SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934
For Quarter Ended June 30, 1997 Commission File Number 0-7475
- ------------------------------- -----------------------------
PHOTO CONTROL CORPORATION
(Exact Name of Registrant as Specified in its Charter)
Minnesota 41-0831186
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
4800 Quebec Avenue North, Minneapolis, Minnesota 55428
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number (612) 537-3601
- --------------------------------------------------------------------------------
(Former name, former address, and former fiscal year if changes 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 twelve 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 ___
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the close of the period covered by this report.
Class Outstanding at July 25, 1997
- ---------------------------- ----------------------------
Common Stock, par value $.08 1,604,163 Shares
<PAGE>
PHOTO CONTROL CORPORATION
INDEX
PART I Page Number
- ------ -----------
ITEM 1: Financial Information
Consolidated Balance Sheet -
June 30, 1997 and December 31, 1996 3
Consolidated Statement of Operations -
Six Months and Three Months Ended
June 30, 1997 and 1996 4
Consolidated Statement of Cash Flows -
Six Months Ended June 30, 1997 and 1996 5
Notes to Consolidated Financial
Statements 6
ITEM 2: Management's Discussion and Analysis
of Financial Condition and Results of
Operations 7
PART II
- -------
ITEM 4: Results of Vote of Security Holders 9
ITEM 6: Exhibits and Reports on Form 8-K 9
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PHOTO CONTROL CORPORATION
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
JUNE 30 DECEMBER 31
1997 1996
------------ ------------
ASSETS
Current Assets
Cash $ 456,820 $ 736,031
Accounts Receivable 622,510 522,279
Other Receivables 3,574 2,700
Inventories 5,936,202 5,804,503
Prepaid Expenses 170,731 270,101
------------ ------------
Total Current Assets 7,189,837 7,335,614
------------ ------------
Investments and other Assets
Cash Value of Life Insurance 252,360 238,867
Deferred Income Taxes 254,000 254,000
------------ ------------
Total Investments and other Assets 506,360 492,867
------------ ------------
Plant and Equipment
Land and Building 4,240,777 4,240,777
Machinery and Equipment 3,483,023 3,363,630
Accumulated Depreciation (4,338,494) (4,162,977)
------------ ------------
Total Plant and Equipment 3,385,306 3,441,430
------------ ------------
$ 11,081,503 $ 11,269,911
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Note Payable to Bank $ 400,000
Current Maturities of Long-Term Debt 123,316 111,296
Accounts Payable 807,673 453,572
Accrued Payroll and Employee Benefits 305,302 303,320
Accrued Expenses 136,684 116,040
------------ ------------
Total Current Liabilities 1,772,975 984,228
------------ ------------
Long-Term Debt 495,000 530,000
------------ ------------
Deferred Compensation 534,954 528,600
------------ ------------
Stockholders' Equity
Common Stock 128,333 128,333
Additional Paid-In Capital 1,393,484 1,393,484
Retained Earnings 6,756,757 7,705,266
------------ ------------
Total Stockholders' Equity 8,278,574 9,227,083
------------ ------------
$ 11,081,503 $ 11,269,911
============ ============
See accompanying notes to consolidated financial statements.
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<TABLE>
<CAPTION>
PHOTO CONTROL CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(unaudited)
THREE MONTHS SIX MONTHS
ENDED JUNE 30 ENDED JUNE 30
------------- -------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Sales $ 2,440,797 $ 4,466,143 $ 4,687,439 $ 7,727,124
----------- ----------- ----------- -----------
Cost and Expenses
Cost of Goods Sold 1,855,188 2,891,630 3,694,507 5,313,219
Marketing & Administrative 737,653 811,157 1,558,173 1,610,438
Research, Development & Engineering 257,142 246,265 553,262 557,804
Interest 14,859 22,771 24,006 44,384
----------- ----------- ----------- -----------
2,864,842 3,971,823 5,829,948 7,525,845
----------- ----------- ----------- -----------
Income (Loss) Before Income Taxes (424,045) 494,320 (1,142,509) 201,279
Income Tax Provision (Benefit) 164,000 (194,000) 67,000
----------- ----------- ----------- -----------
Net Income (Loss) ($ 424,045) $ 330,320 ($ 948,509) $ 134,279
=========== =========== =========== ===========
Net Income (Loss) Per Common Share $ (.26) $ .20 $ (.59) $ .28
=========== =========== =========== ===========
See accompanying notes to consolidated financial statements.
