-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, R9wyr7ay+Oi2zlvIbIaPXtWL58PJ88oag7gpq/iJHFqj//4DJCz944AEEe1vuUyH l+4B0ylePFwZpuyXNRlmgg== 0000897101-96-000109.txt : 19960322 0000897101-96-000109.hdr.sgml : 19960322 ACCESSION NUMBER: 0000897101-96-000109 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960321 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: PHOTO CONTROL CORP CENTRAL INDEX KEY: 0000078311 STANDARD INDUSTRIAL CLASSIFICATION: PHOTOGRAPHIC EQUIPMENT & SUPPLIES [3861] IRS NUMBER: 410831186 STATE OF INCORPORATION: MN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 000-07475 FILM NUMBER: 96536837 BUSINESS ADDRESS: STREET 1: 4800 QUEBEC AVE N CITY: MINNEAPOLIS STATE: MN ZIP: 55428 BUSINESS PHONE: 6125373601 MAIL ADDRESS: STREET 1: 4800 QUEBEC AVENUE NORTH STREET 2: 4800 QUEBEC AVENUE NORTH CITY: MINNEAPOLIS STATE: MN ZIP: 55428 10-K405 1 FORM 10-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 (MARK ONE) (X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED) For the fiscal year ended December 31, 1995 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) Commission File No: 0-7475 ----------------------------------------------------------------------- PHOTO CONTROL CORPORATION (Exact name of Registrant as specified in its charter) Minnesota (State or other jurisdiction of 41-0831186 incorporation or organization) (I.R.S. Employer Identification No.) 4800 Quebec Avenue North Minneapolis, Minnesota 55428 (Address of principal executive offices) Registrant's telephone number, including area code: (612) 537-3601 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $0.08 ---------------------------------------------------------------------- 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 12 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 __ Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-K contained in this form, and no disclosure will be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.(X) The aggregate market value of the voting stock held by nonaffiliates of the Registrant as of March 4, 1996 was approximately $4,245,000 (based on the closing sale price of the Registrant's Common Stock on such date). - ------------------------------------------------------------------------------- Number of shares of $0.08 par value Common Stock outstanding at March 4, 1996: 1,608,163 DOCUMENTS INCORPORATED BY REFERENCE 1. Portions of the Registrant's Report to Shareholders for the year ended December 31, 1995 are incorporated by reference into Part II. 2. Portions of the Registrant's definitive Proxy Statement to be dated April 1, 1996 for its Annual Meeting of Shareholders are incorporated by reference into Part III. PART I ITEM 1. BUSINESS (a) General Development of Business. Photo Control Corporation (the "Registrant" or the "Company") was organized as a Minnesota corporation in 1959. The Registrant acquired all of the outstanding stock of Norman Enterprises, Inc. ("Norman"), a California corporation, in 1973. In June, 1983 the Registrant acquired all of the outstanding stock of Nord Photo Engineering, Inc. ("Nord"), a Minnesota corporation. In October, 1986 the Registrant acquired all of the outstanding stock of Bardwell & McAlister, Inc. ("Bardwell"), a California corporation. As of December 31, 1987, Bardwell was liquidated and its assets and liabilities were transferred to Norman. Norman discontinued the manufacture and sale of the Bardwell product line during 1994. The Registrant designs, manufactures, and markets professional cameras, long-roll film magazines, photographic accessories, Norman electronic flash equipment, and Nord photographic package printers. All references to the "Registrant" or the "Company" also include "Norman" and "Nord" unless indicated otherwise. (b) Financial Information About Industry Segments. During the years ended December 31, 1995, 1994, and 1993, the Registrant was engaged in one industry which consisted of designing, manufacturing, and marketing professional photographic equipment. (c) Narrative Description of Business. (c) (l)(i) Principal Products, Services and Markets. The Registrant designs, manufactures and markets professional cameras, long-roll film magazines, photographic accessories, Norman electronic flash, cine and video lighting equipment, and Nord photographic package printers. The principal market for the Registrant's long-roll camera equipment is the sub-segment of the professional photography market requiring high-volume equipment, such as elementary and secondary school photographers. The market with respect to the Norman electronic flash equipment is broader, extending to all professional photographers and to experienced amateur photographers. The market for Nord photographic package printers is photographic processing labs which specialize in producing photographic color print packages such as those often produced for weddings and school photography. The geographic market in which the Registrant competes with respect to long-roll camera equipment, flash equipment, printers, and cine and video lights consists of the entire United States and, to a lesser extent, some foreign countries. The Registrant markets most of its cameras, film magazines, and photographic accessories through its two employee salesmen and one independent sales representative and part-time use of a service employee. Such equipment is marketed primarily under the tradename, "Camerz". Norman markets its electronic flash and lighting equipment through three full-time employee salesmen, and ten independent sales representatives. Nord markets its printers through five employee salesmen, one independent sales representative, and by part-time use of three service employees. The Camerz division and Nord utilize the same independent sales representative to sell both product lines. It is expected that the sales force will remain at the current level during 1996. (c)(1)(ii) New Products and Services. The Camerz division introduced two tripods, the Auto-Mate which features a gas charged, counter-balanced center column cylinder for holding cameras from twelve to thirty-five pounds and the Adjusto-Mate which has a gear driven column with precision rack and pinion movement to hold up to fifty pounds. Also the Camerz ZII Digital Preview System was placed in four beta sites. The system main components are a ZII Camera with EIS (electronic identification system) an Electronic Camera mounted on the ZII with synchronized zooming, a customized PC with a camera synchronizing board, and a Camerz frame-grabber board, a camera monitor and an optional point-of-sale computer system and monitor. The Camerz software allows up to sixteen frames to be viewed on the screen at one time, and selection can be made by process of elimination with each frame identified on the screen by a Camerz EIS sequential frame number which matches a number exposed on the film. Delivery of the system started in January 1996. Nord acquired the Bespro product line which features a low cost multi-lens printer. The daylight printer handles all professional color and black and white film sizes, and prints on either eleven, ten or eight inch paper. Nord enhanced its additive lamphouse by making it compatible with Accudata(TM), a printer controller used on a wide variety of photographic printers. Norman improved its line of battery-portable flash units by introducing the new "Super Battery" and "Delta V Charger." This nickel-cadmium battery provides 25% more flashes per charge with no memory effect and the charger utilizes a micro processor control circuit that substantially increases battery life. These improvements have dramatically revitalized sales of Norman's portables. Also, Norman introduced the new high-power 40/40 power supply. Sales in 1995 were to a single high-volume user, with introduction to the dealers in January 1996. (c)(1)(iii) Sources and Availability of Raw Materials. Materials required for the Registrant's photographic equipment consist primarily of fabricated parts, lenses, electronic components, and lights, most of which are readily available from numerous sources. (c)(1)(iv) Patents, Trademarks, Licenses, Franchises and Concessions. The Registrant, on February 16, 1982, obtained United States patent number 4,319,819 for a reflex shutter, which is used in conjunction with a zoom lens. The Registrant has incorporated the shutter into a zoom lens camera which was first introduced in fiscal 1980. The Registrant on June 7, 1988, obtained a United States Patent number 4,750,012 for a reflex shutter for SLR cameras. The shutter is incorporated into the "Z35" camera which was first introduced in 1987. In 1991, the Registrant was granted United States Patent number 5,055,863 for a multiple image transfer camera system for the simultaneous transfer of light rays from an object to a pair of separate, discrete mediums to provide for substantially exact image reproduction and capture thereof at either or both of two media. The Registrant received U.S. Patent No. 5,294,950 on March 15, 1994 for an identification system for automated film and order processing including machine and human readable code. On July 12, 1994, the U.S. Patent and Trademark Office granted the Registrant patent number 5,329,325 for the Registrant's synchronized zoom electronic camera system. Nord holds two patents. Patent number 4,213,689 granted July 22, 1980 relates to a camera shutter which is electromagnetically activated and is not currently in production. The Additive Color Lamphouse patent, granted in 1991, United States Patent number 5,032,866, covers a closed loop light intensity feedback control system for regulating the light sources within the lamphouse. The Registrant believes that it is the owner of two unregistered trademarks, "Camerz" and the logo-type used in connection with the sale of photographic equipment under the name Camerz. Also, the Registrant owns one registered trademark called "Smart