | | |
- Segment Information (continued)
Other Significant Items | | Segment Totals | Corporate | Consolidated Total |
| | | | |
Three Months Ended March 31, 2001
| | | | |
Depreciation and amortization | | $ 305,145 | $ 49,604 | $ 354,749 |
Operating segment contribution prior to | | | | |
interest income and expense, income
taxes and unallocated corporate expenses
for segment totals reconciled to income (loss)
before taxes | (518,466) | (103,993) | (622,459) |
Identifiable segment assets | | 12,597,016 | 2,025,768 | 14,622,784 |
Capital expenditures | | 186,073 | - | 186,073 |
| | | | |
Three Months Ended March 31, 2000 |
| | | |
Depreciation and amortization | | $ 306,368 | $ 64,108 | $ 370,476 |
Operating segment contribution prior to | | | | |
interest income and expense, income
taxes and unallocated corporate expenses
for segment totals reconciled to income (loss)
before taxes | (694,236) | (146,005) | (840,241) |
Identifiable segment assets | | 14,739,669 | 5,132,833 | 19,872,502 |
Capital expenditures | | 356,255 | 10,549 | 366,804 |
| | | | |
E. Loss Per Share Data
The following table sets forth the calculation of basic and diluted loss per share for the periods indicated.
| | Three Months Ended March 31, 2001 | Three Months Ended March 31, 2000 |
| | |
Net loss applicable to common shares | $ ( 819,141) | $ (721,645) |
| | |
Reconciliation of shares: | | |
Weighted average common share outstanding | 7,794,714 | 7,734,203 |
Effect of dilutive stock options and other common stock equivalents | - | - |
Weighted average common shares assuming dilution | 7,794,714 | 7,734,203 |
| | |
Basic loss per share | $ (0.11) | $ (0.09) |
| | |
Diluted loss per share | $ (0.11) | $ (0.09) |
Item 2.
Management's Discussion and Analysis
of Financial Condition
and Results of Operations
Results of Operations First Quarter 2001 vs. First Quarter 2000
The Company reported a net loss of $622,459, or a loss per common share, basic and diluted, of $.11 for the first quarter 2001, compared to a net loss of $546,241, or a loss per common share, basic and diluted, of $.09 for the first quarter 2000. Per share calculations are made after provision for preferred dividend requirements. The dividend requirement is an imputed amount, and no cash payments are required. Because the Company's common share price is approximately $0.11, certain securities could become dilutive and have a significant impact on diluted earnings per share in subsequent periods.
The loss before income taxes improved by $218,000, or 26%, primarily due to a decrease in selling, general and administrative expenses of $233,000 and a decrease in advertising expenses of $153,000 that more than offset the reduction in sales and margin.
Development segment revenue decreased by $31,000 in 2001 compared to 2000, primarily due to a reduction in supplier contributions for new store openings. The Company transferred or renewed five franchises in the first quarter of 2001, compared to two transfers in the first quarter of 2000. Development segment operating contribution increased by $72,000 during the first quarter of 2001 as compared to the same period in 2000, primarily attributable to decreases in advertising and sales material costs.
Company store revenue was down $418,000, or 14%, in 2001 compared to 2000, primarily due to $272,000 in decreased revenue from the closure or sale of nine company stores in 2000 and early 2001 and a 6% comparable store sales decline attributable to a reduction in rolls processed. This was partially offset by the opening of four new stores in early 2000 that continue their sales ramp-up. Comparable stores are those stores that have been open for both the entire 2000 and 2001 periods. In addition, one store was being relocated during the first quarter 2001 and experienced a 53% sales decrease for the quarter. The store has since re-opened and sales are improving.
Company store segment operating contribution improved by $55,000 in 2001 compared to 2000. Of
this, $100,000 was from the closure or sale of under-performing stores and $114,000 was from reductions in store and allocated overhead. These improvements were partially offset by increased operating losses of $170,000 in comparable stores, caused by lower sales and decreased margin rates.
