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, 2002 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 (763) 537-3601
---------------
- --------------------------------------------------------------------------------
(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 11, 2002
- ---------------------------- -------------------------------
Common Stock, par value $.08 1,604,163 Shares
1
PHOTO CONTROL CORPORATION
INDEX
-------------------------
PART I Page Number
- ------ -----------
ITEM 1: Financial Information
Balance Sheet -
September 30, 2002 and December 31, 2001 3
Statement of Operations -
Nine Months and Three Months Ended
September 30, 2002 and 2001 4
Statement of Cash Flows -
Nine Months Ended September 30, 2002 and 2001 5
Notes to Financial Statements 6
ITEM 2: Management's Discussion and Analysis
of Financial Condition and Results of
Operations 7
PART II
- -------
ITEM 2: Changes in Securities 9
ITEM 6: Exhibits and Reports on Form 8-K 9
2
PHOTO CONTROL CORPORATION
-------------------------
BALANCE SHEET
-------------
(UNAUDITED)
SEPTEMBER 30 DECEMBER 31
2002 2001
------------ ------------
ASSETS
------
Current Assets
- --------------
Cash $ 3,117,603 $ 3,019,781
Accounts Receivable 1,045,268 490,939
Inventories 3,177,262 3,574,479
Prepaid Expenses 122,446 154,977
Refundable Income Taxes 87,780
------------ ------------
Total Current Assets 7,462,579 7,327,956
------------ ------------
Other Assets
- ------------
Patent Right, Net of Amortization 1,315,129 1,448,122
Cash Value of Life Insurance 96,285 91,896
------------ ------------
Total Other Assets 1,411,414 1,540,018
------------ ------------
Plant and Equipment
- -------------------
Land and Building 2,181,120 2,310,823
Machinery and Equipment 2,465,587 2,525,536
Accumulated Depreciation (3,427,298) (3,385,336)
------------ ------------
Total Plant and Equipment 1,219,409 1,451,023
------------ ------------
$ 10,093,402 $ 10,318,997
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities
- -------------------
Current Portion of Purchase Contract $ 271,840 $ 507,840
Accounts Payable 286,605 132,181
Accrued Payroll and Employee Benefits 146,920 336,153
Accrued Expenses 356,679 338,386
Accrued Income Taxes 24,659
------------ ------------
Total Current Liabilities 1,086,703 1,314,560
------------ ------------
Accrued Retirement Benefit 893,720 912,696
- -------------------------- ------------ ------------
Stockholders' Equity
- --------------------
Common Stock 128,333 128,333
Additional Paid-In Capital 1,393,484 1,393,484
Retained Earnings 6,591,162 6,569,924
------------ ------------
Total Stockholders' Equity 8,112,979 8,091,741
------------ ------------
$ 10,093,402 $ 10,318,997
============ ============
See accompanying notes to financial statements.
3
PHOTO CONTROL CORPORATION
-------------------------
STATEMENT OF OPERATIONS
-----------------------
(UNAUDITED)
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30 ENDED SEPTEMBER 30
--------------------------- --------------------------
2002 2001 2002 2001
----------- ----------- ----------- -----------
Net Sales $ 2,497,561 $ 2,953,330 $ 6,228,216 $ 9,206,681
Cost of Sales 1,923,597 2,059,447 4,773,251 6,225,406
----------- ----------- ----------- -----------
Gross Profit 573,964 893,883 1,454,965 2,981,275
Expenses
Marketing & Administrative 340,151 400,049 1,081,674 1,338,782
Research, Development & Eng 142,365 178,270 430,109 592,966
Gain on Sale of Plant (90,055) (90,055)
----------- ----------- ----------- -----------
Total Expenses 392,461 578,319 1,421,728 1,931,748
----------- ----------- ----------- -----------
Income Before Income Taxes 181,503 315,564 33,237 1,049,527
Income Tax 62,000 121,000 12,000 400,000
----------- ----------- ----------- -----------
Net Income $ 119,503 $ 194,564 $ 21,237 $ 649,527
=========== =========== =========== ===========
Net Income Per Common
Share - Basic $ .07 $ .12 $ .01 $ .40
=========== =========== =========== ===========
Net Income Per Common
Share - Diluted $ .07 $ .12 $ .01 $ .39
=========== =========== =========== ===========
See accompanying notes to financial statements.