System". Nord is the owner of four registered trademarks; "Portrait Express," "Nord", "ESP", and a logo-type design referred to as the "Micrometer." Although the Registrant's patents and trademarks are valuable, they are not considered to be essential to the Company's success. Innovative application of existing technology along with providing efficient and quality products are of primary importance. The Registrant has entered into agreements with employees which agreements grant the Registrant a exclusive right to use, make and sell inventions conceived by employees during their employment with the Registrant. The Registrant believes that the right to use, make and sell such inventions adequately protects the Registrant against any employee who might claim an exclusive proprietary right in an invention developed while the employee was employed by the Registrant. (c)(1)(v) Seasonal Fluctuations. The photographic equipment business, including that of Norman and Nord, is somewhat seasonal. There is a larger volume of sales from March through October. (c)(1)(vi) Working Capital Practices. The Registrant believes that its working capital needs are typical to the industry. The nature of the Registrant's business does not require that it maintain a high volume of finished goods inventory or provide extended payment terms to customers. The Registrant maintains an inventory of raw material and finished products and permits customers to return only defective merchandise. (c)(1)(vii) Single Customer. During the years ended December 31, 1995, 1994 and 1993, the company derived 20.2%, 24.2% and 17.4%, respectively, of its sales from one unaffiliated customer, Lifetouch Inc. and its affiliates. (c)(1)(viii) Backlog. The dollar amount of backlog believed by the Registrant to be firm as of December 31, is as follows: 1995 1994 1993 Company $1,397,000 $4,994,000 $7,967,000 Nord 426,000 1,109,000 486,000 Norman 1,035,000 83,000 6,000 ---------- ---------- ---------- Total $2,858,000 $6,186,000 $8,459,000 ========== ========== ========== The Registrant anticipates that it and its subsidiaries will be able to fill all current backlog orders during the fiscal year ending December 31, 1996. (c)(1)(ix) Government Contracts. No material portion of the Registrant's or its subsidiaries' business is subject to renegotiation of profits or termination of any contract or subcontract at the election of the Government. (c)(1)(x) Competition. Primary methods of competition for the Company's products are product performance, reliability, service, and delivery. The Registrant's two primary competitors with respect to such equipment are Lucht Engineering, Inc., which sells photographic printers, and Beattie Systems, Inc., which sells long-roll cameras. Because of varying product lines, the Registrant is unable to state accurately its competitive position in relation to such competitors. In the somewhat broader market in which Norman competes in the sale of professional studio electronic flash equipment, there are approximately fourteen significant competitors, several of which are well established. The Registrant is unable to state accurately Norman's overall competitive position in relation to such competitors. Norman's dominant competitors are Broncolor, Dynalite, White Lighting, Photogenic, and Speed-O-Tron. (c)(1)(xi) Research and Development. The Registrant spent the following amounts on research activities relating to the development of new products, services, and production engineering: YEAR ENDED DECEMBER 31 ---------------------------------------- 1995 1994 1993 ---- ---- ---- Camerz Division $ 408,000 407,000 396,000 Nord 520,000 730,000 561,000 Norman 382,000 403,000 329,000 ---------- ---------- ---------- Total $1,310,000 $1,540,000 $1,286,000 ========== ========== ========== The Company intends to maintain its level of spending on research and development. (c)(1)(xii) Environmental Regulation. Federal, state and local laws and regulations with respect to the environment have had no material effect on the Registrant's or its subsidiaries' capital expenditures, earnings, or respective competitive positions. (c)(1)(xiii) Employees. As of December 31, 1995, the Registrant had the following employees: FULL-TIME PART TIME --------- --------- Camerz Division 44 1 Nord 33 1 Norman 62 3 --- --- Total 139 5 === === The Registrant utilizes subcontract personnel on a temporary basis to supplement its regular work force which totaled 46 people as of December 31, 1995. (d) Financial Information About Foreign and Domestic Operations and Export Sales. The Registrant has no operations based outside of the United States. During each of the last three years ended December 31, 1995, slightly more than 5% of the Registrant's consolidated sales were derived from export sales. ITEM 2. PROPERTIES The Registrant's principal property is located at 4800 Quebec Avenue North, Minneapolis, Minnesota. The building at that location consists of 60,000 square feet and is located on 3 1/2 acres of land. The building was constructed in 1971 and was purchased in 1980. Extensive remodeling has been done to meet the specific needs of the Company. The Registrant first occupied the building during the fall of 1980, and uses the building for camera production, Nord printer manufacturing, and as corporate offices. Nord owns a 5,000 square foot building in Hinckley, Minnesota, on one acre of land, which houses optical production and was built in 1981. In February 1996, the production was moved to Minneapolis and the building listed for sale. Norman occupies a 32,000 square foot building in Burbank, California which was constructed in 1977 and expanded in 1984. The facility is located on 50,000 square feet of land and houses all of Norman's operations. The land and building are financed through the issuance of an industrial development bond by the Industrial Development Authority of the County of Los Angeles and are owned by Norman subject to a mortgage in favor of the note holder. The Registrant believes its present facilities are adequate for its current level of operation and provide for a reasonable increase in production activities. ITEM 3. LEGAL PROCEEDINGS Neither the Registrant nor any of its subsidiaries is a party to, and none of their property is the subject of, any material pending legal proceedings. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matter was submitted to a vote of the Registrant's shareholders during the Registrant's quarter ending December 31, 1995. EXECUTIVE OFFICERS OF THE REGISTRANT
Name, Age and Present Position of Officer Business Experience - --------------------------- ------------------- Leslie A. Willig, 70 Mr. Willig, who received a Ph.D in Industrial Management from the School of Business of the University of Iowa in 1956, has been a member and Chairman of Chairman of the Board of Directors, the Board of Directors of Registrant since June, 1974, has been its Chief Chief Executive Officer, and Executive Officer since August, 1974, and has been its President since May, President of the Registrant 1975. Mr. Willig has been a director and Secretary of North Snow Bay Inc., Freemont, Indiana, a real estate development company, since1965. Mr. Willig has acted as a self-employed business and real estate broker in Indiana, since March, 1970 William L. Norman, 55 Since it was acquired in 1973, Mr. Norman has served as President of the Registrant's wholly-owned subsidiary Norman Enterprises, Inc., located Director of the Registrant and in Burbank, California. He was Secretary of the Registrant from May, 1987 President of Norman to May, 1993. Curtis R. Jackels, 49 Mr. Jackels has been Vice President-Treasurer of the Registrant since August, 1985 and Treasurer since November, 1980. Mr. Jackels was controller Vice President - from June, 1978 to November, 1980. Prior to June, 1978, Mr. Jackels Treasurer of the was employed by two public accounting firms. Mr. Jackels is a certified Registrant public accountant and has a Master of Business Administration degree from the University of Wisconsin. Mark J. Simonett, 39 Mr. Simonett has served as the Registrant's General Counsel and Personnel Director since September, 1992 and as Secretary since May, 1993. He has served Secretary of the part-time since April 1995. He was associated with the Mninneapolis law firm of Registrant Gray, Plant, Mooty, Mooty and Bennet P.A. from 1991 to 1992, and with the consulting firm Delta Environmental Consultants, Inc. From 1990 to 1992. Roger M. Johnson, 62 Mr. Johnson has been President, Camerz Photo Products Division since November, 1989 and was in charge of that Division from December, 1982 Executive Vice President to November, 1989. Since November, 1985 he has been Executive Vice of the Registrant, President of the Registrant and from November, 1985 to November, 1989 President of Camerz was President of the Company's subsidiary Nord. From December, 1956 Photo Products Division to November, 1982 he was employed by Pako, Minneapolis, Minnesota, a manufacturer of film processing equipment and film processors. The last position held at Pako was Group Product Manager photo products. Patrick J. Gilligan, 55 Mr. Gilligan has been President of the Company's wholly-owned subsidiary, Nord Photo Engineering, Inc., since November, 1990. Since May, 1993, Executive Vice President he has been Executive Vice President of the Registrant. From August 1988 of the Registrant to October, 1990, he was employed by Pakor, Inc. of Minneapolis, Minnesota, President of Nord a manufacturer of Pako service parts, and a distributor of photographic processing equipment. The last position held at Pakor was President. From 1986 to 1988 he was employed by PhotoTek, a Division of Pako, the predecessor to Pakor, Inc. and a subsidiary of Pako. His position with PhotoTek was Vice President and General Manager. From 1968 to 1985 he was employed by Pako with his last position being Director of Photo Engineering.
