PHOTO CONTROL

                                   CORPORATION




                                      2000

                                  ANNUAL REPORT

<PAGE>


BUSINESS DESCRIPTION

Photo Control Corporation designs, manufactures, and markets professional
cameras, package printers, electronic flash equipment, lens shades and
photographic accessories. In 2000 it added a second line of business, the
BookEndz docking station for Apple PowerBook computers. The principal market for
the camera 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 and lens
shades extends to all professional and to more experienced amateur
photographers. The market for BookEndz is all owners of the Apple PowerBook
computers. The geographic area in which the equipment is marketed consists of
the entire United States and to some foreign countries. Marketing personnel are
full-time employees of the Company with nine independent representatives used
for the lens shades product.



CORPORATE COMMUNICATIONS

Requests for annual, and Form 10-K
reports or other Company financial communications
should be directed to:

Investor Relations
Photo Control Corporation
4800 Quebec Ave. N.
Minneapolis, MN 55428

E-Mail:  pcc-info @ photo-control.com
Web Site:  photo-control.com



CORPORATE OFFICES

Photo Control Corporation
4800 Quebec Ave. N.
Minneapolis, MN 55428
(763) 537-3601




IN MEMORIAM

Les Willig, Chairman of the Board of Directors passed away in January 2001. Les
had been with the Company since 1974 and was CEO until July 1997 when he retired
from active management. His many years of service and contribution to Photo
Control Corporation is greatly appreciated and will be missed.

<PAGE>


To Our Stockholders:

2000 was a good year for your Company. The following were some of the
highlights:

      *  Sales increased 32%, from $9,335, 077 to $12,349,983.

      *  Pretax profits increased 332%, from $300,533 to $1,298,805.

      *  Actual dollars spent on sales, engineering and administration were
         again reduced.

      *  Actual employee headcount was again decreased with individual
         productivity greatly improved.

      *  Completed two acquisitions in October and November 2000. The product
         lines acquired, Lindahl Specialties and BookEndz, should contribute
         revenues and profits in 2001 and into the future.

For the future, we have a strong balance sheet that permits us to fund the
growth of our base business and to aggressively pursue growth through
acquisitions. Today we have a strong workforce with very little turnover, that
is focused on service and quality. I am extremely proud of everyone's attitude
and accomplishments.

Our customers are aggressive in capturing additional market share. We are
pleased to participate as their vendor of choice.

Early in 2001 we will be introducing four new products which will immediately
generate revenues. However, the large 6.2 million dollar contract for one of our
major customers will be completed in May 2001.

We are focused on increased revenue, profit growth through acquisitions, new
products, new markets and individual customer growth. We are committed to do our
best to increase your Company's value. We will continue to give our customers
quality products, and to service their needs while providing our employees with
a good workplace.

Sincerely,



John Helmen
President and Chief Executive Officer


                                       1
<PAGE>


SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
                                                                         YEAR ENDED DECEMBER 31
                                         --------------------------------------------------------------------------------------
                                              2000              1999              1998               1997               1996
                                              ----              ----              ----               ----               ----
<S>                                      <C>               <C>               <C>                <C>                <C>
Net Sales ..........................     $ 12,349,983      $  9,335,077      $ 10,014,685       $ 10,423,244       $ 14,211,920
Net Income (Loss) ..................        1,118,805           300,533        (1,017,170)        (2,259,251)            68,279
Net Income (Loss) Per Share ........              .70               .19              (.63)             (1.41)               .04
Return on Sales ....................              9.1%              3.2%            (10.2)%            (21.7)%               .5%
Return on Beginning Net Worth ......             17.9%              5.1%            (14.6)%            (24.5)%               .7%
Return on Beginning Assets .........             13.8%              4.0%            (12.4)%            (20.0)%               .5%
Working Capital ....................     $  4,949,100      $  4,846,502      $  4,364,249       $  5,166,898       $  6,351,386
Plant and Equipment ................        1,571,238         1,621,675         1,757,246          1,879,280          3,441,430
Total Assets .......................       10,075,619         8,109,810         7,452,931          8,181,990         11,269,911
Long-Term Debt .....................          504,240                 0                 0                  0            530,000
Stockholders' Equity ...............        7,370,000         6,251,195         5,950,662          6,967,832          9,227,083
Book Value Per Share ...............             4.60              3.90              3.71               4.34               5.75
Shares Outstanding .................        1,604,163         1,604,163         1,604,163          1,604,163          1,604,163
</TABLE>

STOCK MARKET INFORMATION
The Company's Common Stock is listed on the National Association of Securities
Dealers Automated Quotation System (NASDAQ) . The Company has never paid any
cash dividends. It intends to retain earnings to finance the development of its
business. Stockholders of record on December 31, 2000 numbered 325. The Company
estimates that an additional 400 stockholders own stock held for their account
at brokerage firms and financial institutions. The following table sets forth
the high and low sales prices for the periods set forth below. The source of the
prices is the NASDAQ Historical Trade Tables.

