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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended August 31, 1995
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File No. 0-12807
PHOTOCOMM, INC.
Incorporated in the State of Arizona IRS No. 86-0411983
7681 East Gray Road, Scottsdale, Arizona 85260 (602)948-8003
Securities Registered under Section 12(b) of the Exchange Act: None
Securities Registered under Section 12(g) of the Exchange Act:
Common Stock, $0.10 par value
Check whether the issuer (1)filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports),
and (2)has been subject to such filing requirements for the past 90 days.
Yes (X) No ( )
Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of the registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. (X)
Revenues for the fiscal year ended August 31, 1995 were $20,540,840.
Based upon the average of the bid and asked prices as of November 3, 1995,
the aggregate market value of common stock held by non-affiliates of the
registrant was approximately $12,709,224.
Check whether the issuer has filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution
of securities under a plan confirmed by a court. Yes (X) No ( )
Common stock outstanding at November 3, 1995: 13,401,859 shares
Documents incorporated by reference:
1. Certain portions of the Registrant's Information Statement, to be filed
pursuant to Regulation 14C of the Securities Exchange Act of 1934, as
amended, in connection with the Annual Meeting of the Stockholders of
the Registrant to be held on January 19, 1996, are incorporated by
reference into Part III of this report.
Exhibit Index at Page 18
26 Total Pages
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TABLE OF CONTENTS
PART I Page
Item 1. Description of Business 3
Item 2. Description of Property 10
Item 3. Legal Proceedings 11
Item 4. Submission of Matters to a Vote of 11
Security Holders
PART II
Item 5. Market for Common Equity and Related 11
Stockholder Matters
Item 6. Management's Discussion and Analysis or 12
Plan of Operation
Item 7. Financial Statements 16
Item 8. Changes In and Disagreements with Accountants 17
on Accounting and Financial Disclosure
PART III
Item 9. Directors, Executive Officers, Promoters and 17
Control Persons, Compliance with Section 16(a)
of the Exchange Act
Item 10. Executive Compensation 17
Item 11. Security Ownership of Certain Beneficial 17
Owners and Management
Item 12. Certain Relationships and Related Transactions 17
Item 13. Exhibits and Reports on Form 8-K 18
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PART I
Item 1. Description of Business
Company Background
Photocomm, Inc., directly and through its wholly-owned subsidiaries
(collectively, the "Company"), is engaged primarily in the development,
manufacturing and marketing of photovoltaic (solar electric) power systems
and related products. Photocomm was incorporated in 1981 under the laws of
the State of Arizona, as a wholly-owned subsidiary of Programmed Land, Inc.
("PLI"), a Scottsdale, Arizona based real estate company.
In 1990, the Company entered into a financial agreement with Westinghouse
Electric Corporation ("Westinghouse") pursuant to which Westinghouse
invested in equity and debt securities of the Company and obtained options
to purchase additional equity securities. From 1990 through 1994
Westinghouse provided the Company with $3.625 million in financial and
operational support. In November 1993, the Company entered into a financial
agreement with The New World Power Corporation ("NWP") pursuant to which NWP
obtained a significant equity interest in the Company and obtained options
to purchase additional equity securities from the Company and certain other
stockholders of the Company. On August 30, 1994, the Company, Westinghouse
and NWP entered into an Exchange Agreement pursuant to which NWP acquired
all of Westinghouse's equity and debt interest in the Company, as well as
additional accounts payable and accrued liabilities from the Company to
Westinghouse. NWP exchanged all of the debt securities, convertible
securities and accounts payable and accrued liabilities for shares of the
Company's Common Stock. In exchange for its interest in the Company,
Westinghouse received a minority interest in NWP.
As of November 3, 1995, NWP held approximately 49.3% of the issued and
outstanding shares of Common Stock of the Company. In addition, NWP has the
right to acquire an additional 4,100,000 shares upon exercise of options and
an additional 1,000,000 shares pursuant to a right of first refusal. See
"Certain Relationships and Related Transactions." NWP produces and sells
electric power generated from renewable resources, including wind, sunlight
and water, and also develops, manufactures and sells renewable power
generation systems.
On October 3, 1995, the Company acquired all of the assets and assumed the
related liabilities of Sunelco, Inc. ("Sunelco"), a catalog distributor of
solar electric products located in Hamilton, Montana (the "Acquisition").
The aggregate consideration paid by Photocomm in connection with the
Acquisition was approximately $850,000. The Company issued 225,000 shares
of Photocomm's Common Stock, $0.10 par value, valued at $400,000 and assumed
liabilities of Sunelco of approximately $450,000. The assets purchased
principally consisted of certain inventories and other assets valued by the
parties at approximately $450,000; and goodwill and intangible assets valued
by the parties at $400,000.
Management of the Company believes that consolidation in the solar electric
industry may continue to present opportunities for expansion through
selective acquisitions.
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Solar Electric Industry - Background
Solar electric (technically, "photovoltaic") power generation is an
emerging, high technology industry based upon the recent commercial
application of advanced semiconductor devices which convert sunlight
directly to electricity.
The first applications of solar electric technology were in space satellite
power systems in the 1950's. These early solar electric systems utilized in
the U.S. space program were extremely expensive, but their reliability and
no fuel requirement proved ideal for this remote application. As a
potential earth-based alternative energy source, solar electric systems
offered the additional benefits of silent, pollution-free power generation,
requiring no power lines, and virtually no maintenance. Although
prohibitively expensive at the time for commercial use, the potential of
solar electric technology as an "ideal" energy alternative generated world-
wide interest and increasing levels of research and development investments,
particularly in the U.S. and Japan. In the early 1970's, the dramatic
increases in oil prices and the accelerated search for energy alternatives
spurred investment in solar electric technologies, particularly by the large
oil companies. By the early 1980's, dramatic cost reductions and greatly
improved system performance set the stage for the commencement of the market
development phase of this emerging technology in a wide range of commercial
applications.
Technology
The fundamental element of a solar electric system is the semiconductor
device, or "cell" which generates a variable electric current which is
directly proportionate to the quantity of sunlight energy absorbed. Solar
cells are electrically interconnected to form a "module" unit in which the
cell groupings are formatted to achieve desired module electrical power
specifications, such as voltage and current. The solar module is the power
generating component of a complete solar electric system. Additional
components of these systems are collectively termed "balance of system"
items, and typically comprise such products as electronic controllers,
batteries for energy storage, electrical fuses, switches and wiring, and the
actual device or "load" to be powered such as lights, motors and other
electrical devices.
Since the initial use of expensive solar electric power systems in the space
program, the major obstacle to broader commercial application has been the
high cost of the solar cells or modules. During the past ten years it is
estimated that over one billion dollars has been invested worldwide by
governments and corporations in various research and development efforts
targeted to achieve cost reductions in the manufacturing of solar electric
modules. These continuing efforts have resulted in current module prices
that are less than one-third the pricing level of ten years ago.
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Industry Structure
As a result of the extensive manufacturing capital requirements and research
expenditures, solar electric module production has been dominated by large,
multi-national oil and electronics companies in the United States, Japan and
Europe. Three companies are the acknowledged world leaders in module
manufacturing technology and market share: Siemens Solar Industries, a
division of Siemens A.G. (manufacturing facility in California); Solarex
Corporation, a subsidiary of Amoco (headquartered in Rockville, Maryland);
and Kyocera in Japan. Other major international module manufacturers are BP
Solar (British Petroleum, U.K.), AEG Telefunken (West Germany), Sharp and
Sanyo (Japan).
The major module manufacturers primarily market their product lines through
a network of distributors/dealers who resell modules, with complementary
components, to the end-user. The larger distributors in this marketing
channel are called "systems integrators" and provide design, engineering and
technical service to their customers.
Markets and Products
The market for solar electric systems is primarily in "remote" area
applications, generally defined as those electric power applications where
access to utility power is not available, relatively expensive or
inconvenient. Examples of solar electric market applications in which the
Company participates include:
- - Telecommunication power
- - Rural homes and residences
- - Recreational vehicles and boats
- - Water pumping
- - Traffic signaling
- - Pipeline cathodic protection
- - Lighting
- - Solar irrigation power
- - Cellular payphone and call boxes
New solar electric applications are proliferating as system costs decline,
performance improves and potential customer awareness is increased. Other
applications are the Company's commercial introduction of landscape
irrigation controller power systems, and cellular payphone and call box
systems.
The Company's products are complete solar electric power systems, system
components and certain accessory products. Complete systems consist of one
or more photovoltaic modules, a controller to monitor, regulate and control
the output and, in most systems, batteries to store the energy generated by
the photovoltaic modules. Occasionally, backup generators and/or inverters
that convert DC electric power to AC power are included as integral
components of a system. The Company markets standard prepackaged systems
for a wide range of applications. Each system contains the basic components
as well as related wiring and connections, mounting devices, and other
installation components as appropriate. The Company also markets custom-
designed power systems for certain commercial and industrial applications
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such as advertising billboard lighting, landscape irrigation, tele-
communication sites and pipeline cathodic protection.
The Company also distributes system components including photovoltaic
modules, inverters, controllers, batteries, battery chargers, switches,
metering devices, mounting hardware and other systems accessories.
