UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 11-K
[X] ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: December 31, 2001
OR
[ ] TRANSITION REPORT PURSANT TO SECTION 13 OR (15d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from _____ to _____
Commission File No.: 0-11927
MOTO PHOTO, INC. SALARY SAVINGS PLAN
(Full title of the plan)
Moto Photo, Inc.
(Name of issuer)
4444 Lake Center Drive, Dayton, Ohio 45426
(Address and principal executive office)
Moto Photo, Inc.
Salary Savings Plan
Index
December 31, 2001
Page(s)
Report of Independent Public Accountants 1
Statements of Net Assets Available for Benefits
as of December 31, 2001 and 2000 2
Statement of Changes in Net Assets Available for Benefits
for the Year Ended December 31, 2001 3
Notes to Financial Statements 4-7
Schedule of Assets Held for Investment Purposes
as of December 31, 2001 8
Signature 9
Exhibit Index 9
Report of Independent Public Accountants
To the Administrative Committee of the
Moto Photo, Inc. Salary Savings Plan:
We have audited the accompanying statements of net assets available for benefits of the Moto Photo, Inc. Salary Savings Plan (the Plan) as of December 31, 2001 and 2000 and statement of changes in net assets available for benefits for the year ended December 31, 2001. These financial statements and supplemental schedule are the responsibility of the plan administrator. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
As described in Note 2, these financial statements and supplemental schedule were prepared on a modified cash basis method of accounting, which is a comprehensive basis of accounting other than accounting principles generally accepted in the United States.
In our opinion, the financial statements referred to above present fairly, in all material respects, the net assets available for benefits of the Plan as of December 31, 2001 and 2000, and the changes in its net assets available for benefits for the year ended December 31, 2001, on the modified cash basis of accounting described in Note 2.
Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental schedule of assets held for investment purposes listed in the accompanying index is presented for purposes of additional analysis and is not a required part of the basic financial statements but is supplementary information required by the Department of Labor's Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974. The supplemental schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole on the basis of accounting described in Note 2.
/s/ Arthur Andersen LLP
Cincinnati, Ohio,
May 2, 2002
Moto Photo, Inc.
Salary Savings Plan
Statements of Net Assets Available for Benefits
As of December 31, 2001 and 2000
ASSETS | 2001 | 2000 |
INVESTMENTS, at quoted market prices in an active market | $3,002,320 | $3,520,484 |
NET ASSETS AVAILABLE FOR BENEFITS | $3,002,320 | $3,520,484 |
The accompanying notes to financial statements are an integral part of these statements.
Moto Photo, Inc.
Salary Savings Plan
Statement of Changes in Net Assets Available for Benefits
For the Year Ended December 31, 2001
ADDITIONS TO NET ASSETS ATTRIBUTED TO: | ||
Investment income (losses): | ||
Interest and dividends | $ 12,424 | |
Net depreciation in fair value of investments (Note 2) | (429,965) | |
Total investment loss | (417,541) | |
Contributions: | ||
Participant | 286,262 | |
Employer | 34,895 | |
Total contributions | 321,157 | |
Total additions, net | (96,384) | |
DEDUCTIONS FROM NET ASSETS ATTRIBUTED TO: | ||
Benefits paid to participants | (383,985) | |
Administrative expenses | (37,795) | |
Total deductions | (421,780) | |
Net decrease | (518,164) | |
NET ASSETS AVAILABLE FOR BENEFITS: | ||
Beginning of year | 3,520,484 | |
End of year | $3,002,320 |
The accompanying notes to financial statements are an integral part of this statement.
Moto Photo, Inc.
Salary Savings Plan
Notes to Financial Statements
December 31, 2001 and 2000
(1) Plan Description-
The following description of the Moto Photo, Inc. Salary Savings Plan (the Plan) is provided for general information only. Participants should refer to the Summary Plan Description for a more complete description of the Plan's provisions.
(a) General--The Plan is a defined contribution plan covering substantially all employees of Moto Photo, Inc. (the Company) who have attained age 20.5 and have completed six months of service. The Plan is subject to the provisions of the Employee Retirement Income Security Act of 1974 (ERISA), as amended.
(b) Contributions--Each year, participants may elect to contribute up to 20% of their pre-tax annual compensation as defined in the Plan. Participants may also contribute amounts representing distributions from other qualified defined benefit or defined contribution plans. Participants direct the investment of their contributions into various investment options offered by the Plan. The Plan currently offers twenty-three pooled separate accounts and Moto Photo Inc. common stock as investment options for participants. The Company may make matching or discretionary contributions to the Plan. Company matching contributions will not exceed 2% of a participant's compensation. All company contributions are invested in a portfolio of investments as directed by the participant. Contributions are subject to certain limitations.
