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, 1998 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
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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 October 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 -
September 30, 1998 and December 31, 1997 3
Consolidated Statement of Operations -
Nine Months and Three Months Ended
September 30, 1998 and 1997 4
Consolidated Statement of Cash Flows -
Nine Months Ended September 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 6: Exhibits and Reports on Form 8-K 9
2
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PHOTO CONTROL CORPORATION
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
September 30 December 31
1998 1997
---- ----
ASSETS
Current Assets
Cash $ 244,650 $ 808,169
Accounts Receivable 1,202,874 505,373
Other Receivables 2,700 2,700
Inventories 4,190,526 4,322,603
Prepaid Expenses 24,351 201,899
----------- -----------
Total Current Assets 5,665,101 5,840,744
----------- -----------
Investments and Other Assets
Cash Value of Life Insurance 280,263 261,966
Deferred Income Taxes 160,000 200,000
----------- -----------
Total Investments and Other Assets 440,263 461,966
----------- -----------
Plant and Equipment
Land and Building 2,222,371 2,204,871
Machinery and Equipment 3,449,523 3,303,719
Accumulated Depreciation (3,797,732) (3,629,310)
----------- -----------
Total Plant and Equipment 1,874,162 1,879,280
----------- -----------
$ 7,979,526 $ 8,181,990
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts Payable $ 270,928 $ 288,724
Accrued Payroll and Employee Benefits 369,642 270,214
Accrued Expenses 165,394 114,908
----------- -----------
Total Current Liabilities 805,964 673,846
----------- -----------
Deferred Compensation 601,210 540,312
----------- -----------
Stockholders' Equity
Common Stock 128,333 128,333
Additional Paid-In Capital 1,393,484 1,393,484
Retained Earnings 5,050,535 5,446,015
----------- -----------
Total Stockholders' Equity 6,572,352 6,967,832
----------- -----------
$ 7,979,526 $ 8,181,990
=========== ===========
See accompanying notes to consolidated financial statements.
3
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PHOTO CONTROL CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30 ENDED SEPTEMBER 30
------------------ -------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Sales $ 3,548,571 $ 3,876,768 $ 8,647,564 $ 8,564,207
Cost of Sales 2,760,434 3,087,490 6,899,017 6,781,997
----------- ----------- ----------- -----------
Gross Profit 788,137 789,278 1,748,547 1,782,210
Expenses
Marketing & Administrative 440,447 718,625 1,417,474 2,276,795
Research, Development & Eng 268,727 243,498 708,184 796,763
Interest 7,777 22,418 18,369 46,424
----------- ----------- ----------- -----------
716,951 984,541 2,144,027 3,119,982
----------- ----------- ----------- -----------
Income(Loss)Before Income Tax 71,186 (195,263) (395,480) (1,337,772)
Income Tax Benefit (194,000)
----------- ----------- ----------- -----------
Net Income (Loss) $ 71,186 ($ 195,263) ($ 395,480) ($1,143,772)
=========== =========== =========== ===========
Net Income(Loss)Per Common
Share $ .04 $ (.12) $ (.25) $ (.71)
=========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
PHOTO CONTROL CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
NINE MONTHS
ENDED SEPTEMBER 30
------------------
1998 1997
---- ----
Cash flows from operating activities:
Net(Loss)from operations ($ 395,480) ($1,143,772)
Items not affecting cash-
Depreciation 234,000 280,294
Deferred compensation 112,500 27,999
Loss on sale of equipment 14,645 18,965
Payment of deferred compensation (51,602) (18,468)
Change in:
Receivables (697,501) (923,510)
Inventories 132,077 522,622
Prepaid Expenses 177,548 134,610
Accounts Payable (17,796) 331,042
Accrued Expenses 189,914 24,089
----------- -----------
Net cash used by operating activties (301,695) (746,129)
----------- -----------
Cash flows from investing activities:
Additions to plant and equipment (259,661) (194,876)
Additions to cash value of life insurance (18,297) (18,296)
Proceeds from sale of equipment 16,134 26,087
----------- -----------
Net cash used in investing activities (261,824) (187,085)
----------- -----------
Cash flow from financing activities:
Repayment of long-term debt (76,296)
Borrowing on line of credit 600,000
----------- -----------
Net cash provided by financing activities 523,704
----------- -----------
Change in cash (563,519) (409,510)
Cash at beginning of period 808,169 736,031
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Cash at end of period $ 244,650 $ 326,521
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See Accompanying notes to consolidated financial statements
5
<PAGE>
PHOTO CONTROL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 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:
SEPTEMBER 30 DECEMBER 31
1998 1997
---- ----
Raw Materials $2,918,184 $2,666,732
Work in Progress 545,971 492,833
Finished Goods 726,371 1,163,038
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$4,190,526 $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 third quarter ended September 30, 1998 were $3,548,000, a decrease
of 9.2% from the same quarter in the prior year. Sales for the nine months ended
September 30, 1998 were $8,647,000, an increase of 1.0% over the same period in
the prior year. Lighting sales decreased $333,000 for the third quarter and
$49,000 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. In the second quarter, production exceeded demand and
substantially all past due backlog was shipped. However, in the third quarter
both order activity and shipments declined. The camera product line accounts for
a decrease in sales of $72,000 for the third quarter and increased $450,000 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, increased by $77,000 for the third quarter and decreased $318,000 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 third quarter of 1998 increased to 22.2% from
20.4% in the third quarter of 1997. The gross profit margin for the nine months
ended September 30, 1998 decreased to 20.2% from 20.8% in the prior year period.