<TABLE>
<CAPTION>
                                2000                           1999
                        --------------------------------------------------
QUARTER ENDED           HIGH           LOW             HIGH            LOW
-------------           ----           ---             ----            ---
<S>                     <C>           <C>              <C>            <C>
March 31                2.97          2.00             2.63           1.19
June 30                 3.81          2.43             2.50           1.25
September 30            3.94          2.38             4.63           2.25
December 31             3.44          2.38             3.63           1.75
</TABLE>


INDEPENDENT AUDITOR'S REPORT

Board of Directors and Stockholders
Photo Control Corporation

         We have audited the accompanying balance sheets of Photo Control
Corporation as of December 31, 2000 and 1999, and the related statements of
changes in stockholders' equity, operations and cash flows for each of the three
years in the period ended December 31, 2000. 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 auditing standards generally
accepted in the United States of America. 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 financial position of Photo Control
Corporation as of December 31, 2000 and 1999 and the results of operations and
cash flows for each of the three years in the period ended December 31, 2000, in
conformity with accounting principles generally accepted in the United States of
America.

Minneapolis, Minnesota                       Virchow, Krause & Company, LLP
January 19, 2001


                                       2
<PAGE>


MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

GENERAL
Photo Control Corporation is a manufacturer of professional photographic
equipment and the BookEndz docking station for the Apple PowerBook computer.
There are four major photographic product lines: long-roll cameras, photographic
package printers, electronic flash equipment and lens shades which was added to
the line in November 2000. The cameras, electronic flash equipment and lens
shades are used primarily for portrait, commercial and school photography. The
package printers are used by photographic processing labs which specialize in
producing color print packages such as wedding and school photography. The
Company purchased the BookEndz product line in October 2000.

In recent years there has been a consolidation in the markets served by our
photographic equipment, resulting in excess capacity and sales to fewer
customers. In addition, the technology related to many areas of image processing
is rapidly changing and as a result, customers are reluctant to purchase new
equipment. Because of this decline in the number of our traditional customers,
two product acquisitions, the Lindahl lens shades and BookEndz docking station
were made in 2000. The Lindahl line was purchased at a total cost of $355,864
and consisted primarily of inventory and certain related equipment and tooling.
This line compliments our current photography accessory products and the end
users are primarily portrait studios. The BookEndz product was purchased for a
total cost of $1,760,000 of which $1,655,000 was the cost of the patent rights
and $105,000 for inventory and tooling. This product is a docking station for
the Apple PowerBook computer and all owners of the PowerBook are potential
customers. It is anticipated that on an annual basis these products will provide
additional sales of $1,500,000 to $2,000,000. All products are sold by employees
with the exception of the package printer line products which are sold by
Bremson, Inc., an unaffiliated professional photographer supplier and the lens
shades where nine independent representatives are used.

RESULTS OF OPERATIONS
The following table presents selected items from the Company's Statements of
Operations expressed as percentages of sales for the year indicated.

                                             YEAR ENDED DECEMBER 31
                                          --------------------------
                                          2000       1999       1998
                                          ----       ----       ----
Sales                                     100.0%     100.0%     100.0%
Gross Margin                               29.7       28.7       18.0
Marketing & Administrative                 14.7       19.2       18.4
Research, Development & Engineering         4.5        6.3        9.6
Interest                                                           .2
Income (Loss) Before Taxes                 10.5        3.2      (10.2)
Net Income (Loss)                           9.1        3.2      (10.2)

SALES
Sales in 2000 increased $3,014,000 or 32.3% as compared to 1999. Camera sales
increased $4,424,000 primarily due to a $6,200,000 contract under which
shipments began in December 1999 and will continue to May 2001. The contract
will not be renewed. Also sales of the zoom camera and the digital splitview
increased in 2000. Sales of the two new products, BookEndz and lens shades,
contributed $110,000. Sales of printer products declined $668,000 and the
electronic flash equipment decreased $852,000. The decline of the printer
product sales is attributed to the consolidation and technology changes
discussed above. The flash equipment decline is due to one large OEM customer
who did not reorder in 2000. Sales in 1999 decreased $680,000 or 6.8% as
compared to 1998. Sales of printer products declined $297,000, sales of camera
products declined $487,000 and sales of electronic flash equipment increased
$104,000. The decline of the printer product sales is attributed to the
consolidation and technology changes discussed above. In 1997, a new zoom camera
was introduced and had modest sales in both 1997 and 1998. However, in 1999
sales of this unit declined due to competition in the used equipment market.

