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 September 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 October 25, 1997
- ---------------------------------- -------------------------------
Common Stock, par value $.08 1,604,163 Shares
<PAGE>
PHOTO CONTROL CORPORATION
INDEX
PART I Page Number
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ITEM 1: Financial Information
Consolidated Balance Sheet -
September 30, 1997 and December 31, 1996 3
Consolidated Statement of Operations -
Nine Months and Three Months Ended
September 30, 1997 and 1996 4
Consolidated Statement of Cash Flows -
Nine Months Ended September 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 5: Other Information 9
ITEM 6: Exhibits and Reports on Form 8-K 10
<PAGE>
PHOTO CONTROL CORPORATION
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
SEPTEMBER 30 DECEMBER 31
1997 1996
------------ ------------
ASSETS
Current Assets
Cash $ 326,521 $ 736,031
Accounts Receivable 1,442,905 522,279
Other Receivables 5,584 2,700
Inventories 5,281,881 5,804,503
Prepaid Expenses 135,491 270,101
------------ ------------
Total Current Assets 7,192,382 7,335,614
------------ ------------
Investments and other Assets
Cash Value of Life Insurance 257,163 238,867
Deferred Income Taxes 254,000 254,000
------------ ------------
Total Investments and other Assets 511,163 492,867
------------ ------------
Plant and Equipment
Land and Building 4,246,503 4,240,777
Machinery and Equipment 3,212,066 3,363,630
Accumulated Depreciation (4,147,609) (4,162,977)
------------ ------------
Total Plant and Equipment 3,310,960 3,441,430
------------ ------------
$ 11,014,505 $ 11,269,911
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Note Payable to Bank $ 600,000
Current Maturities of Long-Term Debt 70,000 111,296
Accounts Payable 784,614 453,572
Accrued Payroll and Employee Benefits 339,943 303,320
Accrued Expenses 103,506 116,040
------------ ------------
Total Current Liabilities 1,898,063 984,228
------------ ------------
Long-Term Debt 495,000 530,000
------------ ------------
Deferred Compensation 538,131 528,600
------------ ------------
Stockholders' Equity
Common Stock 128,333 128,333
Additional Paid-In Capital 1,393,484 1,393,484
Retained Earnings 6,561,494 7,705,266
------------ ------------
Total Stockholders' Equity 8,083,311 9,227,083
------------ ------------
$ 11,014,505 $ 11,269,911
============ ============
See accompanying notes to consolidated financial statements.
<PAGE>
PHOTO CONTROL CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30 ENDED SEPTEMBER 30
-------------------------- ----------------------------
1997 1996 1997 1996
----------- ---------- ------------ -----------
<S> <C> <C> <C> <C>
Sales $ 3,876,768 $4,618,348 $ 8,564,207 $12,345,472
----------- ---------- ------------ -----------
Cost and Expenses
Cost of Goods Sold 3,087,490 3,183,267 6,781,997 8,496,486
Marketing & Administrative 718,625 805,054 2,276,795 2,415,492
Research, Development & Engineering 243,498 280,322 796,763 838,126
Interest 22,418 14,453 46,424 58,837
----------- ---------- ------------ -----------
4,072,031 4,283,096 9,901,979 11,808,941
----------- ---------- ------------ -----------
Income (Loss) Before Income Taxes (195,263) 335,252 (1,337,772) 536,531
Income Tax Provision (Benefit) 111,000 (194,000) 178,000
----------- ---------- ------------ -----------
Net Income (Loss) $ (195,263) $ 224,252 $ (1,143,772) $ 358,531
=========== ========== ============ ===========
Net Income (Loss) Per Common Share $ (.12) $ .14 $ (.71) $ .22
=========== ========== ============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
PHOTO CONTROL CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER 30
---------------------------
1997 1996
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income (Loss) from operations ($1,143,772) $ 358,531
Items not affecting cash-
Depreciation 280,294 294,144
Deferred compensation 27,999 22,522
(Gain) Loss on sale of equipment 18,965 (1,000)
Payment of deferred compensation (18,468) (18,468)
Change in:
Receivables (923,510) (293,047)
Inventories 522,622 954,446
Prepaid Expenses 134,610 300,918
Income Taxes 97,323
Accounts Payable 331,042 (907,970)
Accrued Expenses 24,089 305,977
----------- -----------
Net cash provided (used) by operating activities (746,129) 1,113,376
----------- -----------
Cash flows from investing activities:
Additions to plant and equipment (194,876) (99,524)
Additions to cash value of life insurance (18,296) (18,801)
Proceeds from sale of equipment 26,087 1,000
----------- -----------
Net cash used in investing activities (187,085) (117,325)
----------- -----------
Cash flow from financing activities:
Repayment of long-term debt (76,296) (84,490)
(Repayment) borrowing on line of credit 600,000 (450,000)
----------- -----------
Net cash used in financing activities 523,704 (534,490)
----------- -----------
Change in cash (409,510) 461,561
Cash at beginning of period 736,031 145,899
----------- -----------
Cash at end of period $ 326,521 $ 607,460
=========== ===========
</TABLE>
See Accompanying notes to consolidated financial statements.
