EXHIBIT 13


                                  PHOTO CONTROL

                                   CORPORATION




                                      1999

                                  ANNUAL REPORT

<PAGE>


BUSINESS DESCRIPTION

         Photo Control Corporation designs, manufactures, and markets
professional cameras, package printers, electronic flash equipment and
photographic accessories. 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 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. Marketing personnel are full-time employees of the Company.



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

The above reports will be mailed without charge.


CORPORATE OFFICES

Photo Control Corporation
4800 Quebec Ave. N.
Minneapolis, MN 55428
(612) 537-3601

<PAGE>


Dear Fellow Shareholders:

         We had solid financial performance in 1999. Our earnings for 1999 were
$300,533 compared to a loss of $1,017,170 in 1998. In the last two years our
headcount has been reduced by 40%. Currently, we ship about 95% of our orders on
the same day the order is received. Our products are very high in quality and
robust. We are extremely proud of the good attitudes and the excellent
performance levels of all our employees.

Our Norman lighting product line finished the year with better than expected
sales. The gross margin improved significantly over the past year at just under
30% in 1999.

Our Nord product sales, as expected, decreased by 20%. As the professional photo
industry goes through more consolidation each year and digital printing replaces
some of the traditional printing methods, we can expect this trend to continue.
We are not investing further dollars or human resources in this product line.

Our Camerz product sales were down for two reasons. The recently introduced ZIII
camera has not been as widely accepted as expected and, secondly, the Company
began shipping under a large camera contract three months later than expected.
Shipments started on this contract in December 1999, and will be shipped monthly
for a total of seventeen months. In January 2000 we implemented a two year, no
hassle warranty program, to gain the customer acceptance of the ZIII camera.
Early indications are that the market is reacting more favorably to this camera.
To bring further interest to the Camerz product line, we will be offering a
version of the very popular ZII camera. We are excited about camera sales for
2000.

We strongly feel that we now have the business in a position to produce good
financial results. Our customers now receive a high quality product on time. We
will continue to fine tune the existing business and focus on growth
opportunities, whether it be new products, new markets or acquisitions. We will
not rule out any options for profitable growth.


Sincerely,



John Helmen
President and Chief Executive Officer


                                       1
<PAGE>


SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
                                                                 YEAR ENDED DECEMBER 31
                                    ------------------------------------------------------------------------------
                                         1999            1998             1997             1996            1995
                                         ----            ----             ----             ----            ----
<S>                                 <C>             <C>              <C>              <C>             <C>
Net Sales .......................   $  9,335,077    $ 10,014,685     $ 10,423,244     $ 14,211,920    $ 14,698,526
Net Income (Loss) ...............        300,533      (1,017,170)      (2,259,251)          68,279        (581,864)
Net Income (Loss) Per Share .....            .18            (.63)           (1.41)             .04            (.37)
Return on Sales .................            3.2%          (10.2)%          (21.7)%             .5%           (4.0)%
Return on Beginning Net Worth ...            5.1%          (14.6)%          (24.5)%             .7%           (6.1)%
Return on Beginning Assets ......            4.0%          (12.4)%          (20.0)%             .5%           (4.8)%
Working Capital .................   $  4,846,502    $  4,364,249     $  5,166,898     $  6,351,386    $  6,133,435
Plant and Equipment .............      1,621,675       1,757,246        1,879,280        3,441,430       3,614,104
Total Assets ....................      8,109,810       7,452,931        8,181,990       11,269,911      12,595,111
Long-Term Debt ..................              0               0                0          530,000         600,000
Shareholders' Equity ............      6,251,195       5,950,662        6,967,832        9,227,083       9,172,308
Book Value Per Share ............           3.90            3.71             4.34             5.75            5.70
Shares Outstanding ..............      1,604,163       1,604,163        1,604,163        1,604,163       1,608,163
</TABLE>

STOCK MARKET INFORMATION

The Company's Common Stock was listed on the National Association of Securities
Dealers Automated Quotation System (NASDAQ) on the National Market System under
the symbol PHOC until 1998 when it was moved to the NASDAQ Small-Cap Issues
because it did not meet the aggregate market value requirement. The Company has
never paid any cash dividends. It intends to retain earnings to finance the
development of its business. Shareholders of record on December 31, 1999
numbered 348. 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 sales prices for the periods set
forth below. The source of the prices is the NASDAQ Historical Trade Tables.