Royalty and advertising revenue decreased $67,000, or 6%, in 2001 compared to 2000 due to a decline of approximately 3% in comparable store franchise sales and to a decrease of approximately 3% in collections of previously unrecognized royalty revenue. Segment operating profit contribution improved by $5,000 in 2001 compared to 2000, primarily due to reduced allocations of overhead and reduced segment costs that were partially offset by reduced revenue.
Wholesale revenue decreased by $380,000, or 12%, in 2001 compared to 2000. Approximately 45% of this decrease was due to a price reduction of approximately 10% taken April 1, 2000 on photographic paper. Approximately 25% of the decrease resulted from the 3% decline in comparable store franchisee sales for the period. The balance of the decline is primarily attributable to fewer franchisees purchasing their supply requirements through the Company. Wholesale segment operating contribution improved by $43,000 due to lower operating expenses and allocations of corporate overhead, partially offset by lower margins.
In 2001, selling, general and administrative expense decreased $233,000, or 16%, from the same period in the prior year, primarily due to the Company's previously-announced expense reductions and an increased focus on cost containment at all levels of the Company.
Advertising expense decreased by $153,000 in 2001 as compared to 2000, primarily due to decreased store and franchise development advertising.
Interest expense decreased $40,000, or 26%, in 2001 compared to 2000, primarily due to reduced average bank borrowings of approximately 28%. Interest income, which is primarily interest income from notes receivable and temporary investments of cash, decreased in 2001 due to lower notes receivable and cash balances.
Liquidity and Capital Resources
Net cash utilized in operating activities improved by approximately $2.3 million in 2001 compared to 2000, largely because the Company reduced its accounts payable by approximately $1.8 million less than in 2000 and increased collections of receivables in 2001 compared to 2000.
In 2001, net cash utilized in investing activities was $131,000, as compared to net cash provided by investing activities of $356,000 in 2000. Decreases in collections of notes receivable of $438,000 and an increase of $39,000 in cash purchases of property and equipment were primarily responsible for the difference.
Net cash utilized in financing activities decreased by $204,000 in 2001 compared to 2000, primarily due to pre-payments of principal during 2000 and payments of $613,000 on the revolving credit agreement, partially offset by a reduction of long-term borrowings by $366,000.
Working capital deficit as of March 31, 2001 increased by approximately $3 million due to the classification of all primary bank long-term debt and capitalized lease obligations as current because the Company is not in compliance with certain financial covenants with its primary bank, even though it remains current with its bank payment obligations. The bank has the right to accelerate repayments of the bank debt and lease obligations as a result of this non-compliance; however, the bank has not given notice of any intent to accelerate these payments. The Company is seeking amendment or waiver of the covenants. The bank has also prohibited principal payments on the note payable to Fuji of $1.9 million beyond March 31, 2001. Future principal payments on the Fuji note may not occur until covenant compliance is achieved, or December 31, 2001, whichever is later. The Company believes the nature of the business allows it to operate with little or no working capital in a situation where debt payments are not accelerated.
The Company's material capital commitments consist primarily of long-term debt and lease obligations. Funds for repaying these commitments are anticipated to be generated primarily from operations, working capital and other sources in future years. If the Company were not able to generate sufficient funds to repay these commitments as they become due, the Company would need to raise additional capital. There is no assurance the Company could do so, and even if the Company was successful, existing shareholders could suffer dilution.