GROSS MARGINS
The gross margins were 29.7%, 28.7% and 18.0% for the years ended December 31,
2000, 1999 and 1998, respectively. The move of the electronic flash equipment
product line from California to Minnesota in October of 1997 caused numerous
inefficiencies in closing down and restarting production of the product line.
The inefficiencies impacted all product lines due to the integration of
manufacturing functions in 1998. Also in 1998, production cost overruns were
incurred on the electronic flash equipment line due to training of production
personnel and lack of adequate product documentation. In 1999, gross margins
increased as anticipated, due to this restructuring and it is expected that
gross margins in 2001 will remain as high as the 2000 gross margin. However,
gross margins are expected to fluctuate on a quarterly basis because of product
mix changes and the seasonality of sales.


                                       3
<PAGE>


MARKETING AND ADMINISTRATIVE
Marketing and administrative expenses were $1,821,165, $1,796,139 and $1,838,609
for the years ended December 31, 2000, 1999 and 1998, respectively. As a
percentage of sales, marketing and administrative expenses have changed to 14.7%
in 2000 from 19.2% in 1999 and from 18.4% in 1998. Market and administrative
expense decreased as a percentage of sales from 2000 to 1999 because the
expenses did not increase proportionally with the sales increase.

RESEARCH, DEVELOPMENT AND ENGINEERING
Research, development and engineering expenses were $551,457, $588,194 and
$956,916 for the years ended December 31, 2000, 1999 and 1998, respectively. In
the past, the Company had aggressively tried to develop innovative products that
the market would come to accept. The Company is now concentrating on products
which already have market penetration and can be effectively sold through our
existing distribution network. In 1999, the engineering department was
reorganized resulting in lower cost and increased efficiencies.

INTEREST
No amounts were borrowed in 2000 and 1999 because of the positive cash flow from
operations. Interest expense was $18,369 for the year ended December 31, 1998.

QUARTERLY RESULTS
The three years ended December 31, 2000 reflects the seasonal demand for the
Company's products of relatively high sales in the second and third quarters.

INCOME TAXES
In 2000 the Company used all of its tax loss carry forwards which resulted in an
effective tax rate of 13.8% and a provision of $180,000 for income taxes. In
1999 the Company used its tax loss carry forwards to offset its income resulting
a zero provision for income taxes. The company has placed an $812,000 valuation
allowance against its deferred tax asset of $972,000. It is expected that the
net tax asset of $160,000 will be realized in future periods through profitable
operations.

LIQUIDITY AND CAPITAL RESOURCES
Cash increased to $1,254,660 at December 31, 2000 from $819,302 at December 31,
1999. Working capital increased to $4,949,100 at December 31, 2000 from
$4,861,502 at December 31, 1999 as a result of a increase in accounts
receivable.

Capital expenditures were $243,638 in 2000, $181,606 in 1999 and $259,242 in
1998. The Company also spent $1,655,000 to acquire the BookEndz patent rights in
2000. The Company estimates that additional capital investments for property and
equipment will be approximately $500,000 in 2001.

The Company has an unsecured line of credit for $1,000,000 at the prime rate of
interest. At December 31, 2000, there were no borrowings under the line.

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
2000.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's line of credit described in Footnote 4 to the Financial Statements
carries interest rate risk. Amounts borrowed under this agreement are subject to
interest charges at a rate tied to the lending base rate which is generally
prime rate. There were no borrowings under the line in 2000 or 1999. The
Company's cash and cash equivalents consist of cash and money market funds. All
amounts are placed with creditworthy financial institutions, however the rate of
return will fluctuate with the change in market interest rates.

CAUTIONARY STATEMENT
Statements included in this management's discussion and analysis of financial
condition and results of operations, in the letter to stockholders, elsewhere in
this annual report, in the Company's Form 10-K and in future filings by the
company with the Securities and Exchange Commission 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 limitations,
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 any other risks indicated.


