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, 1998 Commission File Number 0-7475
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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
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number (612) 537-3601
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(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 15, 1998
- -------------------------------------- ----------------------------
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 -
June 30, 1998 and December 31, 1997 3
Consolidated Statement of Operations -
Six Months and Three Months Ended
June 30, 1998 and 1997 4
Consolidated Statement of Cash Flows -
Six Months Ended June 30, 1998 and 1997 5
Notes to Consolidated Financial
Statements 6
ITEM 2: Management's Discussion and Analysis
of Financial Condition and Results of
Operations 7
PART II
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ITEM 4: Results of Vote of Security Holders 9
ITEM 6: Exhibits and Reports on Form 8-K 9
<PAGE>
PHOTO CONTROL CORPORATION
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30 DECEMBER 31
1998 1997
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<S> <C> <C>
ASSETS
Current Assets
Cash $ 41,243 $ 808,169
Accounts Receivable 1,247,066 505,373
Other Receivables 2,700 2,700
Inventories 4,860,206 4,322,603
Prepaid Expenses 152,081 201,899
------------ ------------
Total Current Assets 6,303,296 5,840,744
------------ ------------
Investments and Other Assets
Cash Value of Life Insurance 275,460 261,966
Deferred Income Taxes 200,000 200,000
------------ ------------
Total Investments and Other Assets 475,460 461,966
------------ ------------
Plant and Equipment
Land and Building 2,222,349 2,204,871
Machinery and Equipment 3,443,154 3,303,719
Accumulated Depreciation (3,719,732) (3,629,310)
------------ ------------
Total Plant and Equipment 1,945,771 1,879,280
------------ ------------
$ 8,724,527 $ 8,181,990
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Note to Bank $ 600,000
Accounts Payable 480,260 288,724
Accrued Payroll and Employee Benefits 359,543 270,214
Accrued Expenses 201,484 114,908
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Total Current Liabilities 1,641,287 673,846
------------ ------------
Deferred Compensation 582,074 540,312
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Stockholders' Equity
Common Stock 128,333 128,333
Additional Paid-In Capital 1,393,484 1,393,484
Retained Earnings 4,979,349 5,446,015
------------ ------------
Total Stockholders' Equity 6,501,166 6,967,832
------------ ------------
$ 8,724,527 $ 8,181,990
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
PHOTO CONTROL CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE 30 ENDED JUNE 30
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1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Sales $ 3,151,947 $ 2,440,797 $ 5,098,993 $ 4,687,439
Cost of Sales 2,331,294 1,855,188 4,138,583 3,694,507
------------ ------------ ------------ ------------
Gross Profit 820,653 585,609 960,410 992,932
Expenses
Marketing & Administrative 445,078 737,653 977,027 1,558,173
Research, Development & Eng 208,841 257,142 439,457 553,262
Interest 10,592 14,859 10,592 24,006
------------ ------------ ------------ ------------
664,511 1,009,654 1,427,076 2,135,441
------------ ------------ ------------ ------------
Income(Loss)Before Income Tax 156,142 (424,045) (466,666) (1,142,509)
Income Tax Benefit (194,000)
------------ ------------ ------------ ------------
Net Income (Loss) $ 156,142 $ (424,045) $ (466,666) $ (948,509)
============ ============ ============ ============
Net Income(Loss)Per Common
Share $ .10 $ (.26) $ (.29) $ (.59)
============ ============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
PHOTO CONTROL CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30
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1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net(Loss)from operations $ (466,666) $ (948,509)
Items not affecting cash-
Depreciation 162,000 186,436
Deferred compensation 75,000 18,666
Loss on sale of equipment 14,645 1,090
Payment of deferred compensation (33,238) (12,312)
Change in:
Receivables (741,693) (101,105)
Inventories (537,603) (131,699)
Prepaid Expenses 49,818 99,370
Accounts Payable 191,536 354,101
Accrued Expenses 175,905 22,626
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Net cash used by operating activties (1,110,296) (511,336)
------------ ------------
Cash flows from investing activities:
Additions to plant and equipment (259,270) (154,513)
Additions to cash value of life insurance (13,494) (13,493)
Proceeds from sale of equipment 16,134 23,111
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Net cash used in investing activities (256,630) (144,895)
------------ ------------
Cash flow from financing activities:
Repayment of long-term debt (68,705)
Borrowing on line of credit 600,000 400,000
Proceeds from bank notes 45,725
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Net cash used in financing activities 600,000 377,020
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Change in cash (766,926) (279,211)
Cash at beginning of period 808,169 736,031
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Cash at end of period $ 41,243 $ 456,820
============ ============
</TABLE>
See Accompanying notes to consolidated financial statements
<PAGE>
PHOTO CONTROL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
(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
1998 1997
---- ----
Raw Materials $3,126,824 $2,666,732
Work in Progress 988,935 492,833
Finished Goods 744,447 1,163,038
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$4,860,206 $4,322,603
========== ==========
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, 1998 were $3,152,000, an increase of
29.1% from the same quarter in the prior year. Sales for the six months ended
June 30, 1998 were $5,099,000, an increase of 8.8% over the same period in the
prior year. Lighting sales increased $572,000 for the second quarter and
$284,000 for the year to date period, as compared to the same periods in the
prior year. In October 1997, the manufacturing of the lighting product line was
moved from California to Minnesota. Because of the inefficiencies associated
with the move, certain sales backlog was not shipped in 1997 and the first
quarter of 1998. However, production exceeded demand in the second quarter and
substantially all past due backlog was shipped. The camera product line accounts
for an increase in sales of $280,000 for the second quarter and $522,000 for the
year to date period, as compared to the same periods in the prior year. A new
zoom lens camera was introduced with shipments beginning 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. However, the
sales demand is improving in 1998. Sales of the third product line, printers,
decreased by $141,000 for the second quarter and $395,000 for the year to date
period, as compared to the same periods in the prior year. The sales trend for
the printer line continues to decline because the photographic printer market
continues to experience consolidation and excess capacity.