(e) Forfeited Accounts--Forfeitures are used to reduce future employer contributions. Approximately $67,000 of the forfeiture balance was utilized by the Plan Sponsor to reduce employer contributions in 2001. At December 31, 2001 and 2000, forfeited nonvested accounts totaled approximately $22,000 and $73,000, respectively. The total amount forfeited by participants during the year ended December 31, 2001 was approximately $14,000.
(f) Participant Loans--Participants may borrow from their fund accounts a minimum of $1,000 up to a maximum of the lesser of $50,000 or 50 percent of their vested balance, whichever is less. These loans are secured by the balance in a participants account and bear interest at the prime rate at the date of the loan plus 1.5 percent. Principal and interest is paid ratably through monthly payroll deductions.
(g) Payment of Benefits--Upon termination of service due to death, disability or retirement, a participant may elect to receive either a lump-sum amount equal to the vested value of his or her account, or an annuity. For termination of service for other reasons, a participant may receive the value of the vested interest in his or her account as a lump-sum distribution.
(h) Expenses of the Plan--The Company has elected to pay certain administrative expenses of the Plan. The amount of administrative fees paid by the Company during 2001 was approximately $2,100.
(2) Significant Accounting Policies-
(a) Basis of Accounting and Presentation--The accompanying financial statements have been prepared on the modified cash basis of accounting. The modified cash basis reflects the accounting records on a cash basis, with an adjustment to record investments at fair value. Such accounting practices are permitted by the Department of Labor; however, this practice differs from accounting principles generally accepted in the United States. Accordingly, the accompanying financial statements and supplemental schedule are not intended to present net assets and changes in net assets of the Plan on the accrual basis in conformity with accounting principles generally accepted in the United States.
(b) Use of Estimates--The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and changes therein, and disclosure of contingent assets and liabilities. Actual results could differ from those estimates.
(c) Investment Valuation and Income Recognition--The Plan's investments, except for participant loans, are stated at fair value. The Company's common stock is valued at the last sales price reported on the NASDAQ Over-The-Counter (OTC) Bulletin Board on the last day of the Plan year. Pooled separate accounts, representing shares in mutual funds, are stated at the net asset value as reported by the fund. Investments in other pooled separate accounts are valued at fair value as estimated by the trustee. Participant loans are valued at cost which approximates fair value.
In accordance with Department of Labor regulations, realized and unrealized gains and losses are based on the value of the investments as of the later of the beginning of the plan year or at the time of purchase, if purchased during the year, and are reflected currently in the statement of changes in net assets available for plan benefits.
Purchases and sales of investments are recorded on a trade date basis. Dividend income and interest income is recorded on a cash basis.
(d) Payment of Benefits--Benefits are recorded when paid.
The Plan provides for investments in various investment securities and these investment securities, in general, are exposed to various risks, such as interest rate, credit and overall market volatility risks. Due to the level of risk associated with certain investment securities, it is reasonably possible that changes in the values of investment securities will occur in the near term and that such changes could materially affect the amounts reported in the statement of net assets available for benefits.
The following table presents individual investments that represented 5 percent or more of the fair value of assets available for benefits as of December 31:
2001 | 2000 | |
TA Stable Value Fund | $ 278,634 | $ 299,812 |
TA Fidelity Equity Income II Fund | 382,865 | 268,226 |
TA Fidelity Low-Priced Stock Fund | 244,443 | 186,235 |
TA Janus Fund | 206,030 | 231,173 |
TA Janus Worldwide Fund | <5% | 323,120 |
TA Putnam Asset Allocation Balanced | 259,045 | 263,633 |
TA Balanced Fund | 316,973 | 362,720 |
TA Equity Fund | 317,291 | 398,794 |
TA Equity Index Fund | 215,325 | 369,118 |
During 2001, the Plan's investments (including gains and losses on investments bought and sold, as well as held during the year) depreciated in value as follows:
Pooled separate accounts | $ (404,770) |
Common stock | (25,195) |
$ (429,965) |
(4) Related-Party Transactions-
Certain Plan investments of pooled separate accounts are sponsored by or managed by the Plan's asset custodian, Transamerica (TA) Life Insurance and Annuity Company. The Plan also invests in the common stock of the Plan sponsor. At December 31, 2001 and 2000, the Plan held 127,059 and 64,926 shares of Moto Photo common stock with a value of $8,894 and $24,347, respectively. These transactions qualify as party-in-interest transactions.
(5) Plan Termination-
Although it has not expressed any intent to do so, the Company has the right under the Plan to discontinue its contributions at any time and to terminate the Plan subject to the provisions of ERISA, as amended. In the event of Plan termination, participants would become 100% vested in their employer contributions.
(6) Tax Status-
The Internal Revenue Service has determined and informed the Company by a letter dated December 19, 1996, that the Plan and related trust, as amended effective December 15, 1994, are designed in accordance with applicable sections of the Internal Revenue Code (IRC). Although, the Plan has been amended since receiving the determination letter; the Plan administrator believes that the Plan is designed and is currently being operated in compliance with the applicable requirements of the IRC.
