SECURITIES AND EXCHANGE COMMISSION
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| For Quarter Ended September 30, 2003 | Commission File Number 0-7475 |
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PHOTO CONTROL
CORPORATION |
| Minnesota | 41-0831186 |
| (State or other jurisdiction of | (I.R.S. Employer |
| incorporation or organization) | Identification No.) |
4800 Quebec Avenue North | |
| Minneapolis, MN | 55428 |
| (Address of principal executive offices) | (Zip Code) |
|
(763) 537-3601 _____________________________________ 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 31, 2003 |
| Common Stock, par value $.08 | 1,604,163 Shares |
PHOTO CONTROL CORPORATION
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| Page Number | |||||||
|---|---|---|---|---|---|---|---|
| PART I | |||||||
Item 1: | Financial Information | ||||||
Balance Sheets — September 30, 2003 and December 31, 2002 | 3 |
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Statements of Operations — Nine Months and Three Months Ended September 30, 2003 and 2002 | 4 |
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Statements of Cash Flows — Nine Months Ended September 30, 2003 and 2002 | 5 |
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Notes to Financial Statements | 6 |
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Item 2: | Management's Discussion and Analysis of Financial Condition and Results of Operations | 7 |
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Item 4: | Controls and Procedures | 8 |
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PART II | |||||||
Item 2: | Changes in Securities | 9 |
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Item 6: | Exhibits and Reports on Form 8-K | 9 |
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Signatures |
9 |
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2 |
Part IItem 1: Financial Information |
| (Unaudited) September 30 2003 | (Audited) December 31 2002 | |||||||
|---|---|---|---|---|---|---|---|---|
| ASSETS | ||||||||
Current Assets | ||||||||
| Cash | $ | 3,899,826 | $ | 3,520,622 | ||||
| Accounts Receivable | 394,006 | 379,045 | ||||||
| Inventories | 2,548,260 | 3,144,766 | ||||||
| Prepaid Expenses | 75,151 | 110,805 | ||||||
| Refundable Income Taxes | 58,591 | 171,127 | ||||||
| Total Current Assets | 6,975,834 | 7,326,365 | ||||||
Other Assets | ||||||||
| Patent Right, Net of Amortization | 1,137,805 | 1,270,798 | ||||||
| Cash Value of Life Insurance | 100,998 | 96,285 | ||||||
| Total Other Assets | 1,238,803 | 1,367,083 | ||||||
Plant and Equipment | ||||||||
| Land and Building | 2,181,120 | 2,181,120 | ||||||
| Machinery and Equipment | 2,508,595 | 2,485,818 | ||||||
| Accumulated Depreciation | (3,605,297 | ) | (3,425,297 | ) | ||||
| Total Plant and Equipment | 1,084,418 | 1,241,641 | ||||||
| $ | 9,299,055 | $ | 9,935,089 | |||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
Current Liabilities | ||||||||
| Current Portion of Purchase Contract | $ | 320 | $ | 184,920 | ||||
| Accounts Payable | 142,766 | 156,977 | ||||||
| Accrued Payroll and Employee Benefits | 161,756 | 141,751 | ||||||
| Accrued Expenses | 355,649 | 316,143 | ||||||
| Total Current Liabilities | 660,491 | 799,791 | ||||||
Accrued Retirement Benefit | 854,572 | 873,548 | ||||||
Stockholders' Equity | ||||||||
| Common Stock | 128,333 | 128,333 | ||||||
| Additional Paid-In Capital | 1,393,484 | 1,393,484 | ||||||
| Retained Earnings | 6,262,175 | 6,739,933 | ||||||
| Total Stockholders' Equity | 7,783,992 | 8,261,750 | ||||||
| $ | 9,299,055 | $ | 9,935,089 | |||||
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See accompanying notes to financial statements. 3 |
Statements of Operations (Unaudited)
| Three Months Ended September 30 | Nine Months Ended September 30 | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2003 | 2002 | 2003 | 2002 | |||||||||||
| Net Sales | $ | 1,851,939 | $ | 2,497,561 | $ | 5,023,658 | $ | 6,228,216 | ||||||
| Cost of Sales | 1,345,210 | 1,923,597 | 3,992,873 | 4,773,251 | ||||||||||
| Gross Profit | 506,729 | 573,964 | 1,030,785 | 1,454,965 | ||||||||||
Expenses | ||||||||||||||
| Marketing & Administrative | 287,353 | 340,151 | 1,064,888 | 1,081,674 | ||||||||||
| Research, Development & Eng. | 172,071 | 142,365 | 539,655 | 430,109 | ||||||||||
| Gain on Sale of Plant | (90,055 | ) | (90,055 | ) | ||||||||||
Total Expenses | 459,424 | 392,461 | 1,604,543 | 1,421,728 | ||||||||||