                              1999                        1998
                       ----------------------------------------------
QUARTER ENDED          HIGH          LOW           HIGH          LOW
-------------          ----          ---           ----          ---

March 31               2.63          1.19          2.80          2.44
June 30                2.50          1.25          2.94          1.00
September 30           4.63          2.25          3.75          1.25
December 31            3.63          1.75          1.88          1.00

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, 1999 and 1998, and the related statements of
changes in stockholders' equity, operations and cash flows for each of the three
years in the period ended December 31,1999. 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 financial position of Photo Control
Corporation as of December 31, 1999 and 1998 and the results of operations and
cash flows for each of the three years in the period ended December 31, 1999, in
conformity with generally accepted accounting principles.

Minneapolis, Minnesota                      Virchow, Krause & Company, LLP
January 20, 2000


                                        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 with three major product lines; long-roll cameras, photographic
package printers and electronic flash equipment. The cameras and electronic
flash equipment 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.

In recent years there has been a consolidation in the markets served by our
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 declining sales and profits, the Norman Enterprises, Inc. flash
equipment facility in California was sold and its manufacturing operations
consolidated into the camera and package printer operations in Minneapolis
during 1997. All sales and marketing functions were combined and the use of
independent sales representatives discontinued. 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.

The Company had anticipated that, because of the above described restructuring
and related cost reductions, future profit margins would improve. Although
marketing, administrative and engineering cost decreased by $1,080,000 in 1998
as compared to 1997, the gross margin declined from 21.6% in 1997 to 18.0% in
1998. However, in 1999 the restructuring resulted in a gross margin of 28.7% and
it is expected that gross margins in 2000 will remain as high or slightly exceed
the 1999 gross margin.

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
                                      --------------------------------
                                      1999         1998         1997
                                      ----         ----         ----
Sales                                 100.0%       100.0%       100.0%
Gross Margin                           28.7         18.0         21.6
Marketing & Administrative             19.2         18.4         27.1
Research, Development & Engineering     6.3          9.6         10.1
Interest                                              .2           .5
Provision for Inventory Losses                                   12.1
Moving Cost                                                        .9
Gain on Sale of Building                                         (6.1)
Income (Loss) Before Taxes              3.2        (10.2)       (23.0)
Net Income (Loss)                       3.2        (10.2)       (21.7)

SALES

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. In 2000, a modified zoom camera will
be introduced in an attempt to regain sales. The Company has a $6,200,000 camera
contract for which shipments began in December 1999. Shipments under the
contract will continue over the next sixteen months. The increase in flash
equipment sales was primarily a result of a three percent price increase.

Sales in 1998 decreased $408,000 or 3.9% as compared to 1997. Sales of printer
products declined $444,000 while the sales of the camera products increased
$15,000 and the electronic flash equipment increased $21,000. The decline of the
printer product sales is attributed to the consolidation and technology changes
discussed above.


                                        3
<PAGE>


GROSS MARGINS

The gross margins were 28.7%, 18.0% and 21.6% for the years ended December 31,
1999, 1998 and 1997, respectively. The move of the electronic flash equipment
product line from California to Minnesota caused numerous inefficiencies in
closing down and restarting production of the product line. The inefficiencies
impacted all three product lines due to the integration of manufacturing
functions in both 1998 and 1997. 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 2000 will remain as high as or slightly exceed the 1999 gross
margin. 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 expenses were $1,796,139, $1,838,609 and $2,820,346
for the years ended December 31, 1999, 1998 and 1997, respectively. As a
percentage of sales, marketing and administrative expenses have changed to 19.2%
in 1999 from 18.4% in 1998 and from 27.1% in 1997. Market and administrative
expense increase as a percentage of sales from 1998 to 1999 because the expenses
did not decrease proportionally with the sales decrease. The restructuring
previously discussed resulted in the decrease in expense of $981,737 in 1998 as
compared to 1997.

RESEARCH, DEVELOPMENT AND ENGINEERING

Research, development and engineering expenses were $588,194, $956,916 and
$1,055,843 for the years ended December 31, 1999, 1998 and 1997, 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 1999 because of the positive cash flow from
operations. Interest expense decreased to $18,369 for the year ended December
31, 1998 as compared to $56,860 for the year ended December 31, 1997. During
1998 a relatively small amount was borrowed against the open line of credit to
satisfy the seasonality of the business.