The term of office for each executive officer is from one annual meeting of directors until the next annual meeting or until a successor is elected. There are no arrangements or understandings between any of the executive officers and any other person (other than arrangements or understandings with directors or officers acting as such) pursuant to which any of the executive officers were selected as an officer of the Registrant. There are no family relationships between any of the Registrant's directors or executive officers. PART II The information required by Items 5, 6, 7 and 8 of Part II is incorporated herein by reference to the sections labeled "Stock Market Information," "Selected Financial Data" and "Management's Discussion and Analysis of Financial Condition and Results of Operations," the Consolidated Financial Statements and Notes and the Independent Auditor's Report which appear in the Registrant's Annual Report to Shareholders for the year ended December 31, 1995. With respect to Item 9, no change of accountants or disagreements on any matter of accounting principles or practices or financial statement disclosure has occurred. PART III Items 10, 11, 12 and 13 of Part III, except for certain information relating to Executive Officers included in Part I, are omitted inasmuch as the Company intends to file with the Securities and Exchange Commission within 120 days of the close of the year ended December 31, 1995, a definitive proxy statement containing information pursuant to Regulation l4A of the Securities Exchange Act of 1934 and such information shall be deemed to be incorporated herein by reference from the date of filing such document. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) Documents filed as Part of this Report. (a)(l) Consolidated Financial Statements. Page Independent Auditor's Report......................................... * Consolidated Statements of Opera- tions for the years ended December 31, 1995, 1994 and 1993..................................... * Consolidated Statements of Changes in Stockholders' Equity for the years ended December 31, 1995, 1994 and 1993, ........................................................... * Consolidated Balance Sheets at December 31, 1995 and 1994.................................................... * Consolidated Statements of Cash Flows for the years ended December 31, 1995, 1994 and 1993.................................................. * Notes to Consolidated Financial Statements .......................................................... * - ------------------------------- *Incorporated by reference to the Registrant's Annual Report to Shareholders for the year ended December 31, 1995 a copy of which is included in this Form 10-K as Exhibit 13 Page (a)(2) Consolidated Financial Statement Schedules. Auditor's Consent and Report on Schedules............................ 10 Schedule VIII - Valuation and Qualifying Accounts for the years ended December 31, 1995, 1994 and 1993............................................ 11 All other schedules have been omitted because they are not applicable or are not required, or because the required information has been given in the Consolidated Financial Statements or notes thereto. (a)(3) Exhibits. See "Exhibit Index" on page following signatures. (b) Reports on Form 8-K. No reports on Form 8-K were filed during the last fiscal quarter of the Registrant's 1995 fiscal year. (c) Exhibits. Reference made to item 14 (A)(3) (d) Schedules. Reference made to item 14 (A)(2) - -------------------------------- *Incorporated by reference to the Registrant's Annual Report to Shareholders for the year ended December 31, 1995, a copy of which is included in this Form 10-K as Exhibit 13 AUDITOR'S CONSENT AND REPORT ON SCHEDULES Board of Directors and Stockholders Photo Control Corporation We hereby consent to the incorporation by reference in this Annual Report on Form 10-K of Photo Control Corporation for the year ended December 31, 1995 of our report, dated January 30, 1996, appearing in the Company's 1995 Annual Report to Shareholders. We also consent to the incorporation by reference of such report in the registration statements on Form S-8 for the Photo Control Stock Option Plan. In the course of our audit of the financial statements referred to in our report, dated January 30, 1996, included in the Company's 1994 Annual Report to Shareholders, we also audited the supporting schedule listed in Item 14(a)(2) of this Annual Report on Form 10-K. In our opinion, the schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. VIRCHOW KRAUSE, & COMPANY, LLP January 30, 1996 Minneapolis, Minnesota PHOTO CONTROL CORPORATION SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E - -------- -------- -------- -------- -------- ADDITIONS CHARGED ADDITIONS BALANCE (CREDITED) CHARGED AT TO COSTS TO OTHER BALANCE BEGINNING AND ACCOUNTS DEDUCTIONS AT END DESCRIPTION OF YEAR EXPENSES DESCRIBE DESCRIBE OF YEAR YEAR ENDED DECEMBER 31, 1995 Allowance for Doubtful Accounts $ 142,000 $ 61,325 $ 710(a) $ (51,035)(b) $ 153,000 ========= ========= ====== ========== ========= YEAR ENDED DECEMBER 31, 1994 Allowance for Doubtful Accounts $ 97,000 $ 39,231 $ 9,367(a) $ (3,598)(b) $ 142,000 ======== ========= ======= ========== ========= YEAR ENDED DECEMBER 31, 1993 Allowance for Doubtful Accounts $ 97,000 $ 23,303 $ 2,920(a) $ (26,223)(b) $ 97,000 ======== ========= ======= ========== =========
(a) Recoveries of amounts written off in prior years. (b) Uncollectible accounts written off. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. PHOTO CONTROL CORPORATION Date: March 15, 1996 By /s/ Leslie A. Willig Leslie A. Willig, Chairman of the Board of Directors, Chief Executive Officer and President Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Date: March 15, 1996 /s/ Leslie A. Willig Leslie A. Willig, Chief Executive Officer, President and Director (principal executive officer) Date: March 15, 1996 /s/ Curtis R. Jackels Curtis R. Jackels, Vice President and Treasurer (principal financial and principal accounting officer) Date: March 15, 1996 /s/ George A. Kiproff George A. Kiproff, Director Date: March 15, 1996 /s/ James R. Loomis James R. Loomis, Director Date: March 15, 1996 /s/ William L. Norman William L. Norman, Director Date: March 17, 1996 /s/ Thomas J. Cassady Thomas J. Cassady, Director Date: March 17, 1996 /s/ Joe M. Kilgore Joe M. Kilgore, director SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------------------------------------------------------ PHOTO CONTROL CORPORATION COMMISSION FILE NO.: 0-7475 ------------------------------------------------------------------------ EXHIBIT INDEX FOR FORM 10-K FOR YEAR ENDED DECEMBER 31, 1995 Page Number in Sequential Numbering of all Form 10-K and Exhibit Pages EXHIBIT 3.1 Registrant's Restated Articles of Incorporation, as amended-incorporated by reference to Exhibit 3.1 to the Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1988 * 3.2 Registrant's bylaws as amended-incorporated by reference to Exhibit 3.2 to the Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1989 * 4.1 Loan Agreement between City of New Hope, Minnesota, and the Registrant, dated May 16, 1980-incorporated by reference to Exhibit 4.1 to the Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1989 * 4.2 Mortgage and Security Agreement between the Registrant, Mortgagor, and Washington National Insurance Company, Mortgagee, dated May 16, 1980-incorporated by reference to Exhibit 4.2 to the Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1989 * 4.3 Loan Agreement between Industrial Development Authority of the County of Los Angeles and Norman Enterprises, Inc., dated as of December 1, 1983-incorporated by reference to Exhibit 4.3 to the Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1989 * 4.4 Trust Deed among Industrial Development Authority of the County of Los Angeles, Norman Enterprises, Inc. and First National Bank of Minneapolis, dated as of December 1, 1983-incorporated by reference to Exhibit 4.4 to the Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1989 * 4.5 Guaranty Agreement from Photo Control Corporation as Guarantor to First National Bank of Minneapolis, dated December 1, 1983-incorporated by reference to Exhibit 4.5 to the Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1989 * 4.6 Supplemental Agreement between Photo Control Corporation and First National Bank of Minneapolis, dated as of December 29, 1983-incorporated by reference to Exhibit 4.6 to the Registrant's Annual Report on Form 10-K for the fiscal year ended June 30, 1989 * 10.1 Executive Salary Continuation Plan adopted August 9, 1985 together with Exhibits - incorporated by reference to Exhibit 10.4 to the Registrant's Annual Report on Form 10-K * for the year ended June 30, 1986 ** 10.2 The Registrant's 1983 Stock Option Plan - incorporated by reference to Exhibit 10.4 to the Registrant's Annual Report on Form 10-K for the fiscal year * ended June 30, 1989 ** 10.3 Form of Stock Option Agreement under the Registrant's 1983 Stock Option Plan - incorporated by reference to Exhibit 5 to the Registrant's Registration Statement on * Form S-8, Reg. No. 2-85849 ** 10.4 Cash bonus plan for officers - incorporated by reference to the description of such plan contained in the Registrant's definitive Proxy Statement for its 1995 Annual Meeting of * Shareholders ** 10.5 Amendment to Stock Option Plan August 29, 1994 - incorporated by reference to Exhibit 10.5 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1994 * 10.6 Amendment to Stock Option Plan, February 23, 1996 ** 11 Statement re computation of per share earnings 13 Report to Shareholders for the year ended December 31, 1995 21 Subsidiaries of the Registrant 23 Consent of Independent Auditors 25 Power of Attorney from Messrs. Willig, Jackels, Kiproff, Loomis, Norman and Cassady - ---------------------------- *Incorporated by reference ** Indicates management contracts or compensation plans or arrangements required to be filed as exhibs. EX-10.6 2 EXHIBIT 10.6 PHOTO CONTROL CORPORATION 1983 STOCK OPTION PLAN AMENDMENT FEBRUARY 23, 1996 The Photo Control Corporation 1983 Stock Option Plan (the "Plan") is amended by addition of the following sections entitled "Change in Control," "Retirement" and "Forfeiture": Change in Control Notwithstanding any other provision of the Plan, in the event of a Change in Control all outstanding options shall become fully exercisable and vested, unless otherwise determined by the Board of Directors. A "Change in Control" shall be deemed to occur in the event: (a) that during any 24 consecutive months the individuals who, at the beginning of such period, constitute the entire Board of Directors of the Company ("Incumbent Directors") cease for any reason other than death to constitute at least a majority of the Board; provided, however, that any individual who was not a director at the beginning of such 24-month period whose election, or nomination for election by the Company's stockholders, was approved by a vote of at least a majority of the then Incumbent Directors also shall be an Incumbent Director; (b) the Board of Directors or the stockholders of the Company shall approve any merger, consolidation or recapitalization of the Company or of all or substantially all of the assets of the Company (each of the foregoing being an "Acquisition Transaction") where: (i) the stockholders of the Company immediately prior to such Acquisition Transaction would not immediately after such Acquisition Transaction beneficially own, directly or indirectly, shares representing in the aggregate more than 50% of (A) the then outstanding common stock of the corporation surviving or resulting from such merger, consolidation or recapitalization or acquiring such assets of the Company, as the case may be, or of its ultimate parent corporation, if any (the "Surviving Corporation") and (B) the Combined Voting Power (as defined below) of the then outstanding Voting Securities (as defined below) of the Surviving Corporation, or (ii) the Incumbent Directors at the time of the initial approval of such Acquisition Transaction would not immediately after such Acquisition Transaction constitute a majority of the Board of Directors of the Surviving Corporation; (c) the Board of Directors or the stockholders of the Company shall approve any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all or substantially all of the assets of the Company or any plan or proposal for the liquidation or dissolution of the Company; or, (d) any Person (as defined below) shall become the beneficial owner (as defined in Rules 13d-3 and 13d-5 under the Exchange Act), directly or indirectly, of securities of the Company representing in the aggregate 30% or more of either (i) the then outstanding shares of the Company's Common Stock or (ii) the Combined Voting Power of all then outstanding Voting Securities of the Company; provided that, notwithstanding the foregoing, a Change in Control shall not be deemed to have occurred solely as the result of an acquisition of securities directly from the Company (not including any conversion of a security that was not acquired directly from the Company). For purposes of this section: (a) "Person" shall mean any individual, entity (including, without limitation, any corporation, partnership, trust, joint venture, association or governmental body) or group (as defined in Sections 13(d)(3) or 14(d)(2) of the Exchange Act and the rules and regulations thereunder); provided that Person shall not include the Company or any employee benefit plan of the Company; (b) "Voting Securities" shall mean all securities of a corporation having the right under ordinary circumstances to vote in an election of the Board of Directors of such corporation; and (c) "Combined Voting Power" shall mean the aggregate votes entitled to be cast generally in the election of directors of a corporation by holders of then outstanding Voting Securities of such corporation. The provisions of this section shall supersede any other provisions of the Plan which may conflict with this section including, but not limited to the provisions of the section entitled , "Company Recapitalization, Liquidation, Reorganization, Etc." Retirement Notwithstanding any prior Plan provision regarding termination of options, this provision shall govern an optionee's rights in the event of retirement from employment or directorship with the Company. In the event of an optionee's retirement from employment or directorship with the Company, unless otherwise indicated in an optionee's Stock Option Agreement, options held by the optionee may be exercised, to the extent exercisable on the date of retirement, until the earlier of the twelve-month anniversary of the optionee's retirement or the expiration of the option. Forfeiture The purpose of the Company's Stock Option Plan is to attract, retain, and reward employees, to increase stock ownership and identification with the Company's interests, and to provide incentive for remaining with the Company over the long term. To further theses objectives, options granted under the Plan shall be subject to the following forfeiture provisions unless otherwise indicated in an optionee's Stock Option Agreement. 1. Forfeiture of option gain if optionee leaves the Company within one year of exercise. If an optionee exercises any portion of an option and leaves the employment of the Company within one year after such exercise for any reason except death, disability or normal retirement, then the optionee shall pay the Company the Option Gain defined as both (a) the cash bonus received from the Company, if any, and (b) the gain represented by the market price on the date of exercise less the exercise price, multiplied by the number of shares purchased without regard to any subsequent market price decrease or increase. 2. Forfeiture of option gain and unexercised options if optionee engages in certain activities. If at any time within (a) the original term of an option, (b) three years after termination of employment, or (c) three years after exercise of any portion of an option, whichever is latest, the optionee engages in any activity in competition with any activity of the Company, or adverse or harmful to the interests of the Company, including but not limited to (a) conduct related to the optionee's employment for which either criminal or civil penalties against the optionee may be sought, (b) violation of Company policies, including, without limitation, the Company's insider trading policy, (c) accepting employment with or serving as a consultant, advisor or in any other capacity to an employer that is in competition with or acting against the interests of the Company, including employing or recruiting any present, former or future employee of the Company, (d) disclosing or misusing any confidential information or material concerning the Company, or (e) participating in a hostile takeover attempt, then all unexpired options held by the optionee shall terminate effective upon the date on which the optionee engages in such activity, unless terminated earlier by operation of another term or condition of the Plan or the Stock Option Agreement, and the optionee shall pay the Company any Option Gain as defined in paragraph 1 of this section. 3. Right of Setoff. The Company shall have a right of setoff against any amounts the Company may owe the optionee from time to time (including wages, vacation pay, other compensation, fringe benefits or any other amounts owed), to the extent of the amounts owed by the optionee to the Company under paragraphs 1 and 2 of this section. 4. Board Discretion. The optionee may be released from the obligations under this forfeiture section only if the Board of Directors, or its duly appointed agent, determines in its sole discretion that such action is in the best interests of the Company. EX-11 3 EXHIBIT 11 COMPUTATION OF NET INCOME PER COMMON SHARE
DECEMBER 31 --------------------------------------------------------------------- 1995 1994 1993 1992 1991 ----------- ----------- ----------- ----------- ----------- (A) Net Income (Loss) $ (581,864) $ 459,290 $ 843,479 $ 834,705 $ 200,652 =========== =========== =========== =========== =========== Weighted Average of Common Shares Out- standing 1,550,685 1,541,670 1,590,653 1,308,037 1,351,864 Potential Shares Attributable to Options Outstanding 38,676 107,976 121,808 57,413 6,722 ----------- ----------- ----------- ----------- ----------- (B) Weighted Average of Common and Common Equivalent Shares Outstanding 1,589,361 1,649,646 1,712,461 1,365,450 1,358,586 =========== =========== =========== =========== =========== Primary Net Income (Loss) Per Common Share (A/B) $ (.37) $ .28 $ .49 $ .49* $ .12* =========== =========== =========== =========== ===========
* Restated to reflect a five-for-four stock split, effected in the form of a 25% stock dividend to Shareholders of record on March 19, 1993. EX-13 4 EXHIBIT 13 PHOTO CONTROL CORPORATION 1995 ANNUAL REPORT BUSINESS DESCRIPTION Photo Control Corporation designs, manufactures, and markets professional cameras, long-roll film magazines, package printers, electronic flash equipment and photographic accessories. The principal market for the camera and magazine equipment is the sub-segment of the professional photography market which requires high-volume equipment, such as school photographers. The market for photographic package printers is photographic processing labs which specialize in producing photographic color print packages such as wedding and school photography. The market for the electronic flash equipment extends to all professional and to more experienced amateur photographers. The geographic area in which the equipment is marketed consists of the entire United States and to some foreign countries. Most marketing personnel are full-time employees of the Company. ANNUAL MEETING The annual meeting of shareholders will be held on May 9, 1996, at 3:30 p.m., at the First Bank, Marquette Office Sixth and Marquette, Minneapolis, MN. All shareholders are invited to attend. CORPORATE COMMUNICATIONS Requests for annual, and Form 10-K reports or other Company financial communications should be directed to: Vice-President-Treasurer Photo Control Corporation 4800 Quebec Ave. N. Minneapolis, MN 55428 The above reports will be mailed without charge. CORPORATE OFFICES Photo Control Corporation 4800 Quebec Ave. N. Minneapolis, MN 55428 (612) 537-3601 PAGE INSIDE FRONT COVER To Our Shareholders: [PHOTO] PICTURE OF L.A. WILLIG, CHAIRMAN The markets in which we sell our products were soft in 1995. Not only were our sales down but our bottom line results showed a loss of $581,864 or $.37 per share. In spite of the weak markets and this poor performance, Photo Control made some significant accomplishments during 1995 and they are highlighted below. As electronic imaging continues to make inroads into our market segments, we have developed some products and systems and need to design others that are