4
PHOTO CONTROL CORPORATION
-------------------------
STATEMENT OF CASH FLOWS
-----------------------
(UNAUDITED)
NINE MONTHS
ENDED SEPTEMBER 30
---------------------------
2002 2001
----------- -----------
Cash flows from operating activities:
Net from operations $ 21,237 $ 649,527
Items not affecting cash-
Depreciation 225,000 207,000
Deferred compensation 36,000 138,000
(Gain)Loss on sale of plant and equipment (88,940) 11,574
Amortization 132,993 132,993
Provision for inventory obsolescence 177,402
Payment of deferred compensation (54,976) (198,361)
Change in:
Receivables (554,329) 419,770
Inventories 219,815 351,851
Prepaid Expenses 32,531 (64,832)
Accounts Payable 154,424 (124,760)
Accrued Expenses (170,940) 133,192
Accrued and Refundable Income Taxes 112,439 (71,610)
----------- -----------
Net cash provided by operating activities 242,656 1,584,344
----------- -----------
Cash flows from investing activities:
Additions to plant and equipment (158,504)
Additions to cash value of life insurance (4,389) (3,888)
Proceeds from sale of land and building 95,555 40,146
Proceeds from life insurance 458,591
----------- -----------
Net cash provided by
investing activities 91,166 336,345
----------- -----------
Cash flow from financing activities:
Payment on purchase contract (236,000) (153,200)
----------- -----------
Change in cash and cash equivalent 97,822 1,767,489
Beginning cash and cash equivalent 3,019,781 1,254,660
----------- -----------
Ending cash and cash equivalent $ 3,117,603 $ 3,022,149
=========== ===========
See Accompanying notes to financial statements
5
PHOTO CONTROL CORPORATION
-------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
SEPTEMBER 30, 2002
------------------
(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
2002 2001
----------- -----------
Raw Materials $ 2,473,444 $ 2,752,418
Work in Progress 202,962 39,182
Finished Goods 1,550,856 1,732,879
Reserve for Obsolescence (1,050,000) (950,000)
----------- -----------
$ 3,177,262 $ 3,574,479
=========== ============
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
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, 2002 were $2,497,000, a decrease
of 15.4% from the same quarter in the prior year. Sales for the nine months
ended September 30, 2002 were $6,228,000, a decrease of 32.4% over the same
period in the prior year. Lighting sales increased $275,000 for the third
quarter and decreased $806,000 for the year to date period, as compared to the
same periods in the prior year. A decrease in an order from one large customer
accounted for the year to date sales decrease in the lighting product line. The
camera product line accounts for a decrease in sales of $650,000 for the third
quarter and $2,302,000 for the year to date period, as compared to the same
periods in the prior year. The decrease in camera product line sales is
attributable to a decrease in sales as compared to last year under the
$6,200,000 camera contract. Shipments under this contract began in December of
1999 and were completed in August 2001. Sales of the third product line,
printers, decreased by $59,000 for the third quarter and decreased $101,000 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 optical
photographic printer market continues to experience consolidation and excess
capacity. The Lindahl shades product line sales decreased $36,000 for the third
quarter and $122,000 for the year to date period , as compared to the same
periods in the prior year. In general, all areas of the professional photography
market have experienced a decline in volume in 2002 as compared to 2001. The
Bookendz product line sales increased $15,000 for the third quarter and $353,000
for the year to date period, as compared to the same periods in the prior year.
The year to date increase reflects the sales of new Bookendz docks for the Apple
ibook computer which began shipping in January 2002 and the Apple ipod which
began shipping in June 2002.
