SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For Quarter Ended September 30, 1999 Commission File Number 0-7475
- ------------------------------------ -----------------------------
PHOTO CONTROL CORPORATION
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(Exact Name of Registrant as Specified in its Charter)
Minnesota 41-0831186
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(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, 1999
- -------------------------------------------------------------------------------
Common Stock, par value $.08 1,604,163 Shares
1
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PHOTO CONTROL CORPORATION
INDEX
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<TABLE>
<CAPTION>
PART I Page Number
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<S> <C> <C> <C>
ITEM 1: Financial Information
Consolidated Balance Sheet -
September 30, 1999 and December 31, 1998 3
Consolidated Statement of Operations -
Nine Months and Three Months Ended
September 30, 1999 and 1998 4
Consolidated Statement of Cash Flows -
Nine Months Ended September 30, 1999 and 1998 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
</TABLE>
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PHOTO CONTROL CORPORATION
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CONSOLIDATED BALANCE SHEET
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(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30 DECEMBER 31
1999 1998
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ASSETS
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<S> <C> <C>
Current Assets
Cash $ 1,268,221 $ 731,426
Accounts Receivable 733,018 338,893
Inventories 4,040,770 4,114,655
Prepaid Expenses 25,667 65,645
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Total Current Assets 6,067,676 5,250,619
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Other Assets
Cash Value of Life Insurance 303,363 285,066
Deferred Income Taxes 160,000 160,000
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Total Other Assets 463,363 445,066
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Plant and Equipment
Land and Building 2,146,648 2,222,350
Machinery and Equipment 3,142,466 3,428,283
Accumulated Depreciation (3,766,875) (3,893,387)
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Total Plant and Equipment 1,522,239 1,757,246
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$ 8,053,278 $ 7,452,931
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LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities
Accounts Payable $ 262,842 $ 103,908
Accrued Payroll and Employee Benefits 169,556 137,378
Accrued Expenses 239,854 238,834
Customer Deposit 406,250 406,250
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Total Current Liabilities 1,078,502 886,370
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Deferred Compensation 676,798 615,899
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Stockholders' Equity
Common Stock 128,333 128,333
Additional Paid-In Capital 1,393,484 1,393,484
Retained Earnings 4,776,161 4,428,845
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Total Stockholders' Equity 6,297,978 5,950,662
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$ 8,053,278 $ 7,452,931
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</TABLE>
See accompanying notes to consolidated financial statements.
3
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PHOTO CONTROL CORPORATION
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CONSOLIDATED STATEMENT OF OPERATIONS
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(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30 ENDED SEPTEMBER 30
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1999 1998 1999 1998
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<S> <C> <C> <C> <C>
Net Sales $2,963,156 $3,548,571 $7,537,035 $8,647,564
Cost of Sales 2,127,361 2,760,434 5,362,191 6,899,017
---------- ---------- ---------- ----------
Gross Profit 835,795 788,137 2,174,844 1,748,547
Expenses
Marketing & Administrative 424,659 440,447 1,349,319 1,417,474
Research, Development & Eng 147,018 268,727 478,209 708,184
Interest 7,777 18,369
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571,677 716,951 1,827,528 2,144,027
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Net Income(Loss) $ 264,118 $ 71,186 $ 347,316 $ (395,480)
========== ========== ========== ==========
Net Income(Loss)Per Common
Share $ .17 $ .04 $ .22 $ (.25)
========== ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
4
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PHOTO CONTROL CORPORATION
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CONSOLIDATED STATEMENT OF CASH FLOWS
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(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER 30
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1999 1998
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<S> <C> <C>
Cash flows from operating activities:
Net(Loss)from operations $ 347,316 $(395,480)
Items not affecting cash-
Depreciation 216,000 234,000
Deferred compensation 112,500 112,500
Loss on sale of equipment 36,354 14,645
Payment of deferred compensation (51,601) (51,602)
Change in:
Receivables (394,125) (697,501)
Inventories 73,885 132,077
Prepaid Expenses 39,978 177,548
Accounts Payable 158,934 (17,796)
Accrued Expenses 33,198 189,914
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Net cash used by operating activities 572,439 (301,695)
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Cash flows from investing activities:
Additions to plant and equipment (27,847) (259,661)
Additions to cash value of life insurance (18,297) (18,297)
Proceeds from sale of equipment 10,500 16,134
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Net cash used in investing activities (35,644) (261,824)
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Change in cash 536,795 (563,519)
Cash at beginning of period 731,426 808,169
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Cash at end of period $1,268,221 $ 244,650
========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
5
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PHOTO CONTROL CORPORATION
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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SEPTEMBER 30, 1999
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(UNAUDITED)
NOTE 1
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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
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Inventories are analyzed as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30 DECEMBER 31
1999 1998
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<S> <C> <C>
Raw Materials $ 3,974,848 $ 4,261,234
Work in Progress 405,578 172,227
Finished Goods 1,257,344 1,143,194
Reserve for Obsolescence $(1,597,000) $(1,462,000)
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$ 4,040,770 $ 4,114,655
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</TABLE>
NOTE 3
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Net Income per common share is computed based on the weighted average
number of common shares outstanding during the period when computing
the basic earnings per share. When dilutive, stock options are included
as equivalents using the Treasury Stock method when computing the
diluted earnings per share.