QUARTERLY RESULTS, GAIN ON SALE OF BUILDING, PROVISION FOR INVENTORY
OBSOLESCENCE, AND MOVING COSTS

The three years ended December 31, 1999 reflects the seasonal demand for the
Company's products of relatively high sales in the second and third quarters. In
the fourth quarter of 1997, the building in California was sold at a gain of
$645,671. All of the California operations were moved to Minnesota in October
and November of 1997, with the exception of space leased for a sales and service
facility which was closed in October 1998 and moved to Minneapolis. In 1997 it
was determined that the electronic flash equipment line had obsolete inventory
of $828,000 and the printer product line had obsolete inventory of $432,000.
Approximately $200,000 of the electronic flash equipment obsolete inventory
related to inventory loaned to schools over the past several years and although
useable by the schools, cannot be resold. Because of the changing technology it
was determined that certain electronic flash equipment and package printer
products should be discontinued and replaced with new or updated products. In
1997 moving costs of $99,589 were incurred for transfer of inventory and
equipment from California to Minnesota and for severance pay to those employees
who worked through the date of the move.

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 received a refund of
$184,000 in 1998 for losses incurred in 1997 that were carried back to a
previous open tax year. There is $800,000 of Federal tax loss carry forward to
offset against future taxable income. Because of uncertainty related to the
realization of the tax benefit, the company has placed a $1,110,000 valuation
allowance against its deferred tax asset of $1,270,000. 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 $819,302 at December 31, 1999 from $731,426 at December 31,
1998. Working capital increased to $4,864,502 at December 31, 1999 from
$4,364,249 at December 31, 1998 as a result of an increase in inventory.

Capital expenditures were $181,606 in 1999, $259,242 in 1998 and $290,461 in
1997. The Company estimates that additional capital investments for property and
equipment will be approximately $240,000 in 2000.

The Company has an unsecured line of credit for $1,000,000 at the prime rate of
interest. At December 31, 1999, there were no borrowings under the line.


                                        4
<PAGE>


The Board of Directors had authorized the purchase of common stock of up to a
total of $2,000,000. At December 31, 1999, $388,000 of this authorized amount
remained available to repurchase common stock. 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
2000.

CAUTIONARY STATEMENT

Statements included in this management's discussion and analysis of financial
condition and results of operations, in the letter to shareholders, 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.


                                        5
<PAGE>


STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                             YEAR ENDED DECEMBER 31
                                                                ----------------------------------------------
                                                                     1999             1998             1997
                                                                     ----             ----             ----
<S>                                                             <C>              <C>              <C>
Net Sales ..................................................    $  9,335,077     $ 10,014,685     $ 10,423,244

Cost of Sales ..............................................       6,650,211        8,217,961        8,175,528
                                                                ------------     ------------     ------------

Gross Profit ...............................................       2,684,866        1,796,724        2,247,716

Expenses
      Marketing and Administrative .........................       1,796,139        1,838,609        2,820,346
      Research, Development and Engineering ................         588,194          956,916        1,055,843
      Interest .............................................                           18,369           56,860
      Provision for Inventory Losses .......................                                         1,260,000
      Moving Cost ..........................................                                            99,589
Gain on Sale of Building ...................................                                          (645,671)
                                                                ------------     ------------     ------------
                                                                   2,384,333        2,813,894        4,646,967

Income (Loss) Before Income Taxes ..........................         300,533       (1,017,170)      (2,399,251)

Income Tax (Benefit) (Note 6) ..............................                                          (140,000)
                                                                ------------     ------------     ------------

Net Income (Loss) ..........................................    $    300,533     $ (1,017,170)    $ (2,259,251)
                                                                ============     ============     ============

Net Income (Loss) Per Common Share-Basic (Note 2) ..........    $        .19     $       (.63)    $      (1.41)
                                                                ============     ============     ============

Net Income (Loss) Per Common Share-Diluted (Note 2) ........    $        .18     $       (.63)    $      (1.41)
                                                                ============     ============     ============
</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, 1996 ...............................   1,604,163   $  128,333  $1,393,484  $7,705,266
   Net Income (Loss) .......................................                                       (2,259,251)
                                                              ----------   ----------  ----------  ----------
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
                                                              ==========   ==========  ==========  ==========
</TABLE>