Because of the completion of the camera contract discussed above and the
decrease in sales backlog, it is expected that the downward trend in sales for
the first nine months of 2002 compared to 2001 will continue into the last three
months of 2002. In 2003, the Company expects certain of its customers to begin
switching from film cameras to digital cameras. Although the Company currently
sells both film and digital cameras, its current digital products are being
redesigned and updated to incorporate newer technology and components. The
Company believes it will be able to take advantage of the switch from film to
digital cameras. However, the Company is unable to predict the timing and
related quantity of this switch to digital cameras or the impact it will have on
sales and profits. The Company continues to explore new growth and product
opportunities while at the same time controlling and reducing its costs.
7
The gross profit margin for the third quarter of 2002 decreased to 23.0% from
30.3% in the third quarter of 2001. The gross profit margin for the nine months
ended September 30, 2002 decreased to 23.4% from 32.4% in the prior year period.
Because of the low sales volume in 2002 there was an under absorption of
manufacturing overhead of $522,000 compared to an under absorption of $180,000
in 2001. Also, the inventory was reviewed for obsolescence in the third quarter
and a provision of $158,000 was recorded. The effect on the gross profit margin
from the under absorption and the provision for obsolescence was 8.3% for the
nine months ended September 30, 2002.
Marketing and administrative expenses increased as a percentage of sales to
13.6% for the third quarter of 2002 from 13.5% for the third quarter of 2001 and
increased to 17.4% for the first nine months of 2002 from 14.5% for the same
period in 2001. Marketing and administrative expenses decreased $60,000 for the
third quarter of 2002 as compared to the third quarter of 2001 and decreased
$257,000 for the first nine months of 2002 compared to the same period in 2001.
Research, development and engineering expense decreased by $36,000 for the third
quarter of 2002 compared to the third quarter of 2001 and decreased by $163,000
for the first nine months of 2002 compared to the same period of 2001. The
expense reductions reflect decreased staff in all departments. On September 25,
2002 the Company sold its 5,000 square foot building and related land in
Hinckley Minnesota at a gain of $90,055.
LIQUIDITY & CAPITAL RESOURCES
- -----------------------------
Cash increased by $91,000 to $3,117,000 since December 31, 2001. Operations for
the nine months ended September 30, 2002 resulted in $242,000 of cash flow. The
purchase contract debt was reduced by $236,000 and land and building were sold
for cash of $95,555.
At September 30, 2002 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.
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
8
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 2. CHANGES IN SECURITIES
- -----------------------------
Common Stock
------------ Additional
Number of Paid In Retained
Shares Amount Capital Earnings
----------- ----------- ----------- -----------
Balance at
December 31,2001 1,604,163 $ 128,333 $ 1,393,484 $ 6,569,925
Net Income 21,237
----------- ----------- ----------- -----------
Balance at
September 30, 2002 1,604,163 $ 128,333 $ 1,393,484 $ 6,591,162
=========== =========== =========== ===========
ITEM 6. EXHIBIT AND REPORTS ON FORM 8-K
- ---------------------------------------
A. Exhibits - None
B. Reports on Form 8-K - None
PHOTO CONTROL CORPORATION
- -------------------------
(Registrant)
CERTIFICATION PURSUANT TO 18 U.S.C.ss.1350, AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Photo Control Corporation (the
"Company") on Form 10-Q for the period ended September 30, 2002 as filed with
the Securities and Exchange Commission on the date hereof (the "Report"), the
undersigned, in the capacities listed below, hereby certifies, pursuant to 18
U.S.C. ss.1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, that: (i) The Report fully complies with the requirements of Section 13(a)
or 15(d) of the Securities Exchange Act of 1934; and (ii) The information
contained in the Report fairly presents, in all material respects, the financial
condition and results of operations of the Company.
October 18, 2002 By /s/ Curtis R. Jackels
--------------------------------
Curtis R. Jackels, President CEO
and Principal Accounting Officer
9
CERTIFICATIONS
I, Curtis R. Jackels, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Photo Control
Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: October 18, 2002 /s/ Curtis R. Jackels
---------------------------------
Curtis R. Jackels, President, CEO
and Principal Accounting Officer
10