Related equipment marketed by the Company includes water pumps, light
fixtures and propane refrigerators, most of which are either integral to or
used in conjunction with solar electric power systems.
The Company also manufactures a line of proprietary "nonbreakable" (non-
glass construction) photovoltaic modules tradenamed DuravoltTM. Duravolt
modules are specified in applications requiring maximum durability and
rugged construction such as:
- - Military applications (ManPac systems)
- - Marine applications
- - Traffic safety signal devices
- - Landscape irrigation applications
- - Park rest areas
- - Solar cars
- - Cellular payphone and call box systems
Suppliers
The photovoltaic module is the most critical element comprising a solar
electric power system.
The Company has a photovoltaic module distribution arrangement with Kyocera
America, Inc. ("Kyocera"). The Company represents Kyocera solar electric
modules in the United States, Canada, Latin America and South America.
Kyocera, the world's second largest manufacturer of solar electric modules,
offers the Company competitive supply terms and the opportunity to develop
and establish a North American program for its existing dealer organization.
The arrangement is informal, but intended to be renewed annually by mutual
agreement.
The Company's requirements for other solar electric systems components and
related equipment are purchased from numerous vendors, and the Company
believes that such components and equipment are generally available from
other sources at competitive prices. Certain key systems components, such
as Duravolt modules and electronic controllers, are manufactured by the
Company and are considered by the Company to be proprietary.
Company Marketing Organization
The Company markets its products to a broad range of consumer, commercial,
industrial and government customers. Approximately 25% of the Company's
sales are through a network of over 350 dealers who purchase products from
the Company for resale to their own customer accounts. The remainder of
Company sales are direct to end-user customers, primarily industrial
companies and government agencies. In recent years, the Company has focused
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additional marketing efforts on the wireless communication industry. This
industry represented 65% and 60% of the Company's sales in fiscal 1995
and fiscal 1994, respectively. During its fiscal year ended August 31,
1995, the Company's customer base totaled over one thousand accounts. The
U.S. Navy represented approximately 15% of total sales. No other single
customer accounted for more than 10% of the Company's annual sales. During
its fiscal year ended August 31, 1994, no single customer accounted for more
than 10% of sales.
Historically, the Company's primary geographical marketing emphasis has been
in the Western and Southwestern United States, accounting for approximately
70% of Company sales. The remainder of sales are widely dispersed, with
international customers accounting for approximately 12% in fiscal 1995 and
15% in fiscal 1994.
Approximately 25% in fiscal 1995 and 35% in fiscal 1994 of Company sales
revenues are derived from consumer and residential-related markets with
historically strongest demand in the spring and summer seasons,
corresponding to the Company's third and fourth fiscal year quarters.
The Company's regional sales centers are strategically located to provide
service and support in primary market areas. Including the Company
headquarters located in Scottsdale, Arizona, there are currently seven
regional sales offices located in:
Industrial Division Distribution Division
- San Diego, California - Scottsdale, Arizona
- Denver, Colorado - Tucson, Arizona
- Houston, Texas - Hamilton, Montana
- Matlacha, Florida
Competition
The Company's competition in its major markets consists primarily of
numerous small distributors and dealers. Due to the broad range of market
applications, and a widely-dispersed geographical customer base, industry
competition is highly fragmented. In certain situations, such as large
projects, the Company's competitors may include the major module
manufacturers, such as Siemens and Solarex, participating directly against
the Company.
The domestic market for solar electric products, accounting for the majority
of the Company's sales, may be categorized by project size into two primary
competitive segments. Large projects, valued on an installed cost basis at
greater than $200,000 each, account for about 10-15% of the domestic market
and include government-funded utility company demonstration projects. Small
projects and applications represent the majority of industry sales with an
average end-user system purchase price in the range of $2,500-$50,000.
Although there are no known published industry surveys relative to market
size or actual solar electric system end-user purchases, the Company
estimates the total domestic market to be in the range of $35-50 million in
1995. The "large project" market is approximately $5-10 million with the
remainder of sales in the "small project" category. The domestic "large
project" market is dominated by the major U.S. based solar electric module
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manufacturers, principally Siemens Solar Industries located in Camarillo,
California and the Solarex Corporation in Rockville, Maryland, both of which
have substantially greater resources than the Company. Module pricing is
the primary competitive factor in the "large project" market and the Company
is at a disadvantage relative to the major module manufacturers. The
Company's sales into the major project market are negligible.
The "small project" market accounts for the majority of domestic sales and
is estimated to be on the order of $35-40 million in 1995. The domestic
"small project" market accounted for approximately $13 million or about 65%
of the Company's total sales in fiscal 1995. The Company's principal
competition in the domestic small project market consists of numerous
regional distributors who purchase solar electric modules from the major
manufacturers, including Siemens Solar and Solarex, and resell modules and
other system components to dealers and/or end-users. The major competitive
factors in the small project market are service, technical capability and
delivery.
In the international market, representing approximately 12% of the Company's
sales for the fiscal year ended August 31, 1995, the Company sells directly
to dealers and end-users. The Company's international competition consists
principally of the major international module manufacturers, including U.S.-
based Siemens Solar and Solarex, and Japan-based Kyocera. Module pricing is
an important competitive factor internationally, and the Company is at a
disadvantage to the major module manufacturers. The Company competes
internationally on the basis of service and technical capabilities.
Government Contracts
The Company completed its first U.S. Army Solar Panel Manufacturing Contract
in December 1991, with sales totaling approximately $477,000 and $741,000
for fiscal years 1992 and 1991, respectively. The Company was awarded a
second subcontract with the U.S. Army in June 1993. The $2,283,000
subcontract award was for first article development (completed in fiscal
1994), and a one year production contract which started in the first quarter
of fiscal 1995 which was completed in the fourth quarter of fiscal 1995.
The general contractor has options to purchase up to $4,000,000 in
additional procurements through October 1997.
The Company was also awarded a $3.6 million general contract with the U.S.
Navy on September 16, 1994. The contract provided for the construction of
a 290 Kw solar electric diesel power generation system, which was completed
in November 1995.
Both government contracts awarded have standard termination for the
convenience of the government clauses. The Company does not believe these
clauses will be utilized due to the significant development effort to
manufacture the systems, however, in the event the government did exercise
the termination clauses, the Company would be reimbursed for all costs
incurred through the termination date, including all material, overhead, and
general and administrative costs allocable to the government contracts.
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Backlogs
The Company's products are generally shipped within one to three weeks after
receipt of an order. Because of the short delivery cycle on a large
percentage of these orders, the Company has not considered backlog for these
products to be meaningful.
In fiscal 1994 the Company received purchase contracts for products to be
produced and shipped throughout fiscal 1995. The Company backlog as of
October 31, 1995 was approximately $2,700,000 (which includes no Government
orders). The comparable backorder levels in the previous year was
approximately $1,800,000 with an additional $5,600,000 in government
contracts backlog as discussed above as of October 31, 1995. All of the
current backlog is expected to be shipped in fiscal 1996.
Subsidiary Operations
In 1988, Balance of Systems Specialists, Inc. ("BOSS") was acquired by
Photocomm and continues to operate as a wholly-owned subsidiary of the
Company. BOSS manufactures certain of the components sold by the Company,
and also designs, engineers and manufactures the Company's proprietary
systems such as Solar Irrigation Power Systems (SIPsTM), and custom solar
modules tradenamed DuravoltTM. On April 24, 1990, BOSS acquired the assets
of Solar Wind Energy, Inc., a custom manufacturer of solar electric modules.
The acquired assets are employed in a custom module manufacturing division
of BOSS producing specialty modules for internal systems integration
programs and certain industrial customers.
On September 27, 1988, Photocomm acquired Sunland Industries, Inc.
("Sunland") through a reverse merger. Sunland was renamed Photocomm Credit
Corporation ("PCC") in 1994, and is a wholly-owned subsidiary of the
Company.
On June 22, 1990, the Company acquired all of the outstanding common stock
of Solar SignAge, Inc., a Texas corporation that has been renamed Photocomm
of Texas, Inc. Photocomm of Texas, Inc. manufactures a complete line of
solar electric generators trademarked SunPakTM. SunPak generators are used
in a wide range of industrial power applications such as offshore oil
platforms, remote pipeline monitoring and telecommunications. Photocomm of
Texas, Inc. operates as a wholly-owned subsidiary of the Company.
On October 3, 1995, the Company acquired all the assets of Sunelco, a
Montana based corporation. Sunelco is one of the leading catalog/mail order
marketers of solar electric power system to residential customers in the
United States. Sunelco has become a division of Photocomm and is conducting
business as usual at its regional sales office in Hamilton, Montana.
Employees
On November 3, 1995, the Company employed a total of 99 persons, 5 of whom
are management and marketing personnel, 22 of whom are engaged principally
in sales, 38 of whom provide administrative, engineering and secretarial
services, and 34 of whom are manufacturing personnel. No employee is
subject to a collective bargaining agreement. The Company believes it has
favorable relations with its employees.
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Patents, Copyrights, Trade Secrets and Trademarks
The Company has certain copyright and trademark rights relating to its
products, and claims rights to various trade secrets and proprietary rights.
However, the Company does not believe that these rights would necessarily
preclude others from developing substantially similar products. The Company
markets its products under a variety of registered and unregistered
trademarks, none of which it regards as being material to its overall
success.