6
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PHOTO CONTROL CORPORATION
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
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CONDITION AND RESULTS OF OPERATION
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RESULTS OF OPERATIONS
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Sales for the third quarter ended September 30, 1999 were $2,963,000, a decrease
of 16.5% from the same quarter in the prior year. Sales for the nine months
ended September 30, 1999 were $7,537,000, a decrease of 12.8% over the same
period in the prior year. Lighting sales decreased $39,000 for the third quarter
and increased $150,000 for the year to date period, as compared to the same
periods in the prior year. An increase in orders from large customers accounted
for the sales increases in the lighting product line. The camera product line
accounts for a decrease in sales of $740,000 for the third quarter and
$1,021,000 for the year to date period, as compared to the same periods in the
prior year. The decline in camera product line sales is primarily attributable
to decreased ZIII model camera sales. Sales of the third product line, printers,
increased by $193,000 for the third quarter and decreased $240,000 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 Company has entered into 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. The Company is presently developing the
camera to specifications in the agreement. It is anticipated that shipments will
commence in December of 1999 and extend up to 18 months thereafter, totaling
$6.3 million.
Under an agreement with Eastman Kodak Company, the Company will manufacture,
sell and service the new Kodak Professional Dual Capture Imaging System. The
system was developed by Kodak Professional, incorporating a beam splitter, video
camera and personal computer components. It generates a digital image file
simultaneous with the capture of a film image using the customer's traditional
film camera. The digital image file is used for immediate point-of-sale
presentation to the customer and printing of record images with an order
summary. The Dual Capture Imaging System has been field tested and is in
production. Shipments of these systems will begin in the fourth quarter of 1999.
The gross profit margin for the third quarter of 1999 increased to 28.2% from
22.2% in the third quarter of 1998. The gross profit margin for the nine months
ended September 30, 1999 increased to 28.9% from 20.2% in the prior year period.
Gross margin increased in the lighting and camera product lines. The lighting
line, which was moved from California to Minnesota is now fully integrated. The
improvement in the camera line gross margin reflects improved operating
efficiencies.
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<PAGE>
Because of the significant volume decline in the printer line, its gross margin
is decreasing. The Company's gross margin varies depending upon the product mix
of sales. Management expects that the margins for the year 1999 will be
approximately 26%. The decline from the 28.9% year to date gross margin reflects
the expected fourth quarter decline in volume due to the seasonality of the
Company's products and production.
Marketing and administrative expenses increased as a percentage of sales to
14.3% for the third quarter of 1999 from 12.4% for the third quarter of 1998 and
increased to 17.9% for the first nine months of 1999 from 16.4% for the same
period in 1998, due to decreased sales. Marketing and administrative expenses
decreased $16,000 for the third quarter of 1999 as compared to the third quarter
of 1998 and decreased $68,000 for the first nine months of 1999 compared to the
same period in 1998. Research, development and engineering expense decreased by
$112,000 for the third quarter of 1999 compared to the third quarter of 1998 and
decreased by $230,000 for the first nine months of 1999 compared to the same
period of 1998. The decreases reflect staff reductions as a result of
consolidation of operations in Minnesota.
As a result of no outstanding debt, there is no interest expense in 1999
compared to $18,000 in the first nine months of 1998.
LIQUIDITY & CAPITAL RESOURCES
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Cash increased by $536,000 to $1,268,000 since December 31, 1998. Operations for
the nine months ended September 30, 1999 resulted in $572,000 of positive cash
flow.
At September 30, 1999 there is no borrowing under the line of credit. The
Company can borrow up to $1,000,000 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,
8
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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.
YEAR 2000 DISCLOSURE
- --------------------
The Company has completed its evaluation and necessary modifications or
replacement of its internal business computer systems and software so that they
will function properly in the year 2000 and beyond. The Company's business
software and systems will be made year 2000 compliant in the normal course
system upgrades planned in 1999. The Company's integrated manufacturing and
accounting software and the associated hardware and operating system software
have been upgraded to achieve year 2000 compliance. The Company's networked
computers, network server and associated business and technical software are in
the process of being upgraded. The Company expects the year 2000 remedial work
will be completed by October 30, 1999.
Generally, the Company's products do not utilize date dependent functions.
Testing is being performed on those products which do incorporate date
functions. The Company has contacted and is providing services to customers to
assist them in achieving year 2000 compliance with possibly affected equipment.
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. Critical vendors of supplies and services are being contacted to
assess their state of compliance and the potential impacts, if any, on the
Company's operations. The Company will implement contingency plans where
necessary so that the Company's operations will not be materially affected by
the year 2000.
ITEM 6. EXHIBIT AND REPORTS ON FORM 8-K
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A. Exhibits - 27 Financial Data Schedule
B. Reports on Form 8-K - None
PHOTO CONTROL CORPORATION
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(Registrant)
November 3, 1999 /s/ J. R. Helmen
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Date J. R. Helmen, President and Chief Executive Officer
November 3, 1999 /s/ C. R. Jackels
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Date C. R. Jackels, Vice President-Finance
9
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 1,268,221
<SECURITIES> 0
<RECEIVABLES> 733,018
<ALLOWANCES> 0
<INVENTORY> 4,040,770
<CURRENT-ASSETS> 6,067,676
<PP&E> 5,289,114
<DEPRECIATION> 3,766,875
<TOTAL-ASSETS> 8,036,285
<CURRENT-LIABILITIES> 1,078,502
<BONDS> 0
0
0
<COMMON> 128,333
<OTHER-SE> 6,169,645
<TOTAL-LIABILITY-AND-EQUITY> 8,036,285
<SALES> 2,963,156
<TOTAL-REVENUES> 2,963,156
<CGS> 2,127,361
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 571,677
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 264,118
<INCOME-TAX> 0
<INCOME-CONTINUING> 264,118
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 264,118
<EPS-BASIC> .17
<EPS-DILUTED> .17
</TABLE>