<PAGE>
PHOTO CONTROL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 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:
SEPTEMBER 30 DECEMBER 31
1997 1996
---- ----
Raw Materials $3,330,438 $3,851,706
Work in Progress 579,201 559,321
Finished Goods 1,372,242 1,393,476
--------- ---------
$5,281,881 $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 third quarter ended September 30, 1997 were $3,876,000, a decrease
of 16.1% from the same quarter in the prior year. Sales for the nine months
ended September 30, 1997 were $8,564,000, a decrease of 30.6% over the same
period in the prior year. The decrease in sales was primarily due to a decrease
in lighting sales of $85,000 for the third quarter and $2,065,000 decrease for
the year to date period, as compared to the same periods in the prior year.
Sales of OEM Products for the third quarter of 1997 were level with 1996 but
account for substantially all of the lighting equipment sales decrease for the
nine months ended September 30, 1997. OEM equipment is sold direct and not
marketed through the dealer sales organization. The camera product line accounts
for a decrease in sales of $433,000 for the third quarter and $1,324,000 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.
Management believes that 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, decreased
$224,000 for the third quarter and $392,000 for the year to date period as
compared to the same period in the prior year. Because of consolidation within
the photographic processing industry, there is excess printing capacity
resulting in lower sales of the printer product line. Also, because of the
changing technology, demand for the printer product line has decreased.
The gross profit margin for the third quarter of 1997 decreased to 20.4% from
31.1% in the third quarter of 1996. The gross profit margin for the nine months
ended September 30, 1997 decreased to 20.8% 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 18.5% for the third quarter of 1997 from 17.4% for the third quarter of 1996
and increased to 26.6% for the first nine months of 1997 from 19.6% for the same
period in 1996. Marketing and administrative expenses decreased $86,000 for the
third quarter of 1997 as compared to the third quarter of 1996 and decreased
$139,000 for the first nine months of 1997. Certain cost reduction measures have
been implemented which are becoming effective in the last half of 1997.
Research, development and engineering expense decreased by $37,000 for the third
quarter of 1997 compared to the third quarter of 1996 and decreased by $41,000
for the first nine months of 1997 compared to the same period of 1996. As a
result of increased outstanding debt, interest expense increased by $8,000 in
the third quarter of 1997 compared to the third quarter of 1996. However,
interest decreased $12,000 dollars for the first nine months of 1997 compared to
the same period in 1996 due to lower debt in the first six months of 1997
compared to the first six months of 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 nine months ended June 30, 1997 was $1,143,772 which
resulted in cash used in operating activities of $746,129. The Company borrowed
$600,000 on its line of credit to fund the cash loss. Cash decreased $409,510 to
$326,521 since December 31, 1996.
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.
During October 1997 the manufacturing operation of our wholly owned subsidiary,
Norman Enterprises, Inc. located in Burbank, California was moved to our
existing facility in Minneapolis, Minnesota. Space has been leased in Burbank to
house six service and two sales personnel. An agreement has been signed to sell
the California land and building with the transaction scheduled to close on
November 14, 1997. The sale will result in a gain of approximately $600,000 and
approximately $1,500,000 in cash after paying the outstanding note on the
property. Although it is fully expected that the sale will close as scheduled
there is always a risk that sale will not be completed.
In conjunction with this move the Company is reviewing its products and
estimates that there is approximately $300,000 of inventory will be scrapped due
to discontinued products or obsolescence in the Norman product line. In
addition, the Camerz and Nord product lines will be reviewed to determine if any
products should be discontinued. However, it is uncertain what the financial
impact of this review will be.
<PAGE>
OTHER INFORMATION
William L. Norman resigned from the board of directors on July 8, 1997. At the
August 8, 1997 regular meeting, the board elected John R. Helmen to fill the
vacant Class III directorship which has a term ending at the April, 2000 annual
shareholder meeting.
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 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)
- ------------------ ---------------------------------------------------
Date J. R. Helmen, President and Chief Executive Officer
- ------------------ ---------------------------------------------------
Date C. R. Jackels, Vice President-Treasurer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 326,521
<SECURITIES> 0
<RECEIVABLES> 1,448,489
<ALLOWANCES> 0
<INVENTORY> 5,281,881
<CURRENT-ASSETS> 7,192,382
<PP&E> 7,458,569
<DEPRECIATION> 4,147,609
<TOTAL-ASSETS> 11,014,505
<CURRENT-LIABILITIES> 1,898,063
<BONDS> 495,000
0
0
<COMMON> 128,333
<OTHER-SE> 7,954,978
<TOTAL-LIABILITY-AND-EQUITY> 11,014,505
<SALES> 3,876,768
<TOTAL-REVENUES> 3,876,768
<CGS> 3,087,490
<TOTAL-COSTS> 3,087,490
<OTHER-EXPENSES> 962,123
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 22,418
<INCOME-PRETAX> (195,263)
<INCOME-TAX> 0
<INCOME-CONTINUING> (195,263)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (195,263)
<EPS-PRIMARY> (.12)
<EPS-DILUTED> 0
</TABLE>