In 1990, the Company acquired two patents. The first patent, U.S. Patent
No. 4,319,310, was acquired for solar billboard signs. The Company has been
marketing solar electric signs since 1987. In conjunction with the
acquisition of Photocomm of Texas, Inc., the Company also acquired rights to
patents for solar electric illuminated architectural signs.
The Company was awarded U.S. Patent No. 4,980,574 on December 25, 1990 for
its Solar Irrigation Power Systems. The various patents expire from 1997 to
2007.
Item 2. Description of Property
The Company owns and operates its 20,000 square foot facility in Scottsdale,
Arizona housing both its principal executive offices, and manufacturing and
distribution facility. The Company leases space for regional sales offices
and warehousing. The following table describes the Company's principal
leased facilities, including square footage and lease termination dates:
Lease Approximate
Expiration floor area in
Location Date square feet
Scottsdale, AZ November, 1998 6,500
Tucson, AZ December, 1996 1,500
San Diego, CA Month to month 325
Denver, CO October, 1996 2,642
Houston, TX August, 1996 5,000
Hamilton, MT September, 1998 2,500
In October 1995, the Company leased 6,500 square feet of office/warehouse
space in a building adjacent to the corporate headquarters. The Company has
a lease option for an additional 2,150 square feet in the same building
through May of 1996. On October 18, 1995, a partnership including the
Company's CEO, Robert Kauffman, and CFO, Thomas LaVoy, opened escrow for the
purchase of this adjacent 20,000 square foot office/warehouse building. The
present lease has been negotiated at fair market value rates with the
present owner of the facility. If Messrs. Kauffman and LaVoy purchase the
building, the present lease will be continued and, if the Company needs
facilities, it is anticipated that additional space may be leased on those
premises.
The Company believes that future space requirements can be met with the
present space as well as available leasable property in each of its
geographical areas to provide for sufficient facilities to conduct its
operations and expand its business in fiscal 1996.
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Item 3. Legal Proceedings
The Company is not a party to any material threatened or pending litigation.
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted to a vote of the shareholders during the fiscal
fourth quarter ended August 31, 1995, through the solicitation of proxies or
otherwise.
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
The Company's common stock trades on the NASDAQ over-the-counter market
system under the symbol PCOM. The following information sets forth the high
and low bid quotations in dollars per share for the Company's common stock
as reported by NASDAQ during the last two fiscal years.
Fiscal Year ended August 31, 1994 Low High
First Quarter (through November 30, 1993) $1.25 $1.88
Second Quarter (through February 28, 1994) 1.50 2.38
Third Quarter (through May 31, 1994) 1.63 2.50
Fourth Quarter (through August 31, 1994) 1.63 1.94
Fiscal Year ended August 31, 1995 Low High
First Quarter (through November 30, 1994) $2.04 $2.22
Second Quarter (through February 28, 1995) 1.89 2.06
Third Quarter (through May 31, 1995) 1.87 2.08
Fourth Quarter (through August 31, 1995) 2.04 3.06
The number of stockholders of record for the common stock of the Company at
the close of business on November 3, 1995 was 625. The Company estimates
that there are 2,840 beneficial owners of the Company's common stock.
The Company has never paid cash dividends on the common stock, and it
intends for the foreseeable future to retain any earnings to support the
growth of its business.
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Item 6. Management's Discussion and Analysis or Plan of Operation
Introduction
Results of operations improved significantly in fiscal 1995. The increasing
demand for manufactured products and value-added systems for industrial and
government applications has been a major factor in the improved financial
results. The Company's strategy continues to be to capitalize on its custom
manufacturing capability to provide unique industrial products and systems,
while continuing to strengthen its off-grid, wholesale business.
The Company continues to develop proprietary solar electric modules for
specialty applications. The Company completed its second production
contract for a notebook-sized solar electric panel for the U.S. Army Special
Forces, used as the major power source for field operations. The Company
has also developed a number of custom solar electric modules used in the oil
and gas, and geophysical industries for monitoring and telemetry
applications.
Industrial systems, primarily in the telecommunications industry, continue
to be a major marketing focus for the Company. The wireless communications
industry, which represents approximately 65% of the Company's revenues,
utilizes solar electric power systems in cellular phone systems, Cell
Extender sites, radio repeater sites, and remote data telemetry. Solar
electric systems revenue growth for communication systems and other new
applications are increasing as system costs decline, performance improves
and customer awareness rises. The Company will continue to provide value-
added engineering, manufacturing, construction and system integration to
this important market.
In November 1995, the Company completed installation of the largest solar
electric stand-alone power system for the U.S. Navy. The solar electric
"hybrid" system utilizes a back-up generator in the design. The power
system is comprised of a 350kW solar array; a 3500 kWH battery bank; a 350
kW back-up generator; and a power processing system which converts DC power
to AC power, to provide the military with a conventional power source in a
remote area. The Company gained significant experience in designing and
producing hybrid systems in 1995 as a result of the U.S. Navy contract and
other projects. The Company will continue to develop new applications and
markets for hybrid systems.
In October 1995, the Company completed the acquisition of Sunelco, a leading
marketer of wireless, solar electric power systems to off-grid residential
customers in the United States. With this acquisition, the Company
continues to increase and strengthen its solar electric distribution market
share in the U.S.
<PAGE> 13
Results of Operations for the Fiscal Years Ended August 31, 1995 and 1994
In fiscal 1995, the Company achieved a 44% increase in sales revenue over
the prior year. Company sales revenue totaled $20,540,840 in fiscal year
ending August 31, 1995, compared to sales of $14,271,787 in the fiscal year
ending August 31, 1994. The sales revenue gains are primarily attributed to
$3,200,000 in revenues from the U.S. Navy project, a $1,100,000 increase in
the distribution and international divisions, and approximately $200,000 in
sales of industrial products and systems in 1995 versus 1994. The increase
in each of the Company's sales divisions is attributed to introduction of
improved products and systems, as well as continued marketing successes,
with little or no effect related to price changes.
In fiscal 1995, the Company experienced a sales mix similar to fiscal 1994.
The Company derived approximately 65% of its sales revenue from industrial,
commercial and government customers, with 35% from distribution markets
which primarily service consumer based dealers and retail customers.
The Company's gross profits increased 42% to $5,001,026 for fiscal 1995
compared to $3,532,402 in the prior year. Gross margins were 24.3% in 1995
and 24.7% in 1994. The overall increase was due to increased revenue volume
in 1995. The slight decrease in 1995 gross margins is attributed to lower
margins associated with the Company's large U.S. Navy contract. When
the effect of this government contract is factored out of 1995, the
Company experienced a 2% increase in gross profit margin in 1995. The
Company expects continued improvement in gross margins in 1996 due to
anticipated increased sales of higher gross profit proprietary products and
systems.
Selling, general and administrative expenses increased 23.5% in fiscal 1995
versus fiscal 1994. Selling, general and administrative expenses were
$4,077,936 for fiscal 1995 and $3,300,482 for fiscal 1994. The increase in
expenses for 1995 is attributed to additional market development efforts in
1995 in an effort to expand revenue growth.
The Company's non-operating income and expense consist mainly of interest
expense and consulting income. Interest expense was reduced to $96,502 for
fiscal 1995 compared to $128,896 for the prior fiscal year. The decrease in
interest expense was a result of significant debt reduction in fiscal 1994.
Total debt reduction in 1994 was approximately $2,300,000, which occurred
throughout 1994. Other income decreased to $77,386 for fiscal 1995 compared
to $112,917 for fiscal 1994.
The Company achieved net income of $903,974 or $.06 per common share in
fiscal 1995 compared to $215,941 or $.00 per common share in the prior fiscal
year. The 319% increase in net income is attributed to higher sales and
gross profits, and a decrease in interest expense, which improvements were
partially offset by increases in SG&A expenses from the prior year.
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Results of Operations for the Fiscal Years Ended August 31, 1994 and 1993
In fiscal 1994, the Company achieved a 24% increase in sales revenue over
the prior fiscal year. Company sales revenue totaled $14,271,787 in the
fiscal year ending August 31, 1994 compared to sales of $11,539,638 in the
fiscal year ending August 31, 1993. The sales revenue gains are attributed
to increases of $2,100,000 in the industrial division and $1,000,000 in the
distribution and international divisions, with an offsetting reduction in
government contracts of approximately $400,000 in 1994 versus 1993. The
increases in each of the Company's sales divisions are attributed to
improved economic conditions as well as continued Company marketing
successes, with little or no effect related to price changes.
In fiscal 1994, the Company experienced a sales mix similar to fiscal 1993.
The Company derived approximately 65% of its sales revenue from industrial
and commercial customers, and 35% from distribution markets, which primarily
service consumer based dealers and retail customers.
The Company's gross profits increased 23% to $3,532,402 for the fiscal year
1994 compared to $2,866,602 in the prior year. Gross profit margins were
25% in both fiscal years 1994 and 1993. The gross profit increase was due
to higher revenue volume in 1994 while maintaining the same gross profit
margins as 1993. In 1993, the Company had a 2% increase in gross profit
margin from the prior year due to a highly profitable engineering/marketing
contract, which was completed in the second quarter of fiscal 1993. When
the effect of this contract is factored out of 1993, the Company experienced
a 2% increase in gross profit in 1994.