                 See accompanying Notes to Financial Statements


                                       6
<PAGE>


BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                  DECEMBER 31
                                                                         -----------------------------

                                     ASSETS                                  1999              1998
------------------------------------------------------------------------------------------------------
<S>                                                                      <C>               <C>
Current Assets
   Cash and Cash Equivalents ......................................      $   819,302       $   731,426
   Accounts Receivable, Less Allowance of $40,000 .................          647,597           338,893
   Inventories (Notes 2 and 3) ....................................        4,478,640         4,114,655
   Prepaid Expenses ...............................................           74,430            65,645
                                                                         -----------       -----------
        Total Current Assets ......................................        6,019,969         5,250,619
                                                                         -----------       -----------
Other Assets
   Cash Value of Life Insurance ...................................          308,166           285,066
   Deferred Income Taxes (Note 6) .................................          160,000           160,000
                                                                         -----------       -----------
        Total Other Assets ........................................          468,166           445,066
                                                                         -----------       -----------

Plant and Equipment (Note 2)
   Land and Building ..............................................        2,293,818         2,222,350
   Machinery and Equipment ........................................        3,173,990         3,428,283
   Accumulated Depreciation .......................................       (3,846,133)       (3,893,387)
                                                                         -----------       -----------
        Total Plant and Equipment .................................        1,621,675         1,757,246
                                                                         -----------       -----------

                                                                         $ 8,109,810       $ 7,452,931
                                                                         ===========       ===========
                      LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------------------------------------------------------------------------

Current Liabilities
   Accounts Payable ...............................................      $   281,417       $   103,908
   Accrued Payroll and Employee Benefits ..........................          220,848           137,378
   Accrued Expenses ...............................................          264,952           238,834
   Customer Deposits ..............................................          406,250           406,250
                                                                         -----------       -----------
        Total Current Liabilities .................................        1,173,467           886,370
                                                                         -----------       -----------

Other Accrued Expense (Note 5) ....................................          685,148           615,899
                                                                         -----------       -----------

Stockholders' Equity (Note 8)
   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 ..............................................        4,729,378         4,428,845
                                                                         -----------       -----------
        Total Stockholders' Equity ................................        6,251,195         5,950,662
                                                                         -----------       -----------

                                                                         $ 8,109,810       $ 7,452,931
                                                                         ===========       ===========
</TABLE>

                 See accompanying Notes to Financial Statements


                                       7
<PAGE>


STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                            YEAR ENDED DECEMBER 31
                                                                --------------------------------------------
                                                                    1999            1998            1997
                                                                    ----            ----            ----
<S>                                                             <C>             <C>             <C>
Cash flows from operating activities:
   Net income (Loss) from operations .......................    $   300,533     $(1,017,170)    $(2,259,251)
     Items not affecting cash-
         Depreciation ......................................        270,323         335,907         348,755
         Deferred compensation .............................        139,214         145,553          57,260
         (Gain) Loss on sale of building and equipment .....         36,354          29,235        (626,706)
         Deferred income taxes .............................                                         54,000
         Provision for inventory obsolescence ..............        235,750         208,110       1,381,332
   Payment of deferred compensation ........................        (69,965)        (69,966)        (45,548)
   Change in operating assets and liabilities:
         Receivables .......................................       (308,704)        169,180          16,906
         Inventories .......................................       (599,735)           (162)        100,568
         Prepaid expenses ..................................         (8,785)        136,254          68,202
         Accounts payable ..................................        177,509        (184,816)       (164,848)
         Accrued expenses and customer deposits ............        109,588         437,340         (34,238)
                                                                -----------     -----------     -----------
            Net cash provided (used) by
              operating activities .........................        282,082         189,465      (1,103,568)
                                                                -----------     -----------     -----------
Cash flows from investing activities:
   Proceeds from sale of building and equipment ............         10,500          16,134       2,130,562
   Additions to plant and equipment ........................       (181,606)       (259,242)       (290,461)
   Additions to cash value of life insurance ...............        (23,100)        (23,100)        (23,099)
                                                                -----------     -----------     -----------
            Net cash provided (used)
              in investing activities ......................       (194,206)       (266,208)      1,817,002
                                                                -----------     -----------     -----------
Cash flows from financing activities:
   Repayment of long-term debt .............................                                       (641,296)
                                                                -----------     -----------     -----------
Change in cash and cash equivalents ........................         87,876         (76,743)         72,138