The gross profit margin for the second quarter of 1998 increased to 26.0% from
24.0% in the second quarter of 1997. The gross profit margin for the six months
ended June 30, 1998 decreased to 18.8% from 21.1% in the prior year period. The
decline for the six months is attributable to the inefficient production of the
lighting equipment line as a result of the move from California to Minnesota.
However, beginning in the second quarter margins improved, a trend that
management expects to continue.
Marketing and administrative expenses decreased as a percentage of sales to
14.1% for the second quarter of 1998 from 30.2% for the second quarter of 1997
and decreased to 19.2% for the first six months of 1998 from 33.3% for the same
period in 1997. Marketing and administrative expenses decreased $292,000 for the
second quarter of 1998 as compared to the second quarter of 1997 and decreased
$581,000 for the first six months of 1998 compared to the same period in 1997.
Research, development and engineering expense decreased by $48,000 for the
second quarter of 1998 compared to the second quarter of 1997 and decreased by
$114,000 for the first six months of 1998 compared to the same period of 1997.
The decreases reflect staff reductions as a result of consolidation of
operations in Minnesota.
<PAGE>
As a result of decreased outstanding debt, interest expense decreased by $4,000
in the second quarter of 1998 compared to the second quarter of 1997 and
decreased $13,000 for the first six months of 1998 compared to the same period
in 1997.
LIQUIDITY & CAPITAL RESOURCES
Cash decreased $767,000 to $41,000 since December 31, 1997. Operations for the
six months ended June 30, 1998 resulted in $1,110,000 of negative cash flow. In
addition, $259,000 was spent on capital equipment.
At June 30, 1998 the company had borrowed $600,000 under the line of credit. 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.
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 7, 1998 the following matters
were approved by the Company's stockholders:
1. Set the number of directors at six (6). The voting results
were: 1,361,299 For, 35,275 Against and 8,619 Abstained.
2. Elected Messrs.Leslie A. Willig and George A. Kiproff 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
Leslie A. Willig 1,378,126 27,067
George A Kiproff 1,377,970 27,223
Messrs.James R. Loomis, John R. Helmen, 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)
- ------------------ ---------------------------------------------------
Date J. R. Helmen, President and Chief Executive Officer
- ------------------ ---------------------------------------------------
Date C. R. Jackels, Vice President-Finance
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> DEC-31-1997
<PERIOD-END> JUN-30-1998
<CASH> 41,243
<SECURITIES> 0
<RECEIVABLES> 1,249,766
<ALLOWANCES> 0
<INVENTORY> 4,860,206
<CURRENT-ASSETS> 6,303,296
<PP&E> 5,665,503
<DEPRECIATION> 3,719,732
<TOTAL-ASSETS> 8,724,527
<CURRENT-LIABILITIES> 1,641,287
<BONDS> 0
0
0
<COMMON> 128,333
<OTHER-SE> 1,393,484
<TOTAL-LIABILITY-AND-EQUITY> 8,724,527
<SALES> 3,151,947
<TOTAL-REVENUES> 3,151,947
<CGS> 2,331,294
<TOTAL-COSTS> 2,331,294
<OTHER-EXPENSES> 653,919
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,592
<INCOME-PRETAX> 156,142
<INCOME-TAX> 0
<INCOME-CONTINUING> 156,142
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 156,142
<EPS-PRIMARY> .10
<EPS-DILUTED> 0
</TABLE>