Selling, general and administrative expenses remained stable in fiscal 1994
versus fiscal 1993. Selling, general and administrative expenses were
$3,300,482 for fiscal 1994 and $3,253,411 for fiscal 1993.
The Company's non-operating income and expenses consist mainly of interest
expense and consulting income. Interest expense was reduced to $128,896 for
fiscal 1994 compared to $228,914 for the prior fiscal year. The decrease in
interest expense was a result of the significant reduction of debt in fiscal
1994. On November 9, 1993, as part of the NWP Stock Purchase Agreement, the
Company reduced approximately $1,800,000 in long- and short-term debt. On
August 30, 1994, as part of the NWP Exchange Agreement, an additional
$500,000 in long- and short-term debt was eliminated. The total debt
reduction for the year was approximately $2,300,000. Other income decreased
to $112,917 for fiscal 1994 compared to $123,030 for fiscal 1993.
The Company achieved net income of $215,941 or $.00 per common share in
fiscal 1994 compared to a net loss of $492,693, or $.08 per common share, in
the prior fiscal year. The significant turnaround in 1994 was attributed to
revenue increases of approximately 24% with corresponding gross profit
increases of 23% from 1993, and to significant interest expense reductions
in 1994 versus 1993.
<PAGE> 15
Liquidity and Capital Resources
The Company's working capital position continues to improve. Working capital
increased to $4,745,020 at August 31, 1995 from $3,253,042 in 1994, and
$1,360,148 in 1993. The Company's ratio of current assets to current
liabilities has remained relatively stable at 3.80 in 1995 and 3.10 in
1994. The significant improvement is a result of the equity investment, and
debt and equity restructure of NWP and Westinghouse in 1994 of approximately
$2,000,000 and additional equity contributions of $623,000 in 1995 from
Company stock option exercises. The equity investments have been utilized
to reduce accounts payable and bank lines in fiscal 1994 and 1995. Long-
term debt to equity ratios have also improved to .11 in 1995 from .17 in
1994 and .96 in 1993.
Net cash used in operating activities in fiscal 1995, 1994 and 1993 were
$426,444, $815,736 and $126,339, respectively. The major uses of operating
cash in 1995 were for accounts receivable and inventory of $1,492,987 which
were primarily funded by net income of $903,974 and non-cash expenses of
$309,326. The 1994 operating cash uses were primarily to pay off accounts
payables of $1,152,913 with offsetting contributions from income of $215,941
and non-cash expenses of $257,617. The 1993 operating cash uses were a
result of $492,693 in net losses which were offset by accounts receivable
and inventory reductions of $223,987 and non-cash expenses of $214,621.
The Company's cash position has remained stable in 1995 and 1994, and has
improved significantly from 1993. Cash levels at the end of the year
increased to $520,269 from $458,224 in 1994 and $112,987 in 1993. The
Company anticipates cash levels to remain stable in fiscal 1996, with cash
flow from operating activities and bank lines.
Cash used for additions to property, plant and equipment and other assets
was $152,302 in 1995 versus $329,279 in 1994 and $101,518 in 1993. The cash
used in 1995 and 1993 was for scheduled purchases of manufacturing equipment
and personal property in the normal course of the business. The 1994
additions were comprised of $110,000 of office equipment, and approximately
$240,000 of manufacturing equipment. The manufacturing equipment purchases
were related to plant expansion requirements to fulfill expanded industrial
and government product orders.
The Company expects 1996 capital expenditures to increase slightly to expand
distribution operations and manufacturing plant improvements. The Company
does not have any material equipment or other material commitments planned
for fiscal 1996.
Cash provided by financing activities was $624,008 in fiscal 1995,
$1,508,798 in fiscal 1994 and $213,064 in 1993. In 1995, the financing was
provided primarily by issuance of common stock associated with the Company
Stock Option Plan. In addition to the stock option exercises, the Company
also obtained $212,503 from bank line financing. In 1994, $2,012,181 was
provided as a result of the NWP Stock Purchase Agreement, with offsetting
repayments of long-term debt of $396,709. In 1993, $375,831 was provided as
the result of the issuance of preferred stock with offsetting debt
reductions of $156,255.
<PAGE> 16
On March 15, 1995, the Company secured a $1,000,000 credit line with First
Interstate Bank of Arizona. The credit line is a revolving line with a
maturity on February 28, 1996. It has certain operating covenants, and is
secured by the Company's inventory and accounts receivable. Interest on the
line is calculated at prime plus three quarters of a point per annum, with
interest-only payments payable monthly. As of August 31, 1995, the Company
had utilized $200,000 of the $1,000,000 line.
Although no assurances are possible, the Company believes its future
operating cash flows, access to its bank line of credit, and ability to
access additional equity such as the exercise of present outstanding New
World Power and employee stock options, will provide adequate funding for
current obligations, projected operations and planned expansion for the next
twelve months and the foreseeable future.
Item 7. Financial Statements
PHOTOCOMM, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
Page
Independent Auditors' Report F-1
Financial Statements:
Consolidated Balance Sheets, August 31, 1995 and 1994 F-2
Consolidated Statements of Operations, years ended F-3
August 31, 1995, 1994 and 1993
Consolidated Statements of Stockholders' Equity, F-4/5
years ended August 31, 1995, 1994 and 1993
Consolidated Statements of Cash Flows, years F-6
ended August 31, 1995, 1994 and 1993
Notes to Consolidated Financial Statements F-7
Schedules not listed above have been omitted because they are either not
applicable, not material or the required information is included in the
Financial Statements or related notes.
<PAGE> F-1
Independent Auditors' Report
The Board of Directors and Stockholders
Photocomm, Inc.:
We have audited the accompanying consolidated balance sheets of Photocomm,
Inc. and subsidiaries as of August 31, 1995 and 1994, and the related
consolidated statements of operations, stockholders' equity, and cash
flows for each of the years in the three-year period ended August 31, 1995.
These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated 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 overall financial
statement presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
Photocomm, Inc. and subsidiaries as of August 31, 1995 and 1994, and
the results of their operations and their cash flows for each of the
years in the three-year period ended August 31, 1995 in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
Phoenix, Arizona
October 13, 1995
<PAGE> F-2
PHOTOCOMM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AUGUST 31, 1995 AND 1994
Assets 1995 1994
Current Assets:
Cash and cash equivalents $ 520,269 $ 458,224
Accounts receivable (note 2) 2,352,548 1,482,276
Inventories (note 3) 3,327,625 2,654,910
Other current assets 252,462 181,994
Total Current Assets 6,452,904 4,777,404
Property and equipment at cost less
accumulated depreciation and amortization
(notes 4 and 5) 2,063,957 2,209,711
Other assets 308,325 339,408
Total Assets $8,825,186 7,326,523
========== ==========
Liabilities and Stockholders' Equity
Current Liabilities:
Current installments of long-term debt $ 135,949 $ 123,108
(note 5)
Line of credit (note 10) 200,000 -
Accounts payable 1,129,156 1,196,143
Other accrued expenses 242,778 205,111
Total Current Liabilities 1,707,883 1,524,362
Long-term debt, less current installments
(note 5) 720,163 844,019
Total Liabilities 2,428,046 2,368,381
Commitments, contingencies and subsequent
event (notes 5, 8, 9 and 16)
Stockholders' Equity (notes 7 and 8):
Preferred stock:$.001 par value, 5,000,000
shares authorized;
Series A 12% convertible preferred stock,
125,000 shares authorized;109,972
shares issued and outstanding,
(liquidation preference $549,860) 110 110
Series AA 11% convertible preferred stock,
200,000 shares authorized; 69,365 and
92,965 shares issued and outstanding,
respectively (liquidation preference
$416,190) 69 93
Common stock; $.10 par value, 25,000,000
shares authorized; 13,014,159 and
12,240,759 shares issued and outstanding,
respectively 1,301,416 1,224,076
Additional paid-in capital 10,369,422 9,910,906
Accumulated deficit (5,273,069) (6,177,043)
Less: Cost of 400 treasury shares (808) -
Total Stockholders' Equity 6,397,140 4,958,142
Total Liabilities and Stockholders'
Equity $8,825,186 $7,326,523
========= =========
See accompanying notes to consolidated financial statements.
<PAGE> F-3
PHOTOCOMM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED AUGUST 31, 1995, 1994 AND 1993
1995 1994 1993
Sales, net $20,540,840 $14,271,787 $11,539,638
Cost of sales 15,539,814 10,739,385 8,673,036
Gross profit 5,001,026 3,532,402 2,866,602
Selling, general and
administrative expenses 4,077,936 3,300,482 3,253,411
Income (loss) from
operations 923,090 231,920 (386,809)
Other income (expenses):
Interest expense (96,502) (128,896) (228,914)
Other, net 77,386 112,917 123,030
Net income (loss) $ 903,974 $ 215,941 $ (492,693)
========== ========== ===========
Preferred stock dividends
declared $ 123,291 $ 166,149 $ 189,922
========== ========== ===========
Net income (loss) applicable
to common stockholders $ 780,683 $ 49,792 $ (682,615)
========== ========== ===========
Net income (loss) per common
share-assuming full dilution $ .06 $ .00 $ (.08)
==== ==== ====
Weighted average number of
common shares outstanding 14,004,004 11,263,695 9,010,037
========== ========== =========
See accompanying notes to consolidated financial statements.