                                       4
<PAGE>


STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                       YEAR ENDED DECEMBER 31
                                                          ----------------------------------------------

                                                               2000             1999             1998
                                                               ----             ----             ----
<S>                                                       <C>              <C>              <C>
Net Sales ...........................................     $ 12,349,983     $  9,335,077     $ 10,014,685

Cost of Sales .......................................        8,678,556        6,650,211        8,217,961
                                                          ------------     ------------     ------------

      Gross Profit ..................................        3,671,427        2,684,866        1,796,724

Expenses
      Marketing and Administrative ..................        1,821,165        1,796,139        1,838,609
      Research, Development and Engineering .........          551,457          588,194          956,916
      Interest ......................................                                             18,369
                                                          ------------     ------------     ------------
                                                             2,372,622        2,384,333        2,813,894

Income (Loss) Before Income Taxes ...................        1,298,805          300,533       (1,017,170)

Income Tax ..........................................          180,000
                                                          ------------     ------------     ------------

Net Income (Loss) ...................................     $  1,118,805     $    300,533     $ (1,017,170)
                                                          ============     ============     ============

Net Income (Loss) Per Common Share-Basic ............     $        .70     $        .19     $       (.63)
                                                          ============     ============     ============
Net Income (Loss) Per Common Share-Diluted ..........     $        .67     $        .18     $       (.63)
                                                          ============     ============     ============
</TABLE>

                 See accompanying Notes to Financial Statements



STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                                  COMMON STOCK
                                                                  ------------
                                                             NUMBER                          ADDITIONAL
                                                             OF                              PAID-IN          RETAINED
                                                             SHARES           AMOUNT         CAPITAL          EARNINGS
                                                          --------------------------------------------------------------
<S>                                                          <C>                <C>            <C>              <C>
Balance at December 31, 1997 ........................        1,604,163          128,333        1,393,484        5,446,015
   Net Income (Loss) ................................                                                          (1,017,170)
                                                          ------------     ------------     ------------     ------------
Balance at December 31, 1998 ........................        1,604,163          128,333        1,393,484        4,428,845
   Net Income .......................................                                                             300,533
                                                          ------------     ------------     ------------     ------------
Balance at December 31, 1999 ........................        1,604,163          128,333        1,393,484        4,729,378
   Net Income .......................................                                                          1, 118,805
                                                          ------------     ------------     ------------     ------------
Balance at December 31, 2000 ........................        1,604,163     $    128,333     $  1,393,484     $  5,848,183
                                                          ============     ============     ============     ============
</TABLE>


                 See accompanying Notes to Financial Statements


                                       5
<PAGE>


BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                   DECEMBER 31
                                                                         ------------------------------
                                      ASSETS                                  2000              1999
-------------------------------------------------------------------------------------------------------
<S>                                                                      <C>               <C>
Current Assets
   Cash and Cash Equivalents .......................................     $  1,254,660      $    819,302
   Accounts Receivable, Less Allowance of $40,000 ..................        1,283,855           647,597
   Inventories .....................................................        3,771,263         4,478,640
   Prepaid Expenses ................................................           77,891            74,430
                                                                         ------------      ------------
         Total Current Assets ......................................        6,387,669         6,019,969
                                                                         ------------      ------------
Other Assets
   Patent Right, Net of Amortization ...............................        1,625,446
   Cash Value of Life Insurance ....................................          331,266           308,166
   Deferred Income Taxes ...........................................          160,000           160,000
                                                                         ------------      ------------
         Total Other Assets ........................................        2,116,712           468,166
                                                                         ------------      ------------

Plant and Equipment
   Land and Building ...............................................        2,310,823         2,293,818
   Machinery and Equipment .........................................        2,542,133         3,173,990
   Accumulated Depreciation ........................................       (3,281,718)       (3,846,133)
                                                                         ------------      ------------
         Total Plant and Equipment .................................        1,571,238         1,621,675
                                                                         ------------      ------------

                                                                         $ 10,075,619      $  8,109,810
                                                                         ============      ============

                      LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities
   Current Portion of Purchase Contract ............................     $    240,000      $
   Accounts Payable ................................................          377,164           281,417
   Accrued Payroll and Employee Benefits ...........................          387,896           220,848
   Accrued Expenses ................................................          249,679           264,952
   Accrued Income Taxes ............................................          183,830
   Customer Deposits ...............................................                            406,250
                                                                         ------------      ------------
         Total Current Liabilities .................................        1,438,569         1,173,467
                                                                         ------------      ------------
Other Accrued Expense
   Deferred Compensation ...........................................          762,810           685,148
   Amount Due on Purchase Contract .................................          504,240
                                                                         ------------      ------------
                                                                            1,267,050           685,148
                                                                         ------------      ------------

