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 March 31, 1999 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
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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 latest practical date.
Class Outstanding at April 19, 1999
- ---------------------------- -----------------------------
Common Stock, par value $.08 1,604,163 Shares
<PAGE>
PHOTO CONTROL CORPORATION
INDEX
-------------------------
PART I Financial Information Page Number
- ------ -----------
Item 1: Financial Statements
Consolidated Balance Sheet -
March 31, 1999 and December 31, 1998 3
Consolidated Statement of Operations
Three Months Ended March 31, 1999 and 1998 4
Consolidated Statement of Cash Flows -
Three Months Ended March 31, 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 Other Information
- -------
Item 2: Changes in Securities 9
Item 6: Exhibits and Reports on Form 8-K 9
2
<PAGE>
PHOTO CONTROL CORPORATION
CONSOLIDATED BALANCE SHEET
(Unaudited)
March 31 December 31
1999 1998
---- ----
ASSETS
------
Current Assets
- --------------
Cash $ 360,782 $ 731,426
Accounts Receivable 586,242 338,893
Inventories 4,376,023 4,114,655
Prepaid Expenses 8,000 65,645
----------- -----------
Total Current Assets 5,331,047 5,250,619
----------- -----------
Other Assets
- ------------
Cash Value of Life Insurance 293,757 285,066
Deferred Income Taxes 160,000 160,000
----------- -----------
Total Investments and other Assets 453,757 445,066
----------- -----------
Plant and Equipment
- -------------------
Land and Building 2,222,350 2,222,350
Machinery and Equipment 3,409,437 3,428,283
Accumulated Depreciation (3,940,454) (3,893,387)
----------- -----------
Total Plant and Equipment 1,691,333 1,757,246
----------- -----------
$ 7,476,137 $ 7,452,931
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities
- -------------------
Accounts Payable $ 273,716 $ 103,908
Accrued Payroll and Employee Benefits 153,001 137,378
Accrued Expenses 255,754 238,834
Customer Deposit 406,250 406,250
----------- -----------
Total Current Liabilities 1,088,721 886,370
----------- -----------
Other Accrued Expense 636,780 615,899
- --------------------- ----------- -----------
Stockholders' Equity
- --------------------
Common Stock 128,333 128,333
Additional Paid-In Capital 1,393,484 1,393,484
Retained Earnings 4,228,819 4,428,845
----------- -----------
Total Stockholders' Equity 5,750,636 5,950,662
----------- -----------
$ 7,476,137 $ 7,452,931
=========== ===========
See accompanying notes to consolidated financial statements.
3
<PAGE>
PHOTO CONTROL CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
THREE MONTHS ENDED MARCH 31
---------------------------
1999 1998
---- ----
Net Sales $ 1,829,552 $ 1,947,046
Cost of Sales 1,353,717 1,807,289
----------- -----------
Gross Profit 475,835 139,757
Expenses
Marketing and Administrative 499,571 531,949
Research, Development & Eng. 176,290 230,616
----------- -----------
675,861 762,565
Net Loss $ (200,026) $ (622,808)
=========== ===========
Net Loss Per Common Share $ (.12) $ (.39)
=========== ===========
See accompanying notes to consolidated financial statements.
4
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PHOTO CONTROL CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
March 31
--------
1999 1998
---- ----
Cash flows from operating activities:
Net Loss from operations $(200,026) $(622,808)
Items not affecting cash-
Depreciation 72,000 78,000
Deferred compensation 37,500 37,500
Loss on sale of assets 6,153
Payment of deferred compensation (16,620) (16,619)
Change in:
Receivables (247,349) 103,201
Inventories (261,368) (409,755)
Prepaid expenses 57,645 66,257
Accounts payable 169,808 299,290
Accrued expenses 32,544 97,618
--------- ---------
Net cash used in operating
expenses (355,866) (361,163)
--------- ---------
Cash flows from investing activities:
Additions to plant and equipment (6,087) (175,761)
Proceeds from sale of equipment 9,134
Additions to cash value of life
insurance (8,691) (8,691)
--------- ---------
Net cash used in investing
activities: (14,778) (175,318)
--------- ---------
Change in cash (370,644) (536,481)
Cash at beginning of period 731,426 808,169
--------- ---------
Cash at end of period $ 360,782 $ 271,688
========= =========
See accompanying notes to consolidated financial statements.
5
<PAGE>
PHOTO CONTROL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
(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:
March 31 December 31
1999 1998
---- ----
Raw Materials $4,290,772 $4,261,234
Work in Progress 469,815 172,227
Finished Goods 1,122,436 1,143,194
Reserve for Obsolescence (1,507,000) (1,462,000)
---------- ----------
$4,376,023 $4,114,655
========== ==========
NOTE 3
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
<PAGE>
PHOTO CONTROL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OPERATIONS
Sales for the first quarter ended March 31, 1999, were $1,829,000, a decrease of
6.0% and $118,000 from the first quarter in 1998. The camera product line sales
decreased $183,000, the printer product line sales decreased $101,000 and the
flash equipment product line sales increased $166,000. The decline in camera
product line sales is primarily attributable to decreased ZIII camera sales.
Because of market saturation and technological change the market for printer
products continues to decline. An increase in OEM orders accounted for the sales
increase of $166,000 in the flash equipment product line.
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. 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. Shipments of these systems are expected to commence in the second
quarter of 1999. The Dual Capture Imaging System is currently in pre-production
testing.
The gross profit margin for the first quarter of 1999 increased to 26.0%
compared to 7.2% from the first quarter of 1998. Gross margin increased in all
three product lines primarily because the flash equipment product line, which
was moved from California to Minnesota, is now fully integrated. Also, gross
margin varies depending upon the product mix of sales. Management continues to
expect that the margins for the year 1999 will be approximately 26%.
Research, development and engineering expenses decreased by $54,000 for the
first quarter of 1999 compared to the first quarter of 1998 and marketing and
administrative expenses decreased $32,000. These expense decreases reflect staff
reductions as a result of a focus on products which already have market
penetration and can be effectively sold through the existing distribution
network.
7
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Cash decreased by $370,000 to $360,000 since December 31, 1998. Operations for
the quarter resulted in $355,000 of negative cash flow. At March 31, 1999 there
was no bank borrowing and the Company had $1,500,000 available under its line of
credit.
The Company believes that its cash flow from 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.
Year 2000 Disclosure
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 they will function properly in the year 2000 and beyond. 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'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
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
8
<PAGE>
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 develop contingency plans where necessary so that the Company's
operations will not be materially affected by the year 2000.
ITEM 2. Changes in Securities
Common Stock
--------------------- Additional
Number of Paid In Retained
Shares Amount Capital Earnings
--------- ------ ---------- --------
Balance at
December 31, 1998 1,604,163 $128,333 $1,393,484 $4,428,845
Net Loss (200,026)
--------- -------- ---------- ----------
Balance at
March 31, 1999 1,604,163 $128,333 $1,393,484 $4,228,819
========= ======== ========== =========
ITEM 6. Exhibit and Reports on Form 8-K
A. Exhibits - None
B. Reports on Form 8-K - There was no Form 8-K filed during the quarter.
PHOTO CONTROL CORPORATION
-------------------------
(Registrant)
- ------------------ --------------------------------------
Date John R. Helmen, C.E.O. and President
- ------------------ --------------------------------------
Date C.R. Jackels, Vice President-Finance
9
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<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
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