<PAGE> F-4
<TABLE>
<CAPTION>
PHOTOCOMM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED AUGUST 31, 1995, 1994, AND 1993
Convertible Preferred Stock
--------------------------------------------------------
Series A Series B Series AA Common Stock Additional
------------ ----------- ------------- ----------------- Paid-In Accumulated Treasury
Shares Amt Shares Amt Shares Amt Shares Amount Capital Deficit Shares Total
------- --- ------ ---- ------ ---- ------ ------ ----------- ------------ -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance,
September 1, 1992 94,864 $95 197,443 $197 --- --- 9,010,037 $901,004 $6,794,581 ($5,900,291) --- $1,795,586
Issuance of Series
AA Convertible
Preferred Stock,
net of issuance
costs of $55,959
(note 8) 72,965 $73 $375,758 $375,831
Preferred stock
dividends declared
($0.60 per share) ($183,410) ($183,410)
Preferred stock
dividends issued
($0.60 per share) 11,903 $12 24,779 $25 $183,373 $183,410
Cash dividends on
Series AA preferred
stock ($0.12 per share) ($6,512) ($6,512)
Net loss ($492,693) ($492,693)
Balance, ------ ------ ------- ---- ------ ------ --------- -------- ---------- ------------ ------ ----------
August 31, 1993 106,767 $1 222,222 $222 72,965 $73 9,010,037 $901,004 $7,163,790 ($6,392,984) --- $1,672,212
Common stock issued
to private investor,
net of issuance costs
of $33,741 (note 8) 1,600,000 $160,000 $1,806,259 $1,966,259
Conversion of
debenture into
common stock (note 8) 333,333 $33,333 $466,667 $500,000
Conversion of preferred
stock into
common stock (note 8) (222,222) ($222) 888,888 $88,889 ($88,667) ---
Conversion of preferred
stock and debenture
into common stock
(note 8) (8,690) ($9) 201,427 $20,143 $229,866 $250,000
Conversion of accounts
payable and accrued
liabilities into common stock,
net of issuance costs
of $2258 (note 8) 158,799 $15,880 $288,344 $304,224
Preferred stock issued
for asset acquisition,
net of $907 costs 20,000 $20 $107,073 $107,093
Common stock issued upon
exercise of stock options 48,275 $4,827 $44,260 $49,087
Preferred stock dividends declared
Series A ($0.15/share);
Series B ($0.20/share) ($59,475) ($59,475)
Preferred stock dividends issued
Series A ($0.15/share);
Series B ($0.20/share) 3,205 $3 8,690 $9 $59,463 $59,475
Cash dividends on Series A ($0.45/share)
and Series AA ($0.66/share)
preferred stock ($106,674) ($106,674)
Net income $215,941 $215,941
Balance, ------ ------ ------ ------ ------- ------ ---------- ---------- ---------- ----------- --------- ---------
August 31, 1994 109,972 $110 --- $--- 92,965 $93 12,240,759 $1,224,076 $9,910,906 ($6,177,043) --- $4,958,142
<PAGE> F-5
Common stock
issued upon
exercise of
stock options 639,000 $63,900 $545,223 $609,123
Series AA convertible
preferred stock
issued to
private investor 10,000 $10 $49,990 $50,000
Cash dividends
on Series A
and Series AA
preferred stock
($0.60 and $0.66/
share respectively) ($123,291) ($123,291)
Cost of 400 treasury shares ($808) ($808)
Series AA convertible
preferred stock converted
to common stock 4 to 1 (33,600) ($34) 134,400 $13,440 ($13,406) $0
Net income $903,974 $903,974
Balance, ------ ------ ------- ------ ------- ------ ---------- --------- ---------- ----------- ------ ---------
August 31, 1995 109,972 $110 --- $--- 69,365 $69 13,014,159 $1,301,416 $10,369,422 ($5,273,069) ($808)$6,397,140
====== ====== ======= ====== ======= ====== ========== ========= ========== =========== ====== =========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> F-6
PHOTOCOMM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED AUGUST 31, 1995, 1994 AND 1993
1995 1994 1993
Cash flows from operating activities:
Net income (loss) $ 903,974 $ 215,941 $ (492,693)
Adjustments to reconcile net income
(loss) to net cash used in operating
activities:
Depreciation and amortization 309,326 257,617 214,621
(Gain) loss on disposal of assets 3,030 - (1,843)
Increase (decrease) in allowances
for doubtful accounts and
inventory obsolescence (50,000) 50,000 (114,492)
(Increase) decrease in accounts
receivable (870,272) 138,359 185,625
(Increase) decrease in inventories (622,715) (297,365) 38,362
(Decrease) increase in accounts
payable and accrued expenses (29,319) (1,152,913) 67,153
Increase in other current assets (70,468) (27,375) (23,072)
Net cash used in operating
activities (426,444) (815,736) (126,339)
Cash flows from investing activities:
Purchase of property and equipment (152,302) (329,279) (101,518)
Purchase of patents, trademarks and
other intangible assets (11,340) (18,546) (1,622)
Proceeds from sale of property
and equipment 28,123 - 2,948
Net cash used in investing
activities (135,519) (347,825) (100,192)
Cash flows from financing activities:
Repayments of long-term debt (123,518) (396,709) (156,255)
Proceeds from issuance of debt 212,503 - -
Proceeds from issuance of common stock 609,122 2,012,181 -
Proceeds from issuance of preferred
stock 50,000 - 375,831
Cash dividends on preferred stock (123,291) (106,674) (6,512)
Purchase of treasury shares (808) - -
Net cash provided by
financing activities 624,008 1,508,798 213,064
Net increase (decrease) in cash and
cash equivalents 62,045 345,237 (13,467)
Cash and cash equivalents at
beginning of year 458,224 112,987 126,454
Cash and cash equivalents at end
of year $ 520,269 $ 458,224 $ 112,987
========= ========= =========
See accompanying notes to consolidated financial statements.
<PAGE> F-7
PHOTOCOMM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 1995, 1994 AND 1993
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
Photocomm, Inc. and subsidiaries (the "Company") are engaged in the
manufacturing and marketing of solar electric systems in the U.S. At
August 31, 1995 and 1994, Photocomm, Inc. was 48% and 43% owned by the New
World Power Corporation ("NWP"), respectively. At August 31, 1995, 1994 and
1993, Photocomm, Inc. was 14%, 22% and 35% owned by Programmed Land, Inc.
("PLI"), respectively. See note 8.
Basis of Presentation
The consolidated financial statements include the accounts of Photocomm, Inc.
and its subsidiaries, Balance of Systems Specialists, Inc. ("BOSS"),
Photocomm of Texas, Inc. (previously Solar SignAge, Inc.), and Sunland
Industries, Inc. ("Sunland"). In fiscal 1994, the Sunland subsidiary was
renamed "Photocomm Credit Corporation". All material intercompany
transactions between Photocomm, Inc. and its subsidiaries have been
eliminated in consolidation.
Income Recognition
Sales and related costs of sales are recorded when goods are shipped and
services rendered to customers.
Inventories
Inventories are valued at the lower of cost, determined by the first-in
first-out method, or market.
Property and Equipment
Property and equipment are stated at cost. Expenditures for additional
renewals and improvements are capitalized. Cost of repairs and maintenance
are expensed when incurred.
Depreciation of equipment is generally computed using straight-line methods
over 5 to 10 years. Leasehold improvements are amortized over the term of
the respective leases or life of the asset, whichever is shorter. The
building is being depreciated using the straight-line method over 31 years.
Intangible Assets
The cost of customer lists, manufacturer trade name and other intangible
assets acquired in connection with business acquisitions are amortized on a
straight-line basis over 20 years. Covenants not to compete are amortized
over the term of the covenants, and patents are amortized over the patent
term of 17 years.
<PAGE> F-8
PHOTOCOMM, INC. AND SUBSIDIARIES
Income (Loss) Per Share
Income (loss) per share has been determined by dividing the net income
(loss), decreased (increased) by preferred dividends declared, by the
weighted average number of common shares outstanding during the year,
including common stock equivalents. Common stock equivalents were omitted
for the fiscal years 1994 and 1993 because of their anti-dilutive effect.
Income Taxes
Effective September 1, 1993, the Company adopted the asset and liability
method of accounting for income taxes prescribed by Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes." Previously, the
Company used the deferred method of accounting for income taxes as set forth
by APB Opinion 11. Under the asset and liability method of Statement 109,
deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. Under
Statement 109, the effect on deferred tax assets and liabilities of a change
in tax rates is recognized as income in the period which includes the
enactment date.