Income (Loss) Before Taxes | 47,305 | 181,503 | (573,758 | ) | 33,237 | |||||||||
Income Tax (Benefit) | 18,000 | 62,000 | (96,000 | ) | 12,000 | |||||||||
Net Income (Loss) | $ | 29,305 | $ | 119,503 | $ | (477,758 | ) | $ | 21,237 | |||||
Net Income (Loss) Per Common Share – Basic | $ | .02 | $ | .07 | $ | (.30 | ) | $ | .01 | |||||
Net Income (Loss) Per Common Share – Diluted | $ | .02 | $ | .07 | $ | (.30 | ) | $ | .01 | |||||
Weighted Average of Common Shares Outstanding | ||||||||||||||
| for Basic and Diluted Net Income (Loss) Per Common Share | 1,604,163 | 1,604,163 | 1,604,163 | 1,604,163 | ||||||||||
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See accompanying notes to financial statements. 4 |
Statements of Cash Flows (Unaudited)
| Nine Months Ended September 30 | ||||||||
|---|---|---|---|---|---|---|---|---|
| 2003 | 2002 | |||||||
| Cash flows from operating activities: | ||||||||
| Net from operations | $ | (477,758 | ) | $ | 21,237 | |||
| Items not affecting cash– | ||||||||
| Depreciation | 180,000 | 225,000 | ||||||
| Deferred compensation | 36,000 | 36,000 | ||||||
| (Gain) Loss on sale of plant and equipment | (88,940 | ) | ||||||
| Amortization | 132,993 | 132,993 | ||||||
| Provision for inventory obsolescence | 96,577 | 177,402 | ||||||
| Payment of deferred compensation | (54,976 | ) | (54,976 | ) | ||||
| Change in: | ||||||||
| Receivables | (14,961 | ) | (554,329 | ) | ||||
| Inventories | 499,929 | 219,815 | ||||||
| Prepaid Expenses | 35,654 | 32,531 | ||||||
| Accounts Payable | (14,212 | ) | 154,424 | |||||
| Accrued Expenses | 59,511 | (170,940 | ) | |||||
| Accrued and Refundable Income Taxes | 112,536 | 112,439 | ||||||
Net cash provided by operating activities | 591,293 | 242,656 | ||||||
Cash flows from investing activities: | ||||||||
| Additions to plant and equipment | (22,776 | ) | ||||||
| Additions to cash value of life insurance | (4,713 | ) | (4,389 | ) | ||||
| Proceeds from sale of land and building | 95,555 | |||||||
Net cash provided by investing activities | (27,489 | ) | 91,166 | |||||
Cash flow from financing activities: | ||||||||
| Payment on purchase contract | (184,600 | ) | (236,000 | ) | ||||
Change in cash and cash equivalent | 379,204 | 97,822 | ||||||
| Beginning cash and cash equivalent | 3,520,622 | 3,019,781 | ||||||
Ending cash and cash equivalent | $ | 3,899,826 | $ | 3,117,603 | ||||
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See accompanying notes to financial statements 5 |
| 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. |
| Inventories are analyzed as follows: |
| September 30 2003 | December 31 2002 | |||||||
|---|---|---|---|---|---|---|---|---|
| Raw Materials | $ | 1,714,028 | $ | 1,904,392 | ||||
| Work in Progress | 92,795 | 103,993 | ||||||
| Finished Goods | 1,231,437 | 1,536,381 | ||||||
| Reserve for Obsolescence | (490,000 | ) | (400,000 | ) | ||||
| $ | 2,548,260 | $ | 3,144,766 | |||||
| Net Income (Loss) 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. |
| The compensation cost based on the fair values of options at grant dates consistent with the provisions of SFAS No. 123, would be $54,280 for the year ended December 31, 2003 and $.03 per share of common stock. For each quarter of 2003 the compensation cost would be approximately $13,500 and approximately $.01 per share of common stock. |
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Sales for the third quarter ended September 30, 2003 were $1,851,000, a decrease of 25.8% or $645,000 from the third quarter in 2002. Sales for the nine months ended September 30, 2003 were $5,023,000, a decrease of 19.3% or $1,204,000 from the same period in the prior year. The photographic products sales decreased $475,000 in the third quarter of 2003 compared to the third quarter in 2002 which consisted of a camera product line sales decrease of $208,000, a printer product line sales increase of $51,000, a flash equipment product line sales decrease of $291,000, and a Lindahl shades product line sales decrease of $27,000. Photographic product sales for the nine months ended September 30, 2003 were $4,187,000, a decrease of 18.3% or $939,000 over the same period in the prior year which consisted of a camera product line sales decrease of $674,000, a printer product line sales decrease of $3,000, a flash equipment product line sales decrease of $175,000 and a Lindahl shade product line sales decrease of $87,000. The decrease in the photographic product line