compatible with and will flourish in this changing technology. Three such product categories in which we manufacture equipment are optics, lighting, and portrait cameras. All are needed in electronic (or computerized) imaging. Camerz Long-Roll Portrait Cameras are presently being used with our new electronic instant preview system to provide instant proofs. We also have patents on optical technology which can be used in the future to produce a filmless camera system for our market segments. For many years, Nord's optics laboratory has been located in Hinckley, Minnesota, a small rural town located about 90 miles north of Minneapolis. That optics operation has been moved from Hinckley to some newly renovated spaces in our main headquarters building in Minneapolis. Now we will be able to expand production under better supervision and with better coordination by our engineering personnel. It is expected that we will be able to extend our sales into broader markets and offer improved delivery times while continuing to maintain the high quality standards for which Nord optics are so widely known. During 1995, Nord also has established an alliance with a highly respected and successful electronic and data systems company, Bremson, Inc., which is located in Lenexa, Kansas. This alliance has resulted in a new electronic control device for some of Nord's package printers which will open many new sales opportunities for that subsidiary. Our other market segment which continues to hold especial promise in the future technology is lighting. In the past, we have concentrated on electronic flash products which could be sold to the end user only through a network of professional photographic equipment dealers. In 1995, while continuing to develop such products and work with those dealers, our lighting subsidiary, Norman Enterprises, has begun to work directly with very large users who require specialized customization to meet their specific needs. This new market inroad has shown early promise and has resulted in some sizable long-term orders which should show favorable results in 1996. On behalf of the Board, /s/ L. A. Willig L. A. Willig Chairman PAGE 1 SELECTED FINANCIAL DATA
Year Ended December 31 ---------------------- 1995 1994 1993 1992 1991 ---- ---- ---- ---- ---- Net Sales........................... $14,698,526 $17,590,481 $17,809,220 $16,131,596 $11,967,288 Net Income (Loss) .................. (581,864) 459,290 843,479 834,705 200,652 Net Income (Loss) Per Share......... (.37) .28 .49 .49* .12* Return on Sales..................... (4.0)% 2.6% 4.7% 5.2% 1.7% Return on Beginning Net Worth....... (6.1)% 4.9% 9.6% 10.2% 2.5% Return on Beginning Assets.......... (4.8)% 3.6% 6.7% 7.5% 1.7% Working Capital..................... $6,133,435 $6,378,530 $6,994,937 $6,357,194 $6,175,618 Plant and Equipment................. 3,614,104 3,813,339 3,692,698 3,909,808 3,479,364 Total Assets........................ 12,595,111 12,064,139 12,661,072 12,617,495 11,065,204 Long-Term Debt...................... 600,000 670,000 1,551,590 1,667,519 1,778,994 Shareholders' Equity................ 9,172,308 9,509,595 9,318,098 8,824,026 8,158,108 Book Value Per Share................ 5.70 6.28 5.99 5.47* 4.94* Shares Outstanding.................. 1,608,163 1,514,813 1,556,155 1,290,552 1,320,652
*Restated to reflect a five-for-four stock split, effected in the form of a 25% stock dividend to shareholders of record on March 19, 1993. STOCK MARKET INFORMATION The Company's Common Stock is listed on the National Association of Securities Dealers Automated Quotation System (NASDAQ) on the National Market System under the symbol PHOC. The Company has never paid any cash dividends. It intends to retain earnings to finance the development of its business. On February 5, 1993, the Board of Directors declared a five-for-four stock split in the form of a 25% stock dividend payable on April 2, 1993 to shareholders of record on March 19, 1993. Shareholders of record on December 31, 1995 numbered 462. The Company estimates that an additional 900 shareholders own stock held for their account at brokerage firms and financial institutions. The following table sets forth the high and low transactions for the eight fiscal quarters ending during the years set forth below. The source of the quotations is the National Association of Securities Dealers Inc. Monthly Statistical Report. 1995 1994 ---------------------------------------------- QUARTER HIGH LOW HIGH LOW ------ ----- ------ ----- March 31 6 1/4 5 8 3/4 6 1/4 June 30 5 3/8 4 1/2 6 1/2 5 3/4 September 30 4 3/4 3 1/2 6 1/2 5 3/4 December 31 4 3 1/2 8 1/4 6 PAGE 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS The following table presents selected items from the Company's Consolidated Statements of Operations expressed as percentages of sales for the year indicated.
PERCENT INCREASE (DECREASE) (BASED ON AMOUNTS) YEAR ENDED DECEMBER 31 1995 1994 ---------------------- VS VS 1995 1994 1993 1994 1993 ---- ---- ---- ---- ---- Sales..................................... 100.0% 100.0% 100.0% (16.4)% (1.2)% Gross Margin.............................. 26.6 32.3 32.6 (31.1) (2.0) Marketing & Administrative................ 23.0 18.7 17.4 2.5 6.8 Research, Development & Engineering....... 8.9 8.8 7.2 (15.0) 19.8 Interest.................................. .7 .5 .7 14.3 (25.0) Income Before Taxes....................... (6.0) 4.3 7.3 (216.1) (42.1) Net Income................................ (4.0) 2.6 4.7 (226.7) (45.6)
SALES The Company's sales are made up of three product lines; professional cameras, photographic printers and electronic flash equipment. Consolidated sales in 1995 decreased by $2,891,955 or 16.4% from 1994. Sales to a major customer decreased by $1,285,000 in 1995 from 1994, however, the customer still accounted for 20.2% of sales in 1995 and 24.2% of sales in 1994. A substantial portion of the sales to this customer consisted of a dual-ported zoom lens camera that were made under a multi-year contract. The customer has scheduled shipments of $346,000 through April, 1996 under the multi-year contract, but has not indicated whether any additional shipments will be required. Total sales of professional cameras declined by $3,200,000 in 1995 from 1994 due to completion of studio expansion by several significant customers during 1995 and the reduction in sales of dual-ported zoom lens cameras. Sales of the printer line declined by $1,300,000 in 1995 as compared to 1994 reflecting the decease in the relatively high sales of customized printer lens and film coaters in 1994. Sales of flash equipment increased $1,600,000 in 1995 from 1994. OEM sales primarily account for the flash equipment sales increase, however, the gross margin on these sales were significantly lower than on the standard dealer flash equipment lines. With the exception of a three percent price increase on the camera products, prices were not increased in 1995 from 1994. Consolidated sales in 1994 decreased by $218,739 or 1.2% from 1993. An increase in the sales of the printer product lines of $998,000 was offset by declines in both the camera and flash equipment products. Increased sales of film coaters and printer customized lens account for the printer product line. Sales of flash equipment declined $383,000 due to competitive pressures. Sales of the camera line declined by $834,000. Demand decreased for the standard camera product lines which was partially offset by increases in the sale of the dual-ported lens camera. GROSS MARGINS The gross margins were 26.6%, 32.3% and 32.6% for the years ended December 31, 1995, 1994 and 1993, respectively. The gross margin decline in 1995 from 1994 is attributable to all three product lines. Gross margins on camera and printer sales declined primarily as a result of the sales volume declines. Gross margins on flash equipment sales account for the majority of the decline due to the poor margin on OEM sales. The Company anticipates that the gross margin in future periods will be higher than 1995 and closer to 1994 and 1993. However, gross margins are expected to fluctuate on a quarterly basis because of product mix changes and the seasonality of sales. MARKETING AND ADMINISTRATIVE Marketing and administrative expense have remained relatively level at $3,377,883, $3,296,119 and $3,086,242 for the years ended December 31, 1995, 1994 and 1993, respectively. As a percentage of sales, marketing and administrative expenses have changed to 23.0% in 1995 from 18.7% in 1994 and from 17.4% in 1993. The dollar increase in 1995 from 1994 is due to additional compensation of $165,000 paid under the terms of the option agreements to option holders who exercised options under the Company's non-qualified stock option plan. The small increase in 1994 from 1993 is due to higher spending on marketing activities such as trade shows and commissions. PAGE 3 RESEARCH, DEVELOPMENT AND ENGINEERING The Company believes that timely development of new products and features is required to maintain and enhance its competitive position. Accordingly, the Company is committed to an aggressive level of research, development and engineering spending. Research, development and engineering expenses were $1,309,738, $1,540,174 and $1,285,731 for the years ended December 31, 1995, 1994 and 1993, respectively. These expenses increased as a percentage of sales to 8.9% in 1995 from 8.8% in 1994 and 7.2% in 1993 The 1995 expense decreased by $230,436 all which is attributable to the printer product line. A number of projects were completed and the related use of outside engineers declined. The 1994 increase primarily reflects additional personnel. INTEREST Interest expense increased to $103,387 for the year ended December 31, 1995 as compared to $90,430 for the year ended December 31, 1994 and decreased from $120,475 for the year ended December 31, 1993. The increase reflects higher usage during 1995 of the Company's line of credit. QUARTERLY RESULTS Historically, second and third quarter sales are relatively high which reflects the Company's seasonal nature. 