(2) ACCOUNTS RECEIVABLE
Accounts receivable consist of the following: 1995 1994
Trade accounts $2,377,548 $1,507,276
Less allowance for doubtful accounts (25,000) (25,000)
$2,352,548 $1,482,276
========= =========
(3) INVENTORIES
Inventories consist of the following: 1995 1994
Raw materials and goods purchased for resale $2,807,796 $2,590,795
Work-in-progress 544,829 139,115
3,352,625 2,729,910
Less allowance for obsolescence (25,000) (75,000)
$3,327,625 $2,654,910
========= =========
<PAGE> F-9
PHOTOCOMM, INC. AND SUBSIDIARIES
(4) PROPERTY AND EQUIPMENT
Property and equipment consist of 1995 1994
the following:
Land $ 300,000 $ 300,000
Building 826,930 815,044
Furniture and fixtures 322,743 289,339
Machinery and equipment 1,113,679 1,023,077
Billboard systems 424,412 447,812
Leasehold improvements 67,428 76,340
3,055,192 2,951,612
Less accumulated depreciation & amortization (991,235) (741,901)
$2,063,957 $2,209,711
========= =========
On October 1, 1993, the Company acquired $473,000 of solar illuminated
billboard systems from related parties. The Company offset $82,000 of its
outstanding accounts receivable from the related parties, paid approximately
$25,000 in cash, and issued 20,000 shares of its Series AA Convertible
Preferred Stock for $108,000 as down payment on the transaction. The
remaining outstanding balance of $258,000 was issued as three-year, 10%,
unsecured notes payable to the related parties (note 12). The acquisition
price of the billboard systems approximates the predecessor's historical
cost.
(5) LONG-TERM DEBT
Long-term debt consist of the following: 1995 1994
Mortgage payable, interest rate of 10.625%,
principal and interest payable in monthly
installments of $4,852, with a final payment
of $482,357 on November 30, 1996;
collateralized by the land and building $489,977 $495,800
Notes payable to Arizona Department of
Commerce, annual interest rate of 5%,
monthly payments of $5,966 through December
1999; collateralized by the land, building
and certain equipment; guaranteed by PLI,
by Company directors Robert R. Kauffman
and Donald Anderson, and by former director
Cedric Adams. 278,404 334,534
Notes payable to related parties in connection
with the acquisition of billboard systems, annual
interest rate of 10%, payable monthly through
September 1996 (note 4) 70,191 128,582
Other 17,540 8,211
856,112 967,127
Current Installments 135,949 123,108
$ 720,163 $ 844,019
========= =========
<PAGE> F-10
PHOTOCOMM, INC. AND SUBSIDIARIES
Maturities of the long-term debt in years subsequent to 1995 are as follows:
1996, $135,949; 1997, $556,447; 1998, $68,522; 1999, $71,569; and thereafter,
$23,625.
(6) INCOME TAXES
As discussed in Note 1, the Company adopted Statement 109 as of September 1,
1993. The cumulative effect of this change in accounting was not material.
Prior years' financial statements have not been restated to apply the
provision of Statement 109. The Company does not have any income tax benefit
or expense for 1995, 1994 and 1993. The Company utilized net operating loss
carryforwards of approximately $905,000 in 1995 and $211,000 in 1994.
The tax effects of temporary differences which give rise to significant
portions of the deferred tax assets and liabilities are as follows:
1995 1994
Deferred Tax Assets
Net operating loss carryforwards $2,100,000 $ 2,500,000
Inventory valuation allowance 10,000 20,000
Allowance for doubtful accounts 10,000 10,000
Gross deferred tax assets 2,120,000 2,530,000
Less: Valuation allowance (2,100,000) (2,500,000)
Net deferred tax assets $ 20,000 $ 30,000
Deferred Tax Liabilities
Inventories, uniform capitalization 20,000 30,000
Net deferred tax liabilities $ 0 $ 0
========= =========
A valuation allowance has been provided because realization of the deferred
tax assets at August 31, 1995 and 1994, is not considered more likely than
not.
The Company has net operating loss (NOL) carryforwards for federal income tax
purposes of approximately $5.3 million at August 31, 1995. The NOLs are
comprised of $2.1 million for the parent company, $1.0 million for the BOSS
subsidiary and $2.2 million for the Sunland subsidiary. These NOLs begin to
expire in the year 2003 for the parent company and 2000 for the subsidiaries.
The amount of net operating loss carryforwards which may be utilized during
fiscal year 1996 will be limited to approximately $1.0 million due to
ownership changes.
(7) STOCK OPTION PLANS
The Company has a Stock Option Plan (the "Plan") which provides for the
issuance of 2,445,000 shares of common stock upon exercise of options under
the plan. Options granted under the Plan may be either (i) options intended
to constitute incentive stock options ("ISOS") under the Internal Revenue
Code of 1986, or (ii) non-statutory options. ISOS may be granted under the
Plan to employees and officers of the Company.
<PAGE> F-11
PHOTOCOMM, INC. AND SUBSIDIARIES
The Plan is administered by an impartial committee. The committee, within
the limitations of the Plan, determines the persons to whom options will be
granted, the number of shares to be covered by each option, whether the
options granted are intended to be ISOS, the duration and rate of exercise of
each option, the exercise price per share and the manner of exercise, and the
time, manner and form of payment upon exercise of an option.
ISOS granted under the Plan may not be granted at a price less than the fair
market value of the common stock on the date of grant (or 110% of fair market
value in the case of employees or officers holding 10% or more of the voting
stock of the Company). The aggregate fair market value of shares for which
ISOS are granted to any employee exercisable for the first time by such
employee may not exceed $100,000. Non-statutory options granted under the Plan
may be issued at a price less than fair market value of the common stock on
the date of grant. The options generally become exercisable over a four-year
period, and ultimately lapse if unexercised at the end of ten years.
Activity under the Stock Option Plan is as follows:
Company Stock Option Plan
Number of Shares Option price
Incentive Non-Statutory per share
Outstanding August 31, 1993 475,500 1,085,000 $0.75-$1.25
Granted 160,500 270,000 $1.88
Exercised (38,275) (10,000) $0.88-$1.25
Canceled (13,725) - $0.88-$1.88
Outstanding August 31, 1994 584,000 1,345,000 $0.75-$1.88
Granted 145,500 252,000 $1.675
Exercised (149,000) (490,000) $0.88-$1.88
Canceled (40,000) - $0.88-$1.88
Outstanding August 31, 1995 540,500 1,117,000 $0.75-$1.88
======= ========= ===========
At August 31, 1995 and 1994, options to purchase 1,032,212 and 1,284,250
shares, respectively, were exercisable at prices ranging from $0.75 to $1.88.
All options granted under the plan are non-transferable during an optionee's
lifetime, but are transferable at death by will or by laws of descent and
distribution. Options granted terminate within a specified period of time
following termination of an optionee's employment or position as a director
or consultant with the Company.
Earnings per share in 1995 include conversion of the stock options into
common voting stock where the effect is dilutive.
<PAGE> F-12
PHOTOCOMM, INC. AND SUBSIDIARIES
(8) EQUITY TRANSACTIONS
On January 14, 1993, the Company increased the authorized number of shares of
Series A Convertible Preferred Stock to 125,000 shares. The $5.00 Series A
Preferred Stock is convertible on the basis of four common shares per
preferred share. The cumulative 12% dividend ($0.60 per share) was payable
in cash or in kind until September 20, 1993 and thereafter shall be paid in
cash. The Company has the right to redeem the outstanding preferred stock at
any time after August 31, 1996 for $5.00 per share. The preferred stock has
voting rights based upon the common stock conversion rate. The Company
issued 3,205 and 11,903 shares of Series A Preferred Stock as dividends in-
kind during 1994 and 1993, respectively. Cash dividends of $65,983 were paid
during 1995.
On January 14, 1993, the Company authorized the issuance and sale of a new
Series AA Convertible Preferred Stock. The Company authorized 200,000 shares
at $6.00 per share which shall be convertible on the basis of four common
shares per preferred share. The cumulative 11% cash dividend ($0.66 per
share) is payable quarterly. The Company has the right to redeem the
outstanding preferred stock at any time after the fifth anniversary of the
date of issuance of the shares for $6.00 per share. The Series AA Preferred
Stock has voting rights based upon the common stock conversion rate.
Effective August 1, 1993, Robert R. Kauffman acquired 10,000 shares of the
Series AA Convertible Preferred Stock for $54,000, including $26,000 of
accrued interest on his notes payable (notes 5 and 12). On October 1, 1993,
20,000 shares of Series AA Convertible Preferred Stock were issued to Robert
R. Kauffman as consideration for solar illuminated billboard systems (note
4). On October 20, 1994, Robert R. Kauffman acquired 10,000 shares of Series
AA Convertible Preferred Stock for $50,000. During 1995 and 1994, the
Company paid $57,308 and $57,187 cash dividends on the Series AA Convertible
Preferred Stock, respectively. During 1995, 33,600 Series AA Convertible
Preferred Stock were converted to 134,400 common shares in accordance with
the common stock conversion rights of the agreement.
Earnings per share for 1995 include conversion of the preferred stock into
common voting stock.
On November 9, 1993, the Company entered into a financial and strategic
agreement with NWP, Westinghouse, PLI and Robert R. Kauffman (the "Stock
Purchase Agreement"). Pursuant to the Stock Purchase Agreement, the Company
sold 1,600,000 shares of unregistered common stock to NWP for $1.25 per
share. The Company also issued NWP an option to purchase an additional
2,600,000 shares of unregistered common stock of the Company at $2.50 per
share until December 31, 1995, and up to 1,500,000 shares of unregistered
common stock of the Company at $3.00 per share until December 31, 1996 (the
"NWP Options"). Certain officers and directors of the Company who own, or
have an option to purchase, an aggregate of 1,000,000 shares of common stock
shall have the right, but not the obligation, to sell such 1,000,000 shares
to NWP upon the exercise of the NWP Options in lieu of shares to be issued by
the Company.