sales reflects a general overall weakness in demand due to the economic downturn and in particular a contracting market in the photographic industry. In addition, many customers are not buying new film cameras in anticipation of switching to digital cameras in the near future. The Bookendz dock product line sales decreased $170,000 in the third quarter of 2003 as compared to 2002. Bookendz dock product line sales decreased $265,000 for the nine months ended September 30, 2003 over the same period in the prior year. Apple introduced three new powerbooks, a twelve inch, a fifteen inch and a seventeen inch model in 2003, however the Company did not ship the twelve inch dock until June and is in the process of evaluating docks for the fifteen and seventeen inch models.
The gross profit margin for the third quarter of 2003 increased to 27.4% from 23.0% in the third quarter of 2002. The gross profit margin for the nine months ended September 30, 2003 decreased to 20.5% from 23.4% in the prior year period. The changes in gross margin is attributable to changes in the product mix and increasing costs on the Bookendz product line.
Marketing and administrative expenses increased as a percentage of sales to 15.5% for the third quarter of 2003 from 13.6% for the third quarter of 2002 and increased to 21.2% for the first nine months of 2003 from 17.4% for the same period in 2002. Marketing and administrative expenses decreased $53,000 for the third quarter of 2003 as compared to the third quarter of 2002 and decreased $17,000 for the first nine months of 2003 compared to the same period in 2002. Research, development and engineering expense increased by $30,000 for the third quarter of 2003 compared to the third quarter of 2002 and increased by $110,000 for the first nine months of 2003 compared to the same period of 2002. The overall decrease in marketing and administrative expense reflects increased sales promotion activity for trade shows, advertising, and a direct user sales promotion offset by
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cost decreases in general and administrative expenses. The increase in research, development and engineering expense reflects the cost to develop two new digital cameras.
Cash increased by $379,000 to $3,899,000 since December 31, 2002. This cash increase for the nine months was due to $591,000 of positive cash flow from operations, offset by $22,000 of capital equipment expenditures and payment of $184,000 on the Bookendz purchase contract. At September 30, 2003 there was no borrowing under the line of credit.
The Company believes that its cash flow from future operations and available borrowing capacity will be sufficient to finance operations and capital requirements for 2003 and 2004.
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.
As of September 30, 2003 an evaluation was performed by the Company’s President and Treasurer of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 1934). Based upon, and as of the date of that evaluation, the President and Treasurer concluded that the Company’s disclosure controls and procedures were effective, in all material respects, to ensure that information required to be disclosed in the reports the Company files and submits under the Securities and Exchange Act of 1934 is recorded, processed, summarized and reported as and when required.
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| Common Stock | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Number of Shares | Amount | Additional Paid In Capital | Retained Earnings | |||||||||||
| Balance at December 31, 2002 | 1,604,163 | $ | 128,333 | $ | 1,393,484 | $ | 6,739,933 | |||||||
| Net Loss | (477,758 | ) | ||||||||||||
| Balance at September 30, 2003 | 1,604,163 | $ | 128,333 | $ | 1,393,484 | $ | 6,262,175 | |||||||
| A. | Exhibits: |
| 31.1 and 31.2 – Certifications |
| 32 – Certification Pursuant to 18 U.S.C.ss.1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
| B. | Reports on Form 8-K - On July 21, 2003 a Current Report on Form 8-K reporting under Items 7c and 9, the issuance of a press release announcing financial results for the six months ended June 30, 2003. |
| Photo Control Corporation | |||||
Date: October 31, 2003 |
By |
/s/ Curtis R. Jackels | |||
| Curtis R. Jackels Chief Executive Officer, and President | |||||
By |
/s/ Christopher S. Lausen | ||||
| Christopher S. Lausen Treasurer | |||||
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