The Company has $10,000,000 of Amended Series G Stock outstanding which the holder may require the Company to redeem commencing in 2003 or earlier with the occurrence of a redemption event ("Redemption Event"). These shares can be redeemed only by an exchange for common shares or from the proceeds of an equity offering. A Redemption Event includes, after appropriate cure periods, failure by the Company to meet certain requirements under a supply contract with Fuji or termination of the supply contract other than as a result of default by Fuji, default by the Company under certain other agreements between the Company and Fuji, the termination of involvement in the day-to-day management of the Company of either Michael F. Adler or David A. Mason if the Company does not replace him or them, within a specified period, with an executive reasonably acceptable to Fuji, a change in control of the Company, the Company's bankruptcy or insolvency, or failure by the Company to meet its obligations under other indebtedness in excess of $100,000. If the Company fails to tender the requisite cash or common stock in order to redeem all of the Amended Series G Stock upon request by Fuji following the occurrence of a Redemption Event, Fuji has the right, until all of the shares of Amended Series G Stock are redeemed or the Redemption Event is cured, to elect the majority of the Board of Directors. If the Amended Series G Stock is redeemed in shares of common stock, depending upon the market price of the common stock and the number of shares of common stock outstanding, such redemption could result in Fuji's acquiring control of the Company. Based on current market prices of the common stock, full redemption of the Amended Series G Stock in shares of common stock would result in Fuji having the right to receive common shares representing approximately 90% of the Company's outstanding common stock following such redemption. The Company is uncertain at this time how the Amended Series G Stock will be retired. (See Note I to the Consolidated Financial Statements, "Item 1. Business - Supply Contract and Amended Series G Preferred Stock" and "Item 12. Security Ownership of Certain Beneficial Owners and Management - Potential Future Change in Control" in the Company's annual report on Form 10-K for the year ended December 31, 2000.)
Market Risk
There have been no significant changes in market risk since December 31, 2000.
Forward Looking Statements
This report may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by such words as "anticipates", "believes", "expects", "intends", "estimates", "planned", "scheduled", "may", "will", "would", "could" or similar expressions. Such forward-looking statements, which reflect the Company's current views of future events and financial performance, involve known and unknown risks and uncertainties that may cause the Company's actual results to differ materially from planned or expected results. Those risks and uncertainties include, but are not limited to: competitive pressures, technological changes affecting the Company's ability to compete, the ability to expand the Company's franchising operations, potential future change in control of the Company, new store development and expansion, decline in demand for the products and services offered, consumer acceptance of new programs and services, stability in market prices of key supply items, continuity of management, liquidity of the Company and franchise system, lender and supply relationships, economic conditions, the ability of the Company to locate and obtain favorable store sites at acceptable lease terms, management's ability to manage its franchisees, the effect of severe weather or natural disasters, the continued availability of capital and financing at acceptable interest rates. For all of the foregoing reasons, actual results may vary materially from the forward-looking statements. The Company assumes no obligation to update any forward-looking statements.
PART II. OTHER INFORMATION
Item 3. Defaults Upon Senior Securities.
(a) On May 3, 2001, the Company's primary bank declared the Company to be in default of certain financial covenants under a Loan and Security Agreement between the Company and the bank. The Company is current on all of its obligations to the bank; loans and leases from the bank total approximately $4.7 million. Although it had the right to do so, the bank did not accelerate the payments due it; however, it did prohibit the Company from making principal payments under its $1.9 million term note to Fuji after March 31, 2001 and until the later of December 31, 2001 or when covenant compliance is achieved, as permitted under the terms of a Lien Subordination Agreement among Fuji, the bank, and the Company. (See "Part 1. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations" elsewhere in this report.)
Item 6. Exhibits and Reports on Form 8-K.
- Exhibits: See Exhibit Index immediately preceding exhibits.
- Reports on Form 8-K. The Company filed no reports on Form 8-K during the quarter ended March 31, 2001.
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 22, 2001
EXHIBIT INDEX
Copies of the following documents are filed as exhibits to this report:
No.Description
*10.1 Amended Employment Agreement dated as of January 26, 2001, between
Moto Photo, Inc. and Lloyd F. Noland (Incorporated by Reference to Exhibit
10.31 to Form 10-K dated May 21, 2001)
* Indicates compensatory plan