<PAGE> F-13
PHOTOCOMM, INC. AND SUBSIDIARIES
In conjunction with the Stock Purchase Agreement, NWP acquired 500,000 shares
of unregistered common stock from PLI and 90,000 shares of unregistered
common stock from Robert R. Kauffman at $1.25 per share. NWP also acquired
an option to purchase 2,000,000 unregistered shares from PLI at $2.00 per
share until December 31, 1994, and also acquired a right of first refusal
from PLI with respect to all of its shares of Company stock. On September
30, 1994, and February 10, 1995, NWP purchased 600,000 and 400,000 shares
from PLI pursuant to the PLI option. The remaining 1,000,000 share option
and right of first refusal expired February 10, 1995.
In conjunction with the Stock Purchase Agreement, NWP acquired 1,222,221
shares of unregistered common stock from Westinghouse in exchange for 203,704
shares of NWP unregistered common stock. As part of the Stock Purchase
Agreement, Westinghouse agreed to convert $500,000 of its subordinated
convertible debenture into 333,333 shares of unregistered common stock of the
Company, and converted 222,222 shares of Series B Convertible Preferred Stock
into 888,888 shares of unregistered common stock of the Company. NWP also
acquired a right of first refusal from Westinghouse with respect to all of
its shares of Company stock.
The Company granted registration rights to NWP with respect to all the shares
of the Company common stock issued or purchased by NWP pursuant to the Stock
Purchase Agreement.
On August 30, 1994, the Company entered into an Exchange Agreement with
Westinghouse and NWP. Pursuant to the Exchange Agreement, NWP acquired from
Westinghouse 1,800,000 shares of the Company's common stock, 8,690 shares of
Series B Convertible Preferred Stock, the remaining $250,000 Subordinated
Convertible Debenture and accounts payable and accrued liabilities totalling
$306,481 in exchange for 465,780 shares of NWP unregistered common stock.
NWP immediately converted the Series B Convertible Preferred Stock and
Subordinated Convertible Debenture into 201,427 shares of the Company's
common stock. NWP also exchanged the Westinghouse accounts payable and
accrued liabilities into 158,799 shares of the Company's common stock.
NWP owns 6,612,447 shares of common stock at August 31, 1995 purchased
pursuant to the Stock Purchase Agreement and the Exchange Agreement, which
represents approximately 49.3% of the issued and outstanding shares of common
stock and approximately 46.8% of the total voting shares of the Company.
Furthermore, NWP has the right to acquire 4,100,000 shares from the Company,
and has rights of first refusal from Robert R. Kauffman for 1,000,000 shares
pursuant to the Stock Purchase Agreement. If NWP were to acquire all of the
foregoing shares, when added to the 6,612,447 shares it presently holds, NWP
would hold 64% of the issued and outstanding common stock of the Company.
Westinghouse no longer maintains a minority interest in the Company, but does
own a minority interest in NWP.
<PAGE> F-14
PHOTOCOMM, INC. AND SUBSIDIARIES
(9) LEASES
The Company has leases covering office facilities and equipment. Total
rental expense was approximately $118,000, $108,000 and $133,000 in fiscal
1995, 1994 and 1993, respectively.
The following is a schedule of future minimum lease payments for non-
cancelable operating leases with initial terms of more than one year:
Years ending August 31 Amount
1996 $ 77,237
1997 8,157
Total $ 85,394
=======
(10) LINE OF CREDIT
On March 15, 1995, the Company entered into a $1,000,000 credit line with
First Interstate Bank of Arizona. The credit line is a revolving line and
matures on February 28, 1996. It has certain operating covenants, and is
secured by the Company's inventory and accounts receivable. Interest on the
line is 8.75% (prime at August 31, 1995) plus three quarters of a point per
annum, with interest-only payments payable monthly. The credit line has a
commitment fee equal to .5% of the average unused balance payable quarterly.
The outstanding balance on the line of credit as of August 31, 1995 was
$200,000, and the Company had no covenant defaults.
(11) STATEMENTS OF CASH FLOWS INFORMATION
Additional cash flow information is as follows:
Years ended August 31
1995 1994 1993
Interest paid $ 96,737 $209,276 $228,813
======= ======= =======
No income taxes were paid in 1995, 1994 and 1993.
For purposes of the statements of cash flows, the Company considers all
highly liquid debt instruments with a maturity of three months or less at the
time of purchase to be cash equivalents.
Non-cash investing and financing activities include the following:
Preferred stock dividends of $123,291, $59,475 and $183,410 were declared in
1995, 1994 and 1993, respectively. In-kind preferred stock dividends of
$123,291, $59,475 and $183,410 were issued during 1995, 1994 and 1993,
respectively.
<PAGE> F-15
PHOTOCOMM, INC. AND SUBSIDIARIES
On August 30, 1994, as part of the NWP Exchange Agreement (note 8), the
remaining Westinghouse $250,000 subordinated debenture and 8,690 shares of
Series B Convertible Preferred Stock were converted into 166,667 and 34,760
shares of the Company's common stock, respectively. In addition, $306,482 of
accounts payable and accrued liabilities was converted into 158,799 shares of
the Company's common stock as part of the same transaction.
On November 9, 1993, as part of the NWP Stock Purchase Agreement (note 8),
Westinghouse converted its $500,000 subordinated debenture into 333,333
shares of the Company's common stock. Westinghouse also converted 222,222
shares of Series B Convertible Preferred Stock into 888,888 shares of the
Company's common stock as part of the same transaction.
On October 1, 1993, the Company acquired $473,000 of solar illuminated
billboard systems from related parties (note 4). The Company offset $82,000
of its outstanding accounts receivable from the related parties, issued
20,000 shares of its Series AA Convertible Preferred Stock for $108,000, and
issued notes payable for $258,000. The remaining $25,000 was paid in cash.
On August 1, 1993, Robert R. Kauffman converted $26,000 in accrued interest
into Series AA Convertible Preferred Stock (note 8).
(12) RELATED PARTIES
Robert R. Kauffman purchased 10,000 and 10,000 shares of the Series AA
Convertible Preferred Stock for $50,000 and $54,000 in fiscal years 1995 and
1993, respectively. He also purchased 15,000 shares of the Series A
Convertible Preferred Stock for $60,000 in 1992 (note 8).
On October 1, 1993, the Company acquired $473,000 of solar illuminated
billboard systems from related parties (note 4). These related parties
include PLI, Robert R. Kauffman, Donald E. Anderson, Bakerson (a partnership
between two directors), and Cedric Adams (a former director). The Company
offset $82,000 of its outstanding accounts receivable from the related
parties, issued 20,000 shares of its Series AA Convertible Preferred Stock
for $108,000 to Robert R. Kauffman, and issued notes payable for $258,000 to
the related parties as consideration for the billboard systems. The
acquisition price of the billboard systems approximates the predecessors'
historical cost.
(13) RETIREMENT SAVINGS PLAN
Effective September 1, 1992, the Company established a 401(k) Retirement
Savings Plan (the "Plan") which covers certain employees 21 years of age and
over who have completed one year of service. Employees may voluntarily
contribute up to 20% of pre-tax earnings to the Plan, subject to a maximum
IRS limit. The Company may contribute additional amounts at its sole
discretion. The Company contributions to the Plan for the year ended August
31, 1995 was $14,500. No contributions were made in 1994 and 1993.
<PAGE> F-16
PHOTOCOMM, INC. AND SUBSIDIARIES
(14) GEOGRAPHIC INFORMATION
The company operates in one industry segment and engages primarily in the
design, development, manufacture and marketing of solar electric products.
The Company sells its products to a broad range of dealers/distributors,
original equipment manufacturers, and end-users. Sales to unaffiliated
customers located outside the United States, primarily in North and South
America, aggregated approximately 12%, 15% and 10% of consolidated net sales
for the years ended August 31, 1995, 1994 and 1993, respectively.
(15) SUPPLEMENTAL FINANCIAL INFORMATION
Additions
Balance at charged to Balance
beginning costs and at end
Classification of period expenses Deductions1 of period
Year ended
August 31, 1993:
Allowance for
doubtful accounts $ 125,000 73,000 173,000 25,000
Reserve for obsolete
inventory 39,492 - 14,492 25,000
Year ended
August 31, 1994:
Allowance for
doubtful accounts $ 25,000 48,000 48,000 25,000
Reserve for obsolete
inventory 25,000 146,000 96,000 75,000
Year ended
August 31, 1995:
Allowance for
doubtful accounts $ 25,000 48,000 48,000 25,000
Reserve for obsolete
inventory 75,000 97,200 147,200 25,000
1 Allowance for doubtful accounts: Uncollectible accounts written off, net
of recoveries from accounts previously written off.
<PAGE> F-17
PHOTOCOMM, INC. AND SUBSIDIARIES
(16) SUBSEQUENT EVENT
Effective October 3, 1995, Photocomm acquired all of the assets and assumed
the related liabilities of Sunelco, Inc. ("Sunelco"), a distributor of solar
electric products located in Hamilton, Montana (the "Acquisition").