</TABLE>
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<TABLE>
<CAPTION>
PHOTO CONTROL CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
SIX MONTHS
ENDED JUNE 30
-------------
1997 1996
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income (Loss) from operations ($948,509) $ 134,279
Items not affecting cash-
Depreciation 186,436 198,972
Deferred compensation 18,666 15,610
(Gain) Loss on sale of equipment 1,090 (1,000)
Payment of deferred compensation (12,312) (12,312)
Change in:
Receivables (101,105) (730,132)
Inventories (131,699) 333,918
Prepaid Expenses 99,370 337,750
Income Taxes 161,323
Accounts Payable 354,101 (427,107)
Accrued Expenses 22,626 176,756
--------- ---------
Net cash provided (used) by operating activities (511,336) 188,057
--------- ---------
Cash flows from investing activities:
Additions to plant and equipment (154,513) (58,598)
Additions to cash value of life insurance (13,493) (13,998)
Proceeds from sale of equipment 23,111 1,000
--------- ---------
Net cash used in investing activities (144,895) (71,596)
--------- ---------
Cash flow from financing activities:
Repayment of long-term debt (68,705) (44,660)
(Repayment) borrowing on line of credit 400,000 (150,000)
Proceeds from bank notes 45,725
--------- ---------
Net cash used in financing activities 377,020 (194,660)
--------- ---------
Change in cash (279,211) (78,199)
Cash at beginning of period 736,031 145,899
--------- ---------
Cash at end of period $ 456,820 $ 67,700
========= =========
See Accompanying notes to consolidated financial statements
</TABLE>
<PAGE>
PHOTO CONTROL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
(UNAUDITED)
NOTE 1
Notes to financial statements presented herein do not include all the
footnotes normally presented in the Company's annual report to
stockholders.
The accompanying financial statements reflect, in the opinion of
management, all normal and recurring adjustments necessary to a fair
presentation of financial position, results of operations, and cash
flows for the interim periods. The results for interim periods are not
necessarily indicative of results to be expected for the year.
NOTE 2
Inventories are analyzed as follows:
JUNE 30 DECEMBER 31
1997 1996
---------- -----------
Raw Materials $4,122,777 $3,851,706
Work in Progress 667,433 559,321
Finished Goods 1,145,992 1,393,476
---------- ----------
$5,936,202 $5,804,503
========== ==========
NOTE 3
Net Income per common share is computed based on the weighted average
number of common shares outstanding and the potentially dilutive
effective of stock options during the respective periods. Stock option
dilution is computed under the Treasury Stock method using the average
market price of the Company's common stock.
<PAGE>
PHOTO CONTROL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
RESULTS OF OPERATIONS
Sales for the second quarter ended June 30, 1997 were $2,441,000, a decrease of
45.3% from the same quarter in the prior year. Sales for the six months ended
June 30, 1997 were $4,687,000, a decrease of 39.3% over the same period in the
prior year. The decrease in sales was primarily due to a decrease in lighting
sales of $1,292,000 for the second quarter and $1,989,000 decrease for the year
to date period, as compared to the same periods in the prior year. The lighting
sales decrease is substantially due to lower sales of OEM equipment to two
customers. OEM equipment is sold direct and not marketed through the dealer
sales organization. Orders for OEM products of $991,000 have been received and
will be shipped in the third quarter of 1997. The camera product line accounts
for the balance of the decrease in sales of $733,000 for the second quarter and
$1,051,000 for the year to date period, as compared to the same periods in the
prior year. A new zoom lens camera has been introduced and shipments began in
June 1997. Because of customers' long lead times for product evaluation, orders
of the new zoom lens cameras have progressed at a slower rate than anticipated.
The volume of sales that will be realized from the new zoom lens camera is
uncertain. Sales of the third product line, printers, remained level with 1996.
Sales for the second half of 1997 are expected to be below sales for the second
half of 1996.
The gross profit margin for the second quarter of 1997 decreased to 24.0% from
35.3% in the second quarter of 1996. The gross profit margin for the six months
ended June 30, 1997 decreased to 21.2% from 31.2% in the prior year period. The
gross profit margin decreases are primarily due to lower levels of production in
1997 as compared to 1996. Gross margins have also been negatively affected by
the additional start-up costs incurred in bringing the new zoom lens camera line
into production and competitive pricing on the printer and lighting lines.
Marketing and administrative expenses increased as a percentage of sales to
30.2% for the second quarter of 1997 from 18.1% for the second quarter of 1996
and increased to 33.3% for the first six months of 1997 from 20.8% for the same
period in 1996. Marketing and administrative expenses decreased $74,000 for the
second quarter of 1997 as compared to the second quarter of 1996 and decreased
$52,000 for the first six months of 1997. Certain cost reduction measures have
been implemented which will become effective in the last half of 1997.