Stockholders' Equity
   Common Stock
      Par Value $.08 Authorized 5,000,000
      Shares Issued 1,604,163 ......................................          128,333           128,333
   Additional Paid-In Capital ......................................        1,393,484         1,393,484
   Retained Earnings ...............................................        5,848,183         4,729,378
                                                                         ------------      ------------
         Total Stockholders' Equity ................................        7,370,000         6,251,195
                                                                         ------------      ------------

                                                                         $ 10,075,619      $  8,109,810
                                                                         ============      ============
</TABLE>

                 See accompanying Notes to Financial Statements


                                       6
<PAGE>


STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                YEAR ENDED DECEMBER 31
                                                                 ------------------------------------------------
                                                                      2000              1999              1998
                                                                      ----              ----              ----
<S>                                                              <C>               <C>               <C>
Cash flows from operating activities:
   Net income (Loss) from operations .......................     $  1,118,805      $    300,533      $ (1,017,170)
      Items not affecting cash-
         Depreciation ......................................          230,739           270,323           335,907
         Amortization ......................................           29,554
         Deferred compensation .............................          147,626           139,214           145,553
         (Gain) Loss on sale of equipment ..................           54,361            36,354            29,235
         Provision for inventory obsolescence ..............          395,487           235,750           208,110
   Payment of deferred compensation ........................          (69,964)          (69,965)          (69,966)
   Change in operating assets and liabilities:
         Receivables .......................................         (636,258)         (308,704)          169,180
         Inventories .......................................          311,890          (599,735)             (162)
         Prepaid expenses ..................................           (3,461)           (8,785)          136,254
         Accounts payable ..................................           95,747           177,509          (184,816)
         Accrued expenses and customer deposits ............         (254,475)          109,588           437,340
         Accrued income taxes ..............................          183,830
                                                                 ------------      ------------      ------------
            Net cash provided by
              operating activities .........................        1,603,881           282,082           189,465
                                                                 ------------      ------------      ------------
Cash flows from investing activities:
   Purchase of patent right ................................         (895,000)
   Proceeds from sale of equipment .........................            8,975            10,500            16,134
   Additions to plant and equipment ........................         (243,638)         (181,606)         (259,242)
   Additions to cash value of life insurance ...............          (23,100)          (23,100)          (23,100)
                                                                 ------------      ------------      ------------
            Net cash provided (used)
              in investing activities ......................       (1,152,763)         (194,206)         (266,208)
                                                                 ------------      ------------      ------------
Cash flows from financing activities:
   Payment on purchase contract ............................          (15,760)
                                                                 ------------      ------------      ------------
Change in cash and cash equivalents ........................          435,358            87,876           (76,743)

Cash and cash equivalents at beginning of year .............          819,302           731,426           808,169
                                                                 ------------      ------------      ------------
Cash and cash equivalents at end of year ...................     $  1,254,660      $    819,302      $    731,426
                                                                 ============      ============      ============
Supplemental disclosure information:
   Income tax payments .....................................     $      7,532      $      4,464      $      3,330
                                                                 ============      ============      ============
   Income tax refunds ......................................     $                 $                 $    183,866
                                                                 ============      ============      ============
   Interest paid ...........................................     $                 $                 $     18,369
                                                                 ============      ============      ============

Non-cash investing and finance activity:
   Purchase of patent right with contract ..................     $    760,000      $                 $
                                                                 ============      ============      ============
</TABLE>


                 See accompanying Notes to Financial Statements


                                       7
<PAGE>


NOTES TO
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. In November 2000 the Company expanded its
photographic line by purchasing the Lindahl product line which consists of lens
shades, light filters and flash brackets. Also in October 2000, the Company
purchased a second line of business, the BookEndz docking station for the Apple
PowerBook computer.

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 and the Lindahl products 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 market for BookEndz is all owners of the Apple PowerBook computer. The
geographic market in which the Company competes consists of the entire United
States and, to a lesser extent, some foreign countries.

In 2000, sales of camera equipment was the highest followed by flash equipment
and printer sales. In 1999, sales of flash equipment was highest followed by
camera equipment and printer sales. There has been a consolidation of school
photography and studio portrait photography in recent years which has
concentrated the Company's sales to fewer customers. It is expected that this
trend will continue. In 2000, three customers accounted for 55.3% of the
Company's sales, in 1999 37.3% and in 1998 27.6%. Due to the rapidly changing
technology related to many areas of image processing, the Company has
discontinued manufacturing of many products and is replacing them with newer,
updated equipment.

NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES - Management uses estimates and assumptions in preparing
financial statements in accordance with account principles generally accepted in
the United States of America. 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 35 years for the building and 3 to 7 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. The Company assesses long-lived assets for
impairment under FASB Statement 121 using estimates of undiscounted future cash
flows. Under those rules, long-lived assets are included in impairment
evaluations when events or circumstances exist that indicate the carrying amount
of those assets may not be recoverable.

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 company does not have
any derivative financial instruments.

AMORTIZATION OF PATENT RIGHT - Patent cost of $1,655,000 is being amortized over
its remaining life of nine years. As of December 31, 2000, $29,544 has been
amortized.

RESEARCH AND DEVELOPMENT - Expenditures for research and development are charged
against operations as incurred.


                                       8
<PAGE>


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 deferred compensation that is not deductible
for taxes and inventory which has a higher tax basis than for financial
reporting purposes.

ADVERTISING - Advertising costs are included in Marketing and Administrative
Expenses and are expensed as incurred. Advertising expense was $57,000, $114,000
and $39,000 for the years ended December 31, 2000, 1999 and 1998 respectively.

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 short-term securities and bank balances. The
Company at December 31, 2000 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 outstanding during the period when computing the
basic earnings per share. When dilutive, stock options are included as
equivalents using the treasury stock market method when computing the diluted
earnings per share. The weighted average number of common shares outstanding for
the three years ended December 2000, was 1,604,163. The basic earnings per share
was $.70, $.19 and $(.63) for the years ended December 31, 2000, 1999 and 1998
respectively. The dilutive earnings per share was $.67 and $.18 for the years
ended December 31, 2000 and 1999 respectively which was computed using an
additional 71,000 and 63,000 shares for the dilutive effect of stock options.
For the year ended December 31, 1998 there was no dilutive effect for stock
options.

NOTE 3. INVENTORIES
The following inventories were on hand at December 31:

                                         2000           1999           1998
                                         ----           ----           ----
Raw Materials....................     $3,337,770     $4,237,561     $4,261,234
Work in Process..................        436,780        257,031        172,227
Finished Goods...................      1,596,713      1,626,048      1,143,194
Reserve for Obsolescence.........     (1,600,000)    (1,642,000)    (1,462,000)
                                      ----------     ----------     ----------
                                      $3,771,263     $4,478,640     $4,114,655
                                      ==========     ==========     ==========


NOTE 4. SHORT-TERM LINE OF CREDIT
The Company has a $1,000,000 unsecured line of credit agreement at the prime
rate of interest. There were no borrowings under the line of credit during the
years ended December 31, 2000 and 1999.


NOTE 5. COMMITMENTS
The Company has deferred compensation agreements with key management personnel
which are funded by life insurance. Under the agreements, covered individuals
become vested immediately upon death or if employed at age 65. Compensation
costs are recognized over the period of service and recorded as other accrued
expense.

Under the purchase contract for the BookEndz, the Company is required to pay a
fee for each BookEndz unit sold until a total of $760,000 is paid.

The Company has a non-cancelable operating lease commitment for a sales and
service facility in Burbank, California that expires in 2002 with annual minimum
rents of $39,000. In 1998 the Company vacated the facility and subleased the
property at the same rate of rent it is paying the lessor. The Company has an
employment agreement with the President of Lindahl Specialties, Inc. through
November, 2003 in the amount of $26,667 annually.


                                       9
<PAGE>


NOTE 6. INCOME TAXES
The income tax provision (benefit) shown in the statement of operations is
detailed below for each year ended December 31:

<TABLE>
<CAPTION>
                                                                             2000            1999             1998
                                                                             ----            ----             ----
<S>                                                                      <C>              <C>              <C>
Current
   Federal .........................................................     $  167,000
   State ...........................................................         13,000
Deferred ...........................................................
                                                                         ----------       ----------       ----------
                                                                         $  180,000
                                                                         ==========       ==========       ==========
</TABLE>

The income tax provision for continuing operations varied from the federal
statutory tax rate as follows for each year ended December 31:

<TABLE>
<CAPTION>
                                                                             2000            1999             1998
                                                                             ----            ----             ----
<S>                                                                      <C>              <C>              <C>
   U.S. Statutory Rate .............................................           34.0%            34.0%           (34.0)%
   State Income Taxes, Net of Federal Income Tax Benefit ...........            2.5
   Utilization of Loss Carry Forward ...............................          (22.7)           (34.0)
   Valuation Allowance .............................................                                             34.0
                                                                         ----------       ----------       ----------
                                                                               13.8%               0%               0%
                                                                         ==========       ==========       ==========
</TABLE>

