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 June 30, 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 close of the period covered by this report.
Class Outstanding at July 15, 1999
- --------------------------------------- ----------------------------
Common Stock, par value $.08 1,604,163 Shares
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PHOTO CONTROL CORPORATION
INDEX
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PART I Page Number
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ITEM 1: Financial Information
Consolidated Balance Sheet -
June 30, 1999 and December 31, 1998 3
Consolidated Statement of Operations -
Six Months and Three Months Ended
June 30, 1999 and 1998 4
Consolidated Statement of Cash Flows -
Six Months Ended June 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
- -------
ITEM 4: Results of Vote of Security Holders 10
ITEM 6: Exhibits and Reports on Form 8-K 10
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PHOTO CONTROL CORPORATION
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
JUNE 30 DECEMBER 31
1999 1998
---- ----
ASSETS
------
Current Assets
- --------------
Cash $ 411,706 $ 731,426
Accounts Receivable 844,423 338,893
Inventories 4,721,141 4,114,655
Prepaid Expenses 15,881 65,645
----------- -----------
Total Current Assets 5,993,151 5,250,619
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Other Assets
- ------------
Cash Value of Life Insurance 298,560 285,066
Deferred Income Taxes 160,000 160,000
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Total Investments and Other Assets 458,560 445,066
----------- -----------
Plant and Equipment
- -------------------
Land and Building 2,145,980 2,222,350
Machinery and Equipment 3,144,679 3,428,283
Accumulated Depreciation (3,706,085) (3,893,387)
----------- -----------
Total Plant and Equipment 1,584,574 1,757,246
----------- -----------
$ 8,036,285 $ 7,452,931
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities
- -------------------
Accounts Payable 537,707 103,908
Accrued Payroll and Employee Benefits 169,150 137,378
Accrued Expenses 231,658 238,834
Customer Deposit 406,250 406,250
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Total Current Liabilities 1,344,765 886,370
----------- -----------
Deferred Compensation 657,661 615,899
- --------------------- ----------- -----------
Stockholders' Equity
- --------------------
Common Stock 128,333 128,333
Additional Paid-In Capital 1,393,484 1,393,484
Retained Earnings 4,512,042 4,428,845
----------- -----------
Total Stockholders' Equity 6,033,859 5,950,662
----------- -----------
$ 8,036,285 $ 7,452,931
=========== ===========
See accompanying notes to financial statements.
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PHOTO CONTROL CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE 30 ENDED JUNE 30
------------- -------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Sales $ 2,744,327 $ 3,151,947 $ 4,573,879 $ 5,098,993
Cost of Sales 1,881,113 2,331,294 3,234,830 4,138,583
----------- ----------- ----------- -----------
Gross Profit 863,214 820,653 1,339,049 960,410
Expenses
Marketing & Administrative 425,089 445,078 924,660 977,027
Research, Development & Eng 154,901 208,841 331,191 439,457
Interest 10,592 10,592
----------- ----------- ----------- -----------
579,990 664,511 1,255,851 1,427,076
----------- ----------- ----------- -----------
Net Income(Loss) $ 283,224 $ 156,142 $ 83,198 $ (466,666)
=========== =========== =========== ===========
Net Income(Loss)Per Common
Share $ .17 $ .10 $ .05 $ (.29)
=========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
4
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PHOTO CONTROL CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30
-------------
1999 1998
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net(Loss)from operations $ 83,198 $ (466,666)
Items not affecting cash-
Depreciation 144,000 162,000
Deferred compensation 75,000 75,000
Loss on sale of equipment 36,600 14,645
Payment of deferred compensation (33,238) (33,238)
Change in:
Receivables (505,530) (741,693)
Inventories (606,486) (537,603)
Prepaid Expenses 49,764 49,818
Accounts Payable 433,798 191,536
Accrued Expenses 24,596 175,905
----------- -----------
Net cash used by operating activities (298,298) (1,110,296)
----------- -----------
Cash flows from investing activities:
Additions to plant and equipment (7,928) (259,270)
Additions to cash value of life insurance (13,494) (13,494)
Proceeds from sale of equipment 16,134
----------- -----------
Net cash used in investing activities (21,422) (256,630)
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Cash flow from financing activities:
Borrowing on line of credit 600,000
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Net cash used in financing activities 600,000
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Change in cash (319,720) (766,926)
Cash at beginning of period 731,426 808,169
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Cash at end of period $ 411,706 $ 41,243
=========== ===========
</TABLE>
See Accompanying notes to consolidated financial statements
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PHOTO CONTROL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 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:
JUNE 30 DECEMBER 31
1999 1998
--- ----
Raw Materials $ 4,303,408 $ 4,261,234
Work in Progress 487,094 172,227
Finished Goods 1,482,639 1,143,194
Reserve for Obsolescence $(1,552,000) $(1,462,000)
----------- -----------
4,721,141 $ 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
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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, 1999 were $2,744,000, a decrease of
13.0% from the same quarter in the prior year. Sales for the six months ended
June 30, 1999 were $4,574,000, a decrease of 10.3% over the same period in the
prior year. Lighting sales increased $23,000 for the second quarter and $189,000
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 $99,000 for the second quarter and $281,000 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, decreased by $332,000 for the
second quarter and $433,000 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. Shipments of these systems are expected to commence in the third
quarter of 1999. The Dual Capture Imaging System is currently in field testing.