Cash and cash equivalents at beginning of year .............        731,426         808,169         736,031
                                                                -----------     -----------     -----------
Cash and cash equivalents at end of year ...................    $   819,302     $   731,426     $   808,169
                                                                ===========     ===========     ===========
Supplemental disclosure information:
   Income tax payments .....................................    $     4,464     $     3,330     $     2,239
                                                                ===========     ===========     ===========
   Income tax refunds ......................................    $               $   183,866     $   207,206
                                                                ===========     ===========     ===========
   Interest paid ...........................................    $               $    18,369     $    56,860
                                                                ===========     ===========     ===========
</TABLE>

                 See accompanying Notes to Financial Statements


                                       8
<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.

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.

In 1999, sales of flash equipment was highest followed by camera equipment and
printer sales. In 1998, sales of camera equipment was the highest followed by
flash 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 1999, three customers accounted for 37.3% of the
Company's sales, in 1998 27.6% and in 1997 22.3%. 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

CONSOLIDATION - Effective January 1, 1998 the wholly-owned subsidiaries, Norman
Enterprises, Inc. and Nord Photo Engineering, Inc. were liquidated into the
parent company, Photo Control Corporation. Prior to 1998, the financial
statements include the accounts of the Company and its subsidiaries with all
material inter-company transactions and account balances 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 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.


                                       9
<PAGE>


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 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 $114,000, $39,000
and $57,000 for the years ended December 31, 1999, 1998 and 1997 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 money market mutual funds, short-term securities
and bank balances. The Company at December 31, 1999 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 1999, was 1,604,163. The basic earnings per share
was $.19, $(.63) and $(1.41) for the years ended December 31, 1999, 1998 and
1997 respectively. The dilutive earnings per share was $.18 for the year ended
December 31, 1999 which was computed using an additional 63,000 shares for the
dilutive effect of stock options. For the years ended December 31, 1998 and 1997
there was no dilutive effect for stock options.

NOTE 3. INVENTORIES

The following inventories were on hand at December 31:

                                            1999           1998          1997
                                            ----           ----          ----
Raw Materials.......................    $4,237,561    $4,261,234     $3,816,732
Work in Process.....................       257,031       172,227        492,833
Finished Goods......................     1,626,048     1,143,194      1,163,038
Reserve for Obsolescence............    (1,642,000)   (1,462,000)    (1,150,000)
                                        ----------    ----------     ----------
                                        $4,478,640    $4,114,655     $4,322,603
                                        ==========    ==========     ==========

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. The following summarizes the borrowings under the line of
credit during each year ended December 31:

                                                            1999        1998
                                                            ----        ----
Outstanding balance at year end........................    $   --     $     --
Maximum balance at any month end.......................        --      600,000

Average month end balance..............................        --      216,667
Average interest rate..................................        --          8.5%

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.

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 $38,000. 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 Norman products Director of Development through
December, 2000 in the amount of $100,000 annually plus commission on certain
sales.


                                       10
<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:

                                                        1999    1998     1997
                                                        ----    ----     ----
Current
     Federal.........................................                 $(197,000)
     State...........................................                     3,000
Deferred ............................................                    54,000
                                                       -----  ------  ---------
                                                                      $(140,000)
                                                       =====  ======  =========

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

                                                         1999    1998     1997
                                                         ----    ----     ----
U.S. Statutory Rate....................................  34.0%  (34.0)%  (34.0)%
State Income Taxes, Net of Federal Income Tax Benefit..                   (3.0)
Utilization of Loss Carry Forward ..................... (34.0)
Valuation Allowance....................................          34.0     31.2
                                                         ----    ----     ----
                                                            0%      0%    (5.8)%
                                                         ====    ====     ====

The company has Federal tax loss carry forwards of approximately $800,000, which
expire in varying amounts from 2000 through 2014.

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

                                               1999         1998
                                               ----         ----

Inventory Costs...........................   $621,000     $588,000
Deferred Compensation.....................    247,000      222,000
Bad Debt Reserves.........................     14,000       14,000
Accrued Benefits..........................     47,000       27,000
Accrued Costs.............................     46,000       53,000
Net Operating Loss Carry Forward..........    295,000      449,000
                                            ---------    ---------
Net Deferred Tax Asset....................  1,270,000    1,353,000
Valuation Allowance....................... (1,110,000)  (1,193,000)
                                            ---------    ---------
Net Deferred Income Tax...................   $160,000     $160,000
                                            =========    =========

NOTE 7. PROFIT SHARING PLAN

Effective April 1, 1998 the Company amended its profit sharing plan to a 401K
plan. The plan 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 $49,578 and $38,754 for the years ended December 31, 1999
and 1998, respectively. A contribution was not made for the year ended December
31, 1997.