The following summarizes the tax effects of the significant temporary
differences which comprise the deferred tax asset for each year ended December
31:

<TABLE>
<CAPTION>
                                                              2000              1999
                                                              ----              ----
<S>                                                      <C>               <C>
   Inventory Costs .................................     $    604,000      $    621,000
   Deferred Compensation ...........................          275,000           247,000
   Bad Debt Reserves ...............................           14,000            14,000
   Accrued Benefits ................................           39,000            47,000
   Accrued Costs ...................................           40,000            46,000
   Net Operating Loss Carry Forward ................                            295,000
                                                         ------------      ------------
   Net Deferred Tax Asset ..........................          972,000         1,270,000
   Valuation Allowance .............................         (812,000)       (1,110,000)
                                                         ------------      ------------
   Net Deferred Income Tax .........................     $    160,000      $    160,000
                                                         ============      ============
</TABLE>

NOTE 7. PROFIT SHARING PLAN
The Company has a 401K plan which covers qualified full-time employees. The
Company matches the employees contributions to 8% of the employees salary at a
rate of 25%. An additional 10% match is contributed if certain profit goals are
achieved. The Company contributed $61,040, $49,578 and $38,754 for the years
ended December 31, 2000, 1999 and 1998, respectively.

NOTE 8. 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.

The Company has elected to account for non-qualified stock options under
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees," and related interpretations. Accordingly, no compensation expense
has been recognized for stock options.

The following summarizes the changes in the options for the years ended December
31:

<TABLE>
<CAPTION>
                                                    2000                      1999                      1998
                                          ----------------------------------------------------------------------------
                                            NUMBER       EXERCISE      NUMBER      EXERCISE      NUMBER       EXERCISE
                                          OF SHARES       PRICE      OF SHARES      PRICE       OF SHARES       PRICE
                                          ---------       -----      ---------      -----       ---------       -----
<S>                                        <C>          <C>           <C>          <C>           <C>          <C>
Balance at Beginning of Year ........      277,000      $   2.43      160,000      $   3.72      207,000      $   4.29
Granted .............................       15,000      $   3.19      134,000      $   1.19       32,000      $   2.80
Expired .............................      (65,000)     $   3.00      (17,000)     $   4.82      (79,000)     $   4.84
                                          --------                   --------                   --------
Balance at End of Year ..............      227,000      $   2.31      277,000      $   2.43      160,000      $   3.72
                                          ========                   ========                   ========
</TABLE>


                                       10
<PAGE>


The following summarizes the outstanding and exercisable options as of December
31, 2000 and the potential realizable value assuming annual rates of stock price
appreciation for the option term:

<TABLE>
<CAPTION>
                                                                                        POTENTIAL REALIZABLE VALUE
                                                                                         AT ASSUMED ANNUAL RATES
                    OPTIONS OUTSTANDING                      EXERCISABLE OPTIONS       OF STOCK PRICE APPRECIATION
------------------------------------------------------------------------------------         FOR OPTION TERM
RANGE           NUMBER OF        REMAINING      EXERCISE     NUMBER       EXERCISE     ---------------------------
OF PRICE         SHARES         LIFE (YEARS)     PRICE      OF SHARES       PRICE       5%($)              10%($)
-------------------------------------------------------------------------------------------------------------------
<S>              <C>                <C>          <C>         <C>            <C>         <C>                <C>
$3.12 to 3.75     49,000             .6          $3.72        49,000        $3.72       50,400             111,300
$3.50             25,000            1.4          $3.50        16,667        $3.50       24,200              53,400
$2.80             27,000            2.1          $2.80         9,000        $2.80       21,000              46,200
$1.19            111,000            3.1          $1.19        37,000        $1.19       36,500              80,600
$3.19             15,000            4.6          $3.19                                  13,200              29,200
                --------                                     -------
                 227,000                                     111,667
                ========                                     =======
</TABLE>

Had compensation cost for options granted during the three years ended December
31, 2000 been measured by the fair value based method, Company expense would
have increased by approximately $45,000, $66,000 and $63,000, respectively. The
option costs measured using the fair value based method reduce earnings per
share by $.03, $.04 and $.04, respectively. The weighted average fair value of
options granted was estimated using the Black-Scholes option pricing model and
assuming a 6.5% risk-free interest rate, 50% expected volatility, five year
option term and no anticipated dividends.