The gross profit margin for the second quarter of 1999 increased to 31.4% from
26.0% in the second quarter of 1998. The gross profit margin for the six months
ended June 30, 1998 increased to 29.3% from 18.8% 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. Because of the significant volume decline in the printer line, its
7
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gross margin is decreasing. Gross margin varies depending upon the product mix
of sales. Management expects that the margins for the year 1999 will be
approximately 26%.
Marketing and administrative expenses increased as a percentage of sales to
15.5% for the second quarter of 1999 from 14.1% for the second quarter of 1998
and increased to 20.2% for the first six months of 1999 from 19.2% for the same
period in 1998. Marketing and administrative expenses decreased $20,000 for the
second quarter of 1999 as compared to the second quarter of 1998 and decreased
$52,000 for the first six months of 1999 compared to the same period in 1998.
Research, development and engineering expense decreased by $54,000 for the
second quarter of 1999 compared to the second quarter of 1998 and decreased by
$108,000 for the first six months of 1999 compared to the same period of 1997.
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 $10,000 in the second quarter of 1999 and compared to first six
months of 1998.
LIQUIDITY & CAPITAL RESOURCES
Cash decreased by $320,000 to $411,000 since December 31, 1998. Operations for
the six months ended June 30, 1999 resulted in $298,000 of negative cash flow.
At June 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, product demand and industry capacity,
competitive products and pricing, manufacturing efficiencies, new product
development and market acceptance, the regulatory and trade environment, and
other
8
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risks indicated in filings with the Securities and Exchange Commission.
YEAR 2000 DISCLOSURE
The Company has nearly 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 August 31, 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 is in the process of contacting and 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.
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ITEM 4. RESULTS OF VOTE OF SECURITY HOLDERS
At the annual meeting of stockholders held on May 13, 1999 the following matters
were approved by the Company's stockholders:
1. Set the number of directors at five (5). The voting results were:
1,265,348 For, 51,331 Against and 8,165 Abstained.
2. Elected Mr. Thomas J. Cassady 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
Thomas J Cassady 1,273,889 50,955
Messrs. James R. Loomis, John R. Helmen and Leslie A. Willig 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
10
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 411,706
<SECURITIES> 0
<RECEIVABLES> 844,423
<ALLOWANCES> 0
<INVENTORY> 4,721,141
<CURRENT-ASSETS> 5,993,151
<PP&E> 5,290,659
<DEPRECIATION> 3,706,085
<TOTAL-ASSETS> 8,036,285
<CURRENT-LIABILITIES> 1,344,765
<BONDS> 0
0
0
<COMMON> 128,333
<OTHER-SE> 5,905,526
<TOTAL-LIABILITY-AND-EQUITY> 8,036,285
<SALES> 2,744,327
<TOTAL-REVENUES> 2,744,327
<CGS> 1,881,113
<TOTAL-COSTS> 1,881,113
<OTHER-EXPENSES> 579,990
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 283,224
<INCOME-TAX> 0
<INCOME-CONTINUING> 283,224
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 283,224
<EPS-BASIC> .17
<EPS-DILUTED> .17
</TABLE>