1995 and 1994 reflected the typical seasonality. In addition to the normal poor fourth quarter results, the fourth quarter results for 1995 and 1994 reflect the discontinuance of flash equipment product lines. In the fourth quarter of 1995 the Venca power pack was discontinued and in the fourth quarter of 1994 the Bardwell cine lights were discontinued with inventory disposed of or an allowance established to cover subsequent disposal. LIQUIDITY AND CAPITAL RESOURCES Cash decreased to $145,899 at December 31, 1995 from $307,227 at December 31, 1994. Working capital decreased to $6,133,435 at December 31, 1995 from $6,378,530 at December 31, 1994. Capital expenditures were $231,817 in 1995, $535,337 in 1994 and $178,294 in 1993. The Company estimates that additional capital investments for property and equipment will be approximately $350,000 in 1996. The Company has an unsecured line of credit for $1,500,000 at the prime rate of interest and at December 31, 1995, there was $450,000 of borrowings under the line. The Company has repurchased its common stock in the amounts of $285,320, $292,126 and $370,304 for the years ended December 31, 1995, 1994 and 1993, respectively. The Board of Directors had authorized the purchase of common stock of up to a total of $1,500,000 which has been completely expended as of December 31, 1995. The ratio of long-term debt to stockholder's equity at December 31, 1995, 1994 and 1993 was .07, .07 and .17, respectively. In February 1994, the Company used its excess cash to retire the 9% Industrial Development Revenue Note which had a balance of $857,249 at December 31, 1993. During 1995, 148,752 shares of common stock at a total price of $416,505 were acquired by the holders of the non-qualified stock options. In addition, the Company received a $80,000 tax benefit for a tax reduction measured by the amount that the fair market value of the stock exceeded the option price at the date of exercise. The Company has not paid any cash dividends on its common stock and currently expects that any future earnings will be retained for use in its business. The Company believes that its current cash position, its cash flow from operations and amounts available from bank borrowing should be adequate to meet its anticipated cash needs for working capital and capital expenditures during 1996. However, the current line of credit may need to be increased during 1996 to accommodate the seasonal nature of its cash flow. PAGE 4 CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31 ------------------------------------------- 1995 1994 1993 ------------ ------------ ------------ Sales ..................................... $ 14,698,526 $ 17,590,481 $ 17,809,220 ------------ ------------ ------------ Cost and Expenses Cost of Goods Sold .................. 10,783,382 11,909,468 12,013,293 Marketing and Administrative ........ 3,377,883 3,296,119 3,086,242 Research, Development and Engineering 1,309,738 1,540,174 1,285,731 Interest ............................ 103,387 90,430 120,475 ------------ ------------ ------------ 15,574,390 16,836,191 16,505,741 ------------ ------------ ------------ Income (Loss) Before Income Taxes ......... (875,864) 754,290 1,303,479 Income Tax Provision (Benefit) (Note 5) .. (294,000) 295,000 460,000 ------------ ------------ ------------ Net Income (Loss) ......................... $ (581,864) $ 459,290 $ 843,479 ============ ============ ============ Net Income (Loss) Per Common Share (Note 2) $ (.37) $ .28 $ .49 ============ ============ ============
See accompanying Notes to Consolidated Financial Statements CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
COMMON STOCK -------------------------- NUMBER ADDITIONAL OF PAID-IN RETAINED SHARES AMOUNT CAPITAL EARNINGS ----------- ----------- ----------- ----------- Balance at December 31, 1992 ........ 1,290,552 $ 103,244 $ 993,023 $ 7,727,759 Five-For-Four Stock Split ......... 323,221 25,858 (25,858) -- Repurchase of Stock ............... (60,784) (4,863) (48,177) (317,264) Stock Options Excercised (Note 7) . 3,166 253 20,644 -- Net Income ........................ -- -- -- 843,479 ----------- ----------- ----------- ----------- Balance at December 31, 1993 ........ 1,556,155 $ 124,492 $ 939,632 $ 8,253,974 Repurchase of Stock ............... (47,175) (3,774) (35,853) (252,499) Stock Options Excercised (Note 7) . 5,833 467 23,866 -- Net Income ........................ -- -- -- 459,290 ----------- ----------- ----------- ----------- Balance at December 31, 1994 ........ 1,514,813 121,185 927,645 8,460,765 Repurchase of Stock ............... (63,750) (5,100) (48,450) (231,770) Stock Options Exercised (Note 7) .. 148,752 11,900 484,605 -- Contribution to Profit Sharing Plan 8,348 668 32,724 -- Net Income (Loss) ................. -- -- -- (581,864) ----------- ----------- ----------- ----------- Balance at December 31, 1995 ........ 1,608,163 $ 128,653 $ 1,396,524 $ 7,647,131 =========== =========== =========== ===========
See accompanying Notes to Consolidated Financial Statements PAGE 5 CONSOLIDATED BALANCE SHEETS
DECEMBER 31 ---------------------------- ASSETS 1995 1994 - ---------------------------------------------------------------------------------------------- Current Assets Cash and Cash Equivalents .................................. $ 145,899 $ 307,227 Accounts Receivable, Less Allowance of $153,000 and $142,000 1,262,540 1,506,202 Other Receivables .......................................... 15,706 21,100 Inventories (Notes 2 and 3) ................................ 6,658,336 5,727,360 Prepaid Expenses ........................................... 351,263 180,524 ------------ ------------ Total Current Assets .................................... 8,433,744 7,742,413 ------------ ------------ Investments and Other Assets Cash Value of Life Insurance ............................... 215,263 194,035 Excess of Cost Over Net Assets Acquired .................... 19,352 Deferred Income Taxes (Note 5) ............................. 332,000 295,000 ------------ ------------ Total Investments and Other Assets ...................... 547,263 508,387 ------------ ------------ Plant and Equipment (Notes 2 and 4) Land and Building .......................................... 4,197,081 4,185,355 Machinery and Equipment .................................... 3,551,997 3,393,608 Accumulated Depreciation ................................... (4,134,974) (3,765,624) ------------ ------------ Total Plant and Equipment ............................... 3,614,104 3,813,339 ------------ ------------ $ 12,595,111 $ 12,064,139 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Note Payable to Bank (Note 4) .............................. $ 450,000 $ Current Maturities of Long-Term Debt (Note 4) .............. 130,616 117,612 Accounts Payable ........................................... 1,384,830 782,450 Accrued Payroll and Employee Benefits ...................... 213,872 382,760 Accrued Expenses ........................................... 120,991 81,061 ------------ ------------ Total Current Liabilities ............................... 2,300,309 1,363,883 ------------ ------------ Long-Term Debt (Note 4) ....................................... 600,000 670,000 ------------ ------------ Deferred Compensation ......................................... 522,494 520,661 ------------ ------------ Stockholders' Equity (Note 7) Common Stock Par Value $.08 Authorized 5,000,000 Shares Issued 1,608,163 and 1,514,813 ................... 128,653 121,185 Additional Paid-In Capital ................................. 1,396,524 927,645 Retained Earnings .......................................... 7,647,131 8,460,765 ------------ ------------ Total Stockholders' Equity .............................. 9,172,308 9,509,595 ------------ ------------ $ 12,595,111 $ 12,064,139 ============ ============
See accompanying Notes to Consolidated Financial Statements PAGE 6 CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31 ----------------------------------------- 1995 1994 1993 ----------- ----------- ----------- Cash flows from operating activities: Net income (Loss) from operations ............ $ (581,864) $ 459,290 $ 843,479 Items not affecting cash- Depreciation .............................. 401,444 414,694 395,404 Amortization .............................. 19,352 25,836 29,641 Deferred compensation ..................... 26,453 23,109 55,122 (Gain) Loss on sale of equipment .......... 8,774 (2,500) (17,200) Deferred income taxes ..................... (37,000) (15,000) (30,000) Proceeds from life insurance .................... -- 202,128 -- Payment of deferred compensation ............. (24,620) (20,516) -- Change in operating assets and liabilities: Receivables ............................ 249,056 415,415 (404,734) Inventories ............................ (930,976) (287,006) 385,786 Prepaid expenses ....................... (170,739) 8,824 (63,503) Accounts payable ....................... 602,380 96,152 (201,661) Accrued expenses ....................... (95,566) (98,312) 7,761 ----------- ----------- ----------- Net cash provided (used) by operating activities .............. (533,306) 1,222,114 1,000,095 ----------- ----------- ----------- Cash flows from investing activities: Proceeds from sale of equipment .............. 20,834 2,500 17,200 Additions to plant and equipment ............. (231,817) (535,337) (178,294) Additions to cash value of life insurance .... (21,228) (21,228) (26,511) Collections on notes receivable .............. -- 12,645 34,942 ----------- ----------- ----------- Net cash used in investing activities (232,211) (541,420) (152,663) ----------- ----------- ----------- Cash flows from financing activities: Repayment of long-term debt .................. (56,996) (948,489) (111,717) Borrowing (repayment) on line of credit-net .. 450,000 -- (200,000) Proceeds from stock options exercised ........ 496,505 24,333 20,897 Repurchase of Company's common stock ......... (285,320) (292,126) (370,304) ----------- ----------- ----------- Net cash provided (used) by financing activities ............. 604,189 (1,216,282) (661,124) ----------- ----------- ----------- Change in cash and cash equivalents ............. (161,328) (535,588) 186,308 Cash and cash equivalents at beginning of year .. 307,227 842,815 656,507 ----------- ----------- ----------- Cash and cash equivalents at end of year ........ $ 145,899 $ 307,227 $ 842,815 =========== =========== =========== Supplemental disclosure information: Income tax payments .......................... $ 20,900 $ 388,642 $ 715,893 =========== =========== =========== Income tax refunds ........................... $ 170,562 $ 121,744 $ 131,207 =========== =========== =========== Interest paid ................................ $ 103,387 $ 90,430 $ 120,475 =========== =========== =========== Non-Cash Transaction: The Company contributed 8,343 shares of common stock to its profit sharing plan at a value of $33,392 during the year ended December 31, 1995.