NOTE 9. MAJOR CUSTOMERS
During the years ended December 31, 2000, 1999, and 1998, the Company derived
50.0%, 16.5%, and 15.1%, respectively, of its sales from one unaffiliated
customer. A second unaffiliated customer accounted for 4.8%, 10.8% and 5.7% of
sales for the years ended December 31, 2000, 1999 and 1998, respectively. Also a
third unaffiliated customer accounted for .5%, 10.0% and 6.8% of sales for the
year ended December 31, 2000, 1999 and 1998, respectively.

NOTE 10. QUARTERLY INFORMATION (UNAUDITED)
The following is a summary of the unaudited quarterly financial information for
the years ended December 31, 2000, 1999 and
1998:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 2000       1ST QTR.          2ND QTR.         3RD QTR.         4TH QTR.            TOTAL
----------------------------       --------          --------         --------         --------            -----
<S>                              <C>               <C>              <C>              <C>               <C>
Sales ......................     $  2,108,592      $  3,718,870     $  3,720,897     $  2,801,624      $ 12,349,983
Gross Profit ...............          525,212         1,127,110        1,169,943          849,162         3,671,427
Net Income (Loss) ..........          (83,732)          505,493          599,354           97,690         1,118,805
Net Income (Loss) Per Share              (.05)              .31              .38              .06               .70

<CAPTION>
YEAR ENDED DECEMBER 31, 1999       1ST QTR.          2ND QTR.         3RD QTR.         4TH QTR.            TOTAL
----------------------------       --------          --------         --------         --------            -----
<S>                              <C>               <C>              <C>              <C>               <C>
Sales ......................     $  1,829,552      $  2,744,327     $  2,963,156     $  1,798,042      $  9,335,077
Gross Profit ...............          475,835           863,214          835,795          510,022         2,684,866
Net Income (Loss) ..........         (200,026)          283,224          264,118          (46,783)          300,533
Net Income (Loss) Per Share              (.12)              .18              .17             (.04)              .19

<CAPTION>
YEAR ENDED DECEMBER 31, 1998       1ST QTR.          2ND QTR          3RD QTR.         4TH QTR.            TOTAL
----------------------------       --------          --------         --------         --------            -----
<S>                              <C>               <C>              <C>              <C>               <C>
Sales ......................     $  1,947,046      $  3,151,947     $  3,548,571     $  1,367,121      $ 10,014,685
Gross Profit ...............          139,757           820,653          788,137           48,177         1,796,724
 Net Income (Loss) .........         (622,808)          156,142           71,186         (621,690)       (1,017,170)
 Net Income (Loss) Per Share             (.39)              .10              .04             (.38)             (.63)
</TABLE>

NOTE 11. SEGMENT REPORTING
In October 2000 the Company purchased the BookEndz product line which is a
docking station for the Apple PowerBook computer. All of its operations (sales
and marketing, engineering, manufacturing and administration) were merged into
Photo Control's existing structure. Accordingly, the only activity for BookEndz
that is separately maintained is sales, cost of sales and the cost of its
related assets. At December 31, 2000 the BookEndz assets consisted of $1,625,446
of unamortized patent right cost, $76,284 of inventory and $19,557 of tooling
for a total of $1,721,287 of the Company's total assets of $10,075,619. Sales of
BookEndz during the year ended December 31, 2000 accounted for $73,304 of the
Company's total sales of $12,349,983.


                                       11
<PAGE>


CORPORATE DIRECTORY


DIRECTORS                              CORPORATE OFFICERS
LESLIE A. WILLIG                       JOHN R. HELMEN
Chairman                               Chief Executive Officer and President

JOHN R. HELMEN                         CURTIS R. JACKELS
Chief Executive Officer and            Vice President - Finance
President

JAMES R. LOOMIS                        MARK  J. SIMONETT
Retired President of                   Secretary
Magnavox Electronic Systems Co.

SCOTT S. MEYERS                        LEGAL COUNSEL
President of                           Gray, Plant, Mooty, Mooty & Bennett, P.A.
Alliant Techsystems                    Minneapolis, Minnesota

MARK J. SIMONETT                       INDEPENDENT PUBLIC ACCOUNTANTS
Attorney                               Virchow, Krause & Company, LLP
                                       Minneapolis, Minnesota

                                       STOCK TRANSFER AGENT
                                       Signature Stock Transfer, Inc.
                                       Dallas, Texas

                                       STOCK LISTED
                                       NASDAQ
                                       Stock symbol: PHOC