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.


                                       11
<PAGE>


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

<TABLE>
<CAPTION>
                                             1999                   1998                   1997
                                     -----------------------------------------------------------------
                                       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.....     160,000    $3.72       207,000    $4.29        239,375    $4.47
Granted..........................     134,000    $1.19        32,000    $2.80         25,000    $3.50
Expired..........................     (17,000)   $4.82       (79,000)   $4.84        (57,375)   $4.70
                                     --------               --------                --------
Balance at End of Year...........     277,000    $2.43       160,000    $3.72        207,000    $4.29
                                     ========                =======                ========
</TABLE>

The following summarizes the outstanding and exercisable options as of December
31, 1999 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>
$4.75            10,000          .4         $4.75       10,000      $4.75         13,100      29,000
$3.12 to 3.75    81,000         1.6         $3.74       53,995      $3.74         83,700     185,000
$3.50            25,000         2.4         $3.50        8,333      $3.50         24,200      53,400
$2.80            27,000         3.1         $2.80                                 21,000      46,200
$1.19           134,000         4.1         $1.19                                 44,000      97,400
                -------                                -------
                277,000                                 72,328
                =======                                =======
</TABLE>

Had compensation cost for options granted during the three years ended December
31, 1999 been measured by the fair value based method, Company expense would
have increased by approximately $66,000, $63,000 and $99,000, respectively. The
option costs measured using the fair value based method reduce earnings per
share by $.04, $.04 and $.06, 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, 1999, 1998, and 1997, the Company derived
16.5%, 15.1%, and 8.4%, respectively, of its sales from one unaffiliated
customer. A second unaffiliated customer accounted for 10.8%, 5.7% and 13.3% of
sales for the years ended December 31, 1999, 1998 and 1997, respectively. Also a
third unaffiliated customer accounted for 10.0%, 6.8% and .6% of sales for the
year ended December 31, 1999, 1998 and 1997, respectively.

NOTE 10. QUARTERLY INFORMATION (UNAUDITED)

The following is a summary of the unaudited quarterly financial information for
the years ended December 31, 1999, 1998 and
1997:

<TABLE>
<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            .16           (.04)           .18

<CAPTION>

YEAR ENDED DECEMBER 31, 1998             1ST QTR.       2ND QTR.       3RD QTR.       4TH QTR.             TOTAL
                                         --------       --------       --------       --------             -----

   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)

<CAPTION>

YEAR ENDED DECEMBER 31, 1997             1ST QTR.       2ND QTR.       3RD QTR.       4TH QTR.             TOTAL
                                         --------       --------       --------       --------             -----

   Sales .............................   $ 2,246,642    $ 2,440,797    $ 3,876,768    $ 1,859,037    $10,423,244
   Gross Profit ......................       407,323        585,609        789,278        465,506      2,247,716
   Net Income (Loss) .................      (524,464)      (424,045)      (195,263)    (1,115,479)    (2,259,251)
   Net Income (Loss) Per Share .......          (.33)          (.26)          (.12)          (.70)         (1.41)
</TABLE>


                                       12
<PAGE>


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

THOMAS J. CASSADY                                CURTIS R. JACKELS
Retired President of                             Vice President - Finance
Merrill Lynch Pierce Fenner & Smith
                                                 MARK SIMONETT
JOHN R. HELMEN                                   Vice President and Secretary
Chief Executive Officer and President

JAMES R. LOOMIS                                  LEGAL COUNSEL
Retired President of                             Gray, Plant, Mooty, Mooty &
Magnavox Electronic Systems Co.                  Bennett, P.A.
                                                 Minneapolis, Minnesota

                                                 INDEPENDENT PUBLIC ACCOUNTANTS
                                                 Virchow, Krause & Company, LLP
                                                 Minneapolis, Minnesota


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


                                                 STOCK LISTED
                                                 NASDAQ
                                                 Stock symbol: PHOC