Research, development and engineering expense increased by $11,000 for the
second quarter of 1997 compared to the second quarter of 1996 and decreased by
$5,000 for the first six months of 1997 compared to the same period of 1996. As
a result of decreased outstanding debt, interest expense decreased by $8,000 in
the second quarter of 1997 compared to the second quarter of 1996 and decreased
$20,000 dollars for the first six months of 1997 compared to the same period in
1996.
The income tax benefit of $194,000 is the amount of income tax carry back
available to the Company.
<PAGE>
LIQUIDITY & CAPITAL RESOURCES
The net loss for the six months ended June 30, 1997 was $948,509 which resulted
in cash used in operating activities of $511,336. The Company borrowed $400,000
on its line of credit to fund the cash loss. Cash decreased $279,211 to $456,820
since December 31, 1996. Although sales are declining in 1997, the inventories
have increased by $131,699 due to long manufacturing lead times.
The Company can borrow up to $1,500,000 under its line of credit. The line is
unsecured, at the prime rate of interest and renewed annually in May.
Since July 1989 a total of $2,000,000 has been authorized for the stock
repurchase program and $388,000 remains available at June 30, 1997 for
additional repurchases.
The Company believes that its cash flow from future operations and available
borrowing capacity will be sufficient to finance operations and capital
requirements.
FACTORS THAT MAY AFFECT FUTURE RESULTS
Statements included or incorporated by reference in this Quarterly Report on
Form 10-Q which are not historical in nature are identified as "forward looking
statements" for the purposes of the safe harbor provided by Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended. The Company cautions readers that forward looking
statements, including without limitation, those relating to the Company's future
business prospects, revenues, working capital, liquidity, capital needs,
interest costs, and income, are subject to certain risks and uncertainties that
could cause actual results to differ materially from those indicated in the
forward looking statements. The risks and uncertainties include, but are not
limited to, economic conditions, product demand and industry capacity,
competitive products and pricing, manufacturing efficiencies, new product
development and market acceptance, the regulatory and trade environment, and
other risks indicated in filings with the Securities and Exchange Commission.
<PAGE>
ITEM 4. RESULTS OF VOTE OF SECURITY HOLDERS
At the annual meeting of stockholders held on May 8, 1997 the following matters
were approved by the Company's stockholders:
1. Set the number of directors at six (6). The voting results
were: 1,265,290 For, 23,357 Against and 12,743 Abstained.
2. Elected Messrs. James R. Loomis and William L. Norman to the
Board of Directors for a three-year term or until the election
and qualification of a respective successor.
The voting results were as follows:
FOR TO WITHHOLD AUTHORITY
James R. Loomis 1,254,646 46,744
William L. Norman 1,264,667 36,723
Messrs. Leslie A. Willig, George A. Kiproff, Thomas J.
Cassady, and Joe M. Kilgore are directors of the Company whose
terms of office continued after the annual meeting of
stockholders.
ITEM 6. EXHIBIT AND REPORTS ON FORM 8-K
A. Exhibits - 27 Financial Data Schedule
B. Reports on Form 8-K - None
PHOTO CONTROL CORPORATION
(Registrant)
July 31, 1997 /s/ J. R. Helmen
Date J. R. Helmen, President and Chief Executive Officer
July 31, 1997 /s/ C. R. Jackels
Date C. R. Jackels, Vice President-Treasurer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 456,820
<SECURITIES> 0
<RECEIVABLES> 626,084
<ALLOWANCES> 0
<INVENTORY> 5,936,202
<CURRENT-ASSETS> 7,189,837
<PP&E> 7,723,800
<DEPRECIATION> 4,338,494
<TOTAL-ASSETS> 11,081,503
<CURRENT-LIABILITIES> 1,772,975
<BONDS> 495,000
0
0
<COMMON> 128,333
<OTHER-SE> 8,150,241
<TOTAL-LIABILITY-AND-EQUITY> 11,081,503
<SALES> 2,440,797
<TOTAL-REVENUES> 2,440,797
<CGS> 1,855,188
<TOTAL-COSTS> 1,855,188
<OTHER-EXPENSES> 994,795
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,859
<INCOME-PRETAX> (424,045)
<INCOME-TAX> 0
<INCOME-CONTINUING> (424,045)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (424,045)
<EPS-PRIMARY> (.26)
<EPS-DILUTED> 0
</TABLE>