See accompanying Notes to Consolidated Financial Statements PAGE 7 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. BUSINESS DESCRIPTION Photo Control Corporation (the Company) designs, manufactures and markets professional cameras, photographic package printers, electronic flash equipment, and related photographic accessories. The principal market for the Company's long-roll camera equipment is the sub-segment of the professional photography market requiring high-volume equipment, such as elementary and secondary school photographers. The market with respect to electronic flash equipment is broader, extending to all professional and commercial photographers and to experienced amateur photographers. The market for photographic package printers is photographic processing labs which specialize in producing photographic color print packages such as those often produced for weddings and school photography. The geographic market in which the Company competes with respect to long-roll camera equipment, flash equipment, and printers consists of the entire United States and, to a lesser extent, some foreign countries. Historically, camera equipment provides the largest amount of sales, followed by electronic flash equipment and package printers. Earnings have generally followed sales except in 1995 and 1994 the flash equipment operation resulted in the highest losses with package printers showing a loss in 1995 and a small profit in 1994. To some extent there has been a consolidation of school photography and studio portrait photography in recent years which has concentrated the company sales to fewer customers. It is expected that this trend will continue. In 1995, one customer accounted for 20.2% of the Company's sales and although it is expected that this particular customer will account for less sales in the future, other customers could become significant. NOTE 2. SIGNIFICANT ACCOUNTING POLICIES CONSOLIDATION - The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Norman Enterprises, Inc. and Nord Photo Engineering, Inc. All material inter-company transactions and account balances have been eliminated. USE OF ESTIMATES - Management uses estimates and assumptions in preparing financial statements in accordance with generally accepted accounting principles. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. Actual results could vary from the estimates that were assumed in preparing the financial statements. REVENUE RECOGNITION - Sales are recorded when the product is shipped. INVENTORIES - Inventories of raw materials, work in process and finished goods are valued at the lower of cost (first-in, first-out) or market. Market represents estimated realizable value in the case of finished goods and replacement or reproduction cost in the case of other inventories. Because of changing technology and market demand, inventory is subject to obsolescence. An annual review is made of all inventory to determine if any obsolete, discontinued or slow moving items are in inventory. Based on this review, inventory is disposed of or an allowance for obsolescence established to cover any future disposals. PLANT AND EQUIPMENT - Plant and equipment are stated at cost. Depreciation is computed primarily on the straight-line method over the estimated useful lives of 15 to 40 years for the buildings and 3 to 8 years for machinery and equipment. Ordinary maintenance and repairs are charged to operations, and expenditures which extend the physical or economic life of property and equipment are capitalized. Gains and losses on disposition of property and equipment are recognized in operations and the related asset and accumulated depreciation accounts are adjusted accordingly. PAGE 8 FAIR VALUE OF FINANCIAL INSTRUMENTS - The carrying amounts for cash, receivables, accounts payable and accrued liabilities approximate fair value because of the short maturity of these instruments. The carrying value of notes payable to bank under the Company's line of credit agreement also approximates fair value because of periodic repricing based on prime rate changes. The fair value of long-term debt is estimated based on current rates for tax-exempt debt of similar maturities and is not materially different than its carrying value. RESEARCH AND DEVELOPMENT - Expenditures for research and development are charged against operations as incurred. INCOME TAXES - Deferred income taxes are provided for expenses recognized in different time periods for financial reporting and income tax purposes. These differences consist primarily of depreciation, which is accelerated for tax purposes, deferred compensation that is not deductible for taxes and inventory which has a higher tax basis than for financial reporting purposes. CASH EQUIVALENTS - The Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be a cash equivalent. Cash and cash equivalents consist of money market mutual funds and bank balances. The Company at December 31, 1995 and periodically throughout the year has maintained balances in various operating and money market accounts in excess of federally insured limits. NET INCOME PER SHARE - Net income per common share was based on the weighted average number of common shares and common stock equivalents outstanding during the period. When dilutive, stock options are included as common stock equivalents using the treasury stock method. NOTE 3. INVENTORIES The following inventories were on hand at December 31: 1995 1994 1993 ---- ---- ---- Raw Materials.......................... $4,272,903 $3,606,564 $3,336,948 Work in Process........................ 819,686 942,939 892,807 Finished Goods......................... 1,565,747 1,177,857 1,210,599 ---------- ---------- ---------- $6,658,336 $5,727,360 $5,440,354 ========== ========== ========== NOTE 4. LONG-TERM DEBT AND SHORT-TERM LINE OF CREDIT Long-term debt at each year ended December 31, consisted of the following:
1995 1994 ---- ---- 65% of Prime Rate Industrial Development Revenue Bond.......... $ 670,000 $ 740,000 Other Notes Payable............................................ 60,616 47,612 --------- --------- 730,616 787,612 Less Amount Due Within One Year................................ 130,616 117,612 --------- --------- Amount Due After One Year...................................... $ 600,000 $ 670,000 ========= =========
The Industrial Revenue Bond is secured by land and building and is due in varying semi-annual principal amounts of $35,000 to $85,000 at the due date of December 2003. Maturities of long-term debt for the next five years ending December 31 are $130,616 in 1996 and $70,000 in each of the four years thereafter. PAGE 9 The Company has a $1,500,000 unsecured line of credit agreement at the prime rate of interest. The following summarizes the borrowings under the line of credit during each year ended December 31: 1995 1994 ---- ---- Outstanding balance at year end.............. $ 450,000 $ -- Maximum balance at any month end............. 1,000,000 500,000 Average month end balance.................... 683,340 172,000 Average interest rate........................ 8.9% 7.5% NOTE 5. INCOME TAXES The income tax provision shown in the statement of operations is detailed below for each year ended December 31: Current 1995 1994 1993 ---- ---- ---- Federal............... $ (260,000) $ 225,000 $ 412,000 State................. 3,000 85,000 78,000 Deferred ...................... (37,000) (15,000) (30,000) ---------- ---------- ---------- $ (294,000) $ 295,000 $ 460,000 =========== ========== ========== In 1993, the Company adopted the method of accounting and reporting for income taxes under the Financial Accounting Standards Board (FASB) issued Statement No. 109 "Accounting for Income Taxes". The implementation of Statement No. 109 did not have a significant effect on the financial statements. The income tax provision for continuing operations varied from the federal statutory tax rate as follows for each year ended December 31:
1995 1994 1993 ---- ---- ---- U.S. Statutory Rate....................................... (34.0)% 34.0% 34.0% State Income Taxes, Net of Federal Income Tax Benefit..... .2 7.4 3.8 Amortization of Goodwill.................................. .7 1.1 .7 Miscellaneous Items....................................... (.3) (2.1) (1.5) Minimum Tax and R & D Tax Credits......................... (.6) (1.3) (1.7) ------- ------- ------ (33.6)% 39.1% 35.3% ======= ======= ======
The Company does not file on a unitary tax basis in all states. As a result certain losses which are offset against income on a federal tax basis cannot be used in computing taxes in some states, which caused a higher than expected state income tax provision in the year ended December 31, 1994 and a lower than expected tax benefit for the year ended December 31, 1995. The company has a state tax loss carryforward of approximately $875,000 which expires in 1998, 1999 and 2000. The following summarizes the tax effects of the significant temporary differences which comprise the deferred tax asset for each year ended December 31: 1995 1994 ---- ---- Inventory Costs $ 306,000 $ 269,000 Deferred Compensation 118,000 117,000 Bad Debt Reserves 50,000 46,000 Net Operating Loss Carry Forward 7,400 Accrued Benefits 41,000 32,600 ----------- ----------- 515,000 472,000 Less Accelerated Depreciation (183,000) (177,000) ----------- ----------- Net Deferred Tax $ 332,000 $ 295,000 =========== =========== PAGE 10 NOTE 6. PROFIT SHARING PLAN The contribution to the Company's profit sharing plan, which covers qualified full-time employees was $135,000 and $180,000 for the years ended December 31, 1994 and 1993, respectively. The Company did not make a contribution to the plan for the year ended December 31, 1995. The 1994 contribution paid in 1995 consisted of $33,392 of the Company's common stock and $101,608 of cash. NOTE 7. STOCK OPTIONS Non-qualified stock options to purchase shares of the Company's common stock have been granted to certain officers, directors, and key employees. Option prices of all the grants were not less than the fair market value of the Company's common stock at dates of grants. At December 31, 1995, 31,583 stock options were exercisable. Unless exercised, stock options will expire as follows: 1997 - 9,375; 1998 - 76,000; 1999 - 26,000, 2000 - 26,000. Option excercise prices on outstanding options at December 31, 1995, ranged from $4.00 to $6.25.