The decline for the nine 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 continued into the third quarter.
Marketing and administrative expenses decreased as a percentage of sales to
12.4% for the third quarter of 1998 from 18.5% for the third quarter of 1997 and
decreased to 16.4% for the first nine months of 1998 from 26.6% for the same
period in 1997. Marketing and administrative expenses decreased $278,000 for the
third quarter of 1998 as compared to the third quarter of 1997 and decreased
$859,000 for the first nine months of 1998 compared to the same period in 1997.
Research, development and engineering expense increased by $25,000 for the third
quarter of 1998 compared to the third quarter of 1997 and decreased by $88,000
for the first nine months of 1998 compared to the same period of 1997. The
decreases in the foregoing expenses reflect
7
<PAGE>
staff reductions as a result of consolidation of operations in Minnesota.
As a result of decreased outstanding debt, interest expense decreased by $15,000
in the third quarter of 1998 compared to the third quarter of 1997 and decreased
$28,000 for the first nine months of 1998 compared to the same period in 1997.
The Company entered an agreement with a major existing customer for the sale of
dual ported lens cameras. The dual ported lens camera simultaneously captures
both a film and digital image. During the next year, the Company will develop
the camera system to specifications in the agreement. It is anticipated that
shipments will commence in the fall of 1999 and extend up to 18 months
thereafter, totaling $6.3 million.
LIQUIDITY & CAPITAL RESOURCES
Cash decreased $563,000 to $244,000 since December 31, 1997. Operations for the
nine months ended September 30, 1998 resulted in $301,000 of negative cash flow.
In addition, $259,000 was spent on capital equipment.
At September 30, 1998 there were no borrowings under the line of credit. The
Company can borrow up to $1,500,000 under its line of credit which 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.
YEAR 2000
The Company continues to evaluate and, as necessary, modify or replace portions
of its product software and internal business computer systems and software so
that it will function properly in the year 2000 and beyond. Generally, the
Company's products do not utilize date dependent functions. The Company's
business software and systems will be made year 2000 compliant in the normal
course of system upgrades planned during 1998 and 1999. The Company expects the
year 2000 evaluation and any identified remedial work will be completed by June
30, 1999.
Progress in the year 2000 effort is being monitored by senior management. At
this stage, the Company believes that it can address the year 2000 issues under
its control to prevent any material impact on its operations, and that the costs
associated with the year 2000 efforts will not materially impact financial
results. The Company can not guarantee that the Company's vendors and customers
can achieve timely year 2000 compliance, which could have an adverse impact on
the Company. The Company will develop contingency plans where necessary so that
the Company's operations will not be materially affected by the year 2000.
8
<PAGE>
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.
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)
November 5, 1998 /s/ J. R. Helmen
- ------------------ --------------------------------------
Date J. R. Helmen, President
and Chief Executive Officer
November 5, 1998 /s/ C. R. Jackels
- ------------------ --------------------------------------
Date C. R. Jackels, Vice President-Finance
9
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JUL-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 244,650
<SECURITIES> 0
<RECEIVABLES> 1,205,574
<ALLOWANCES> 0
<INVENTORY> 4,190,526
<CURRENT-ASSETS> 5,665,101
<PP&E> 5,671,894
<DEPRECIATION> 3,797,732
<TOTAL-ASSETS> 7,979,526
<CURRENT-LIABILITIES> 805,964
<BONDS> 0
0
0
<COMMON> 128,333
<OTHER-SE> 1,393,484
<TOTAL-LIABILITY-AND-EQUITY> 7,979,526
<SALES> 3,548,571
<TOTAL-REVENUES> 3,548,571
<CGS> 2,760,434
<TOTAL-COSTS> 2,760,434
<OTHER-EXPENSES> 709,174
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,777
<INCOME-PRETAX> 71,186
<INCOME-TAX> 0
<INCOME-CONTINUING> 71,186
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 71,186
<EPS-PRIMARY> .04
<EPS-DILUTED> .00
</TABLE>