(7) Financial Condition of Plan Sponsor-
The Plan Sponsor has suffered losses from continuing operations, has negative working capital and negative equity at December 31, 2001, and is in default of several covenants in their borrowing arrangements with both their primary bank and a major vendor that raises substantial doubt about its ability to continue as a going concern. The ability of the Plan Sponsor to continue as a going concern depends upon, among other things, (i) the Plan Sponsor's ability to obtain satisfactory repayment terms on the Plan Sponsor's indebtedness to Fuji, (ii) the Plan Sponsor's obtaining an amendment or waiver from the bank concerning its financial covenants or the bank refraining from accelerating repayment of the Plan Sponsor's indebtedness to the bank, and (iii) the Plan Sponsor's ability to generate sufficient cash from operations and/or other sources to meet its obligations.
The Plan Sponsor believes that its revised organizational structure, adherence to its operational plan, and the closure of unprofitable company stores will provide liquidity to allow the Plan Sponsor to repay its obligations as they become due, assuming no acceleration of indebtedness and no significant decrease in future revenue. The Plan Sponsor's ability to continue as a going concern directly affects its ability to make matching or profit sharing contributions to the Plan and directly affects the value of Plan Sponsor common shares held by participants of the Plan. There were no amounts receivable from the Plan Sponsor at December 31, 2001. See Note 2(c) regarding the value of the Plan Sponsor common shares held in the Plan.
Schedule 4i - Schedule of Assets Held for Investment Purposes
As of December 31, 2001
Identity of Issuer | Description of Investment | Current Value |
Pooled separate accounts: | ||
* TransAmerica Life Insurance & Annuity Company | TransAmerica Equity Fund | $ 317,291 |
* TransAmerica Life Insurance & Annuity Company | TransAmerica Equity Index Fund | 215,325 |
* TransAmerica Life Insurance & Annuity Company | TransAmerica Balanced Fund | 316,973 |
* TransAmerica Life Insurance & Annuity Company | TransAmerica Bond Fund | 47,205 |
* TransAmerica Life Insurance & Annuity Company | TransAmerica Stable Value Fund | 278,634 |
* TransAmerica Life Insurance & Annuity Company | AIM Constellation Fund | 25,884 |
* TransAmerica Life Insurance & Annuity Company | Brandywine Fund | 127,103 |
* TransAmerica Life Insurance & Annuity Company | Fidelity ContraFund | 95,363 |
* TransAmerica Life Insurance & Annuity Company | Fidelity Low-Priced Stock Fund | 244,443 |
* TransAmerica Life Insurance & Annuity Company | Fidelity Equity Income II Fund | 382,865 |
* TransAmerica Life Insurance & Annuity Company | Janus Fund | 206,030 |
* TransAmerica Life Insurance & Annuity Company | Janus Worldwide Fund | 130,843 |
* TransAmerica Life Insurance & Annuity Company | Loomis Sayles Bond Fund | 31,590 |
* TransAmerica Life Insurance & Annuity Company | PBHG Emerging Growth Fund | 30,191 |
* TransAmerica Life Insurance & Annuity Company | PBHG Growth Fund | 31,839 |
* TransAmerica Life Insurance & Annuity Company | Putnam Asset Allocation Growth Portfolio | 36,592 |
* TransAmerica Life Insurance & Annuity Company | Putnam Asset Allocation Balanced Portfolio | 259,045 |
* TransAmerica Life Insurance & Annuity Company | Putnam Asset Allocation Conservative Portfolio | 12,477 |
* TransAmerica Life Insurance & Annuity Company | Putnam Diversified Income Fund | 15,210 |
* TransAmerica Life Insurance & Annuity Company | Stein Roe Capital Opportunities Fund | 7,405 |
* TransAmerica Life Insurance & Annuity Company | Strong Government Securities Fund | 3,656 |
* TransAmerica Life Insurance & Annuity Company | T. Rowe Price International Bond Fund | 17,162 |
* TransAmerica Life Insurance & Annuity Company | Templeton Foreign Fund | 82,009 |
Common stock: | ||
* Moto Photo, Inc. | Common Stock | 8,894 |
* Participant Loans | Loans, maturing through September 2009, with interest rates ranging from 7.0% to 10.5% | 78,291 |
$3,002,320 |
* Denotes party-in-interest to the Plan.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Moto Photo, Inc. Salary Savings Plan Committee has duly caused this annual report to be signed by the undersigned thereunto duly authorized.
Moto Photo, Inc. Salary Savings Plan
By: /s/ Daniel L. Thobe
Trustee
Date: May 14, 2002
EXHIBIT INDEX
No. Description
99 Letter dated May 14, 2002 from Moto Photo, Inc. to Securities and Exchange Commission Concerning Representations from Arthur Andersen LLP