1995 1994 1993 ------------------------ ----------------------- --------------------- NUMBER NUMBER NUMBER OF SHARES PRICE OF SHARES PRICE OF SHARES PRICE --------- ----- --------- ----- --------- ----- Balance at Beginning of Year........ 260,127 255,377 138,500 Granted............................. 29,000 $4.00 to $6.00 29,000 $5.75 to $6.25 86,000 $5.00 Exercised........................... (148,752) $2.80 (5,833) $2.80 (3,166) $2.80 Expired............................. (3,000) $6.00 (18,417) $2.80 to $5.75 Five-For-Four Stock Split........... ______ ______ 34,043 ------ Balance at End of Year.............. 137,375 260,127 255,377 ======= ======= =======
NOTE 8. MAJOR CUSTOMER During the years ended December 31, 1995, 1994, and 1993, the Company derived 20.2%, 24.2%, and 17.4%, respectively, of its sales from one unaffiliated customer. NOTE 9. QUARTERLY INFORMATION (UNAUDITED) The following is a summary of the unaudited quarterly financial information for the years ended December 31, 1995, 1994 and 1993.
YEAR ENDED DECEMBER 31, 1995 1ST QTR. 2ND QTR. 3RD QTR. 4TH QTR. TOTAL -------- -------- -------- -------- ------ Sales.............................. $3,044,080 $3,496,583 $4,858,565 $3,299,298 $14,698,526 Gross Operating Earnings........... 770,677 1,014,055 1,417,375 713,037 3,915,144 Net Income (Loss).................. (396,237) (45,355) 167,427 (307,699) (581,864) Net Income (Loss) Per Share........ (.25) (.03) .11 (.20) (.37) YEAR ENDED DECEMBER 31, 1994 1ST QTR. 2ND QTR . 3RD QTR. 4TH QTR. TOTAL -------- -------- -------- -------- ------ Sales.............................. $3,714,502 $4,491,738 $5,993,414 $3,390,827 $17,590,481 Gross Operating Earnings........... 1,282,199 1,595,803 2,067,339 735,672 5,681,013 Net Income (Loss).................. 1,132 303,482 372,586 (217,910) 459,290 Net Income (Loss) Per Share - .18 .23 (.13) .28 YEAR ENDED DECEMBER 31, 1993 1ST QTR. 2ND QTR. 3RD QTR. 4TH QTR. TOTAL -------- -------- -------- -------- ------ Sales.............................. $4,640,988 $4,326,813 $5,021,840 $3,819,579 $17,809,220 Gross Operating Earnings........... 1,411,247 1,514,137 1,678,295 1,192,248 5,795,927 Net Income......................... 145,763 211,327 294,653 191,736 843,479 Net Income Per Share............... .08 .13 .17 .11 .49 - --------------------------------------------------------------------------------------------------------------------------
PAGE 11 INDEPENDENT AUDITOR'S REPORT Board of Directors and Stockholders Photo Control Corporation We have audited the accompanying consolidated balance sheets of Photo Control Corporation and subsidiaries as of December 31, 1995 and 1994, and the related consolidated statements of changes in stockholders' equity, operations and cash flows for each of the three years in the period ended December 31, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Photo Control Corporation and subsidiaries as of December 31, 1995 and 1994 and the consolidated results of operations and cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. VIRCHOW, KRAUSE & COMPANY, LLP Minneapolis, Minnesota January 30, 1996 CORPORATE DIRECTORY DIRECTORS LESLIE A. WILLIG Chairman THOMAS J. CASSADY Retired President of Merrill Lynch Pierce Fenner & Smith Division GEORGE A. KIPROFF Retired President of DEK Identification Systems Fort Wayne, Indiana JAMES R. LOOMIS Retired President of Magnavox Electronic System Co. WILLIAM L. NORMAN President Norman Enterprises, Inc. Burbank, California JOE M. KILGORE Partner in Law Firm of McGinnis, Lochridge and Kilgore Austin, Texas BOARD OF DIRECTORS [PHOTO] Photograph of the following: Standing: James R. Loomis, Thomas J. Cassady, William L. Norman Seated: Joe A. Kilgore, Leslie A. Willig, George A. Kiproff CORPORATE OFFICERS [PHOTO] PATRICK J. GILLIGAN President, Nord Engineering, Inc. [PHOTO] CURTIS R. JACKELS Vice President-Treasurer [PHOTO] ROGER M. JOHNSON President, Camerz Products Division [PHOTO] WILLIAM L. NORMAN President, Norman Enterprises, Inc. [PHOTO] MARK J. SIMONETT Secretary LEGAL COUNSEL Gray, Plant, Mooty, Mooty & Bennett, P.A. Minneapolis, Minnesota INDEPENDENT PUBLIC ACCOUNTANTS Virchow, Krause & Company, LLP Minneapolis, Minnesota STOCK TRANSFER AGENT Norwest Bank Minnesota, N.A. South St. Paul, Minnesota STOCK LISTED NASDAQ Stock symbol: PHOC PAGE INSIDE BACK COVER EX-21 5 EXHIBIT 21 SUBSIDIARIES OF THE REGISTRANT NAME OF SUBSIDIARY STATE OF INCORPORATION PERCENT OWNED Norman Enterprises, Inc. California 100% Nord Photo Engineering, Inc. Minnesota 100% EX-23 6 EXHIBIT 23 AUDITOR'S CONSENT AND REPORT ON SCHEDULES Board of Directors and Stockholders Photo Control Corporation We hereby consent to the incorporation by reference in this Annual Report on Form 10-K of Photo Control Corporation for the year ended December 31, 1995, of our report, dated January 30, 1996, appearing in the Company's 1995 Annual Report to Shareholders. We also consent to the incorporation by reference of such report in the registration statements on Form S-8 for the Photo Control Stock Option Plan. In the course of our audit of the financial statements referred to in our report, dated January 30, 1996, included in the Company's 1995 Annual Report to Shareholders, we also audited the supporting schedule listed in Item 14(a)(2) of this Annual Report on Form 10-K. In our opinion, the schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. Virchow, Krause & Company, LLP January 30, 1996 Minneapolis, Minnesota EX-25 7 EXHIBIT 25 POWER OF ATTORNEY CONCERNING FORM 10-K FISCAL 1995 Each person whose signature appears below constitutes and appoints LESLIE A. WILLIG his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place, and stead, in any and all capacities to sign the Annual Report on Form 10-K for the fiscal year ended December 31, 1995, and any or all amendments to such Annual Report on other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, ratifying and confirming all that said attorney-in-fact and agent, or his substitute or substitutes, may lawfully do or cause to be done by virtue thereof. Signature Date /s/Leslie A. Willig March 15, 1996 Leslie A. Willig, Chief Executive Officer President and Director (principal executive officer) /s/Curtis R. Jackels March 15, 1996 Curtis R. Jackels, Vice President and Treasurer (principal financial and principal accounting officer) /s/George A. Kiproff March 15, 1996 George A. Kiproff, Director /s/James R. Loomis March 15, 1996 James R. Loomis, Director /s/William L. Norman March 15, 1996 William L. Norman, Director /s/Thomas J. Cassady March 15, 1996 Thomas J. Cassady, Director /s/Joe M. Kilgore March 15, 1996 Joe M. Kilgore, Director EX-27 8
5 YEAR DEC-31-1995 DEC-31-1995 145,899 0 1,262,540 0 6,658,336 8,433,744 7,749,078 4,134,974 12,595,111 2,300,309 600,000 0 0 128,653 9,043,655 12,595,111 14,698,526 14,698,526 10,783,382 10,783,382 4,867,621 0 103,387 (875,864) (294,000) (581,864) 0 0 0 (581,864) (.37) 0
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