The aggregate consideration paid by Photocomm in connection with the
Acquisition was approximately $850,000. The Company issued 225,000 shares of
Photocomm's Common Stock, $0.10 par value, valued at $400,000 and assumed
Sunelco liabilities of approximately $450,000.
The assets purchased principally consisted of certain inventories and other
assets valued by the parties at approximately $450,000; and goodwill and
intangible assets valued by the parties at $400,000.
<PAGE> 17
Item 8. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
The Company does not have any changes in and/or disagreements with
accountants on accounting and financial disclosure.
PART III
Certain information required by Part III is omitted from this Report in
that the registrant will file a definitive Information Statement pursuant
to Regulation 14A not later than 120 days after the end of the fiscal
year covered by this report, and certain information included therein is
incorporated herein by reference.
Item 9. Directors, Executive Officers, Promoters and Control Persons,
Compliance with Section 16(a) of the Exchange Act
The information concerning the Company's directors required by this item
is incorporated by reference to the Company's Information Statement.
The information concerning the Company's executive officers required by
this item is incorporated by reference to the Information Statement hereof
entitled "Information Concerning Directors, Nominees and Officers".
Item 10. Executive Compensation
The information required by this item is incorporated by reference to
the Company's Information Statement.
Item 11. Security Ownership of Certain Beneficial Owners and Management
The information required by this item is incorporated by reference to
the Company's Information Statement.
Item 12. Certain Relationships and Related Transactions
The information required by this item is incorporated by reference to
the Company's Information Statement.
<PAGE> 18
PART IV
Item 13. Exhibits, Financial Statement Schedule and Reports
on Form 8-K
(a) Exhibits
The following exhibits are filed as part of this report:
Exhibit No. Description Page
3.1 Articles of Merger (filed as Exhibit 3-B to
the Company's Annual Report on Form 10-K for
the year ended August 31, 1988 and incorporated
herein by reference).
3.2 Third Amended and Restated Articles of
Incorporation of the Company (filed as
Exhibit 3-D to the Company's Quarterly
Report on Form 10-Q for the quarter ended
May 31, 1990 and incorporated herein by
reference).
3.3 Bylaws of the Company (filed as Exhibit 3-C
of the Company's Annual Report on Form 10-K
for the year ended August 31, 1988 and
incorporated herein by reference).
4.1 Specimen Certificate representing the Common
Stock of the Company (filed as Exhibit 4-A
to the Company's Annual Report on Form 10-K
for the year ended August 31, 1988 and
incorporated herein by reference).
4.2 Specimen Certificate representing the Series
A Convertible Preferred Stock of the Company
(filed as Exhibit 4.2 to the Company's Form
S-3 dated September 19, 1994 and incorporated
herein by reference).
4.3 Specimen Certificate representing the Series
AA Convertible Preferred Stock of the Company
(filed as Exhibit 4.3 to the Company's Form
S-3 dated September 19, 1994 and incorporated
herein by reference).
4.4 Specimen Certificate representing the Series
B Convertible Preferred Stock of the Company
(filed as Exhibit 4.4 to the Company's Form
S-3 dated September 19, 1994 and incorporated
herein by reference).
4.5 Registration Rights Agreement between the
Company and The New World Power Corporation
(filed as Exhibit 4-B to the Company's
Annual Report on Form 10-KSB for the fiscal
year ended August 31, 1993 and incorporated
herein by reference).
<PAGE> 19
10.1 Photocomm, Inc. Stock Option Plan, Non-Statutory
Stock Option Agreement and Incentive Stock Option
Agreement (filed as Exhibit 10-K to the Company's
Quarterly Report on Form 10-Q for the quarter
ended May 31, 1990 and incorporated herein by
reference).
10.2 Promissory Note, Deed of Trust, Assignment of
Rents Agreement and Mortgage Assumption Agreement
dated January 30, 1991 for the purchase of the
Corporate Headquarters Office Building located
at 7681 E. Gray Road, Scottsdale, Arizona (filed
as Exhibit 10-R to the Company's Quarterly Report
on Form 10-Q for the quarter ended February 28,
1991 and incorporated herein by reference).
10.3 Promissory Notes, Loan Agreement, Deed of Trust,
Security Agreement dated February 4, 1991 for
the Arizona Department of Commerce loans for the
construction of the 10,000 square foot addition
to the corporate headquarters and the purchase
and construction of additional module manufacturing
equipment (filed as Exhibit 10-S to the Company's
Quarterly Report on Form 10-Q for the quarter
ended February 28, 1991 and incorporated herein
by reference).
10.4 Convertible Preferred Stock Purchase Agreement
dated March 25, 1992 with Robert R. Kauffman
(filed as Exhibit 10-V to the Company's
Quarterly Report on Form 10-Q for the quarter
ended May 31, 1992 and incorporated herein
by reference).
10.6 Convertible Preferred Stock Subscription and
Purchase Agreement with Powers, Preferences
and Rights of the Series AA Private issue in
April and May of 1993. (Filed as Exhibit 10-X
to the Company's Quarterly Report on 10-Q for
the quarter ended May 31, 1993 and incorporated
by reference herein).
10.7 Warrant Agreement Between Photocomm, Inc. and
Peacock, Hislop, Staley & Given, Inc. dated
April 15, 1993 (filed as Exhibit 10.7 to the
Company's Form S-3 dated September 19, 1994 and
incorporated herein by reference).
10.8 Agreement between the Company and Donald E.
Anderson, Cedric Adams, PLI and Robert R.
Kauffman relating to Billboard Systems
Purchases dated October 1, 1993 (filed as
Exhibit 10-Y to the Company's Annual Report on
Form 10-KSB for the fiscal year ended August 31,
1993 and incorporated herein by reference).
<PAGE> 20
10.9 Stock Purchase Agreement between the Company,
New World Power Corporation, Westinghouse and
PLI dated October 15, 1993 (filed as Exhibit
10-Z to the Company's Annual Report on Form 10-KSB
for the fiscal year ended August 31, 1993 and
incorporated herein by reference).
10.10 Exchange Agreement and Consent between the Company
and The New World Power Corporation dated July 29,
1994 (filed as Exhibit 10.10 to the Company's
Form S-3 dated September 19, 1994 and incorporated
herein by reference).
10.11 Convertible Preferred Stock Purchase Agreement
dated July 8, 1991 with Robert R. Kauffman
(filed as Exhibit 10-T to the Company's Quarterly
Report on Form 10-Q for the Quarter ended
May 31, 1991 and incorporated herein by
reference).
10.12 First Interstate Bank of Arizona, $1.0
Million Loan Agreement and Note Payable
dated March 15, 1995 (filed as Exhibit 10.12
to the Company's Form 10-QSB for the Quarter
ended February 28, 1995 and incorporated
herein by reference).
10.13 Agreement and Plan of Reorganization between
Photocomm, Inc., Sunelco, Inc. and Daniel M.
Brandborg and Rebecca M. Brandborg dated
October 3, 1995 (filed as Form 8-K, on
October 18, 1995 and incorporated herein by
reference).
11 Computation of per share earnings for the year 23
ended August 31, 1995.
22 List of Subsidiaries 24
23 Consent of Independent Auditors 25
27 Financial Data Schedule 26
(b) Reports on 8-K
Agreement and Plan of Reorganization between Photocomm,
Inc., Sunelco, Inc. and Daniel M. Brandborg and Rebecca
M. Brandborg dated October 3, 1995 (filed as Form 8-K
on October 18, 1995 and incorporated herein by reference).
<PAGE> 21
(c) Financial Statements: Page
(1) Independent Auditors' Report F-1
(2) Consolidated Financial Statements and Notes F-2 -
to Consolidated Financial Statements of the F-17
Company for the years ended August 31, 1995,
1994 and 1993.
(d) Financial Statement Schedule.
Schedules not listed above have been omitted because of the absence of
conditions under which they are required or because the required
material information is included in the Financial Statements or Notes
to the Financial Statements included herein.
<PAGE> 22
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
has caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
PHOTOCOMM, INC.
By: /s/ Robert R. Kauffman
Robert R. Kauffman
President and Chief
Executive Officer
Date: November 29, 1995
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and
on the dates indicated.
Signature Capacity Date
/s/ Thomas C. LaVoy Chief Financial Officer November 29, 1995
Thomas C. LaVoy and Director
/s/ Donald E. Anderson Director November 29, 1995
Donald E. Anderson
/s/ Robert R. Kauffman Chief Executive Officer November 29, 1995
Robert R. Kauffman and Director
/s/ Walter M. Baker Director November 29, 1995
Walter M. Baker
<PAGE> 23
EXHIBIT 11
PHOTOCOMM, INC.
COMPUTATION OF NET INCOME PER COMMON SHARE
(In thousands, except per share amounts)
Year Ended August 31, 1995 (1)
Primary Fully Diluted
Net income 903,974 903,974
Preferred stock
dividends declared (123,291) 859,435
Reduction of
interest expense N/A N/A
Interest revenue on
assumed purchase of
U.S. government
securities N/A N/A
--- ---
Net income applicable to
common stockholders $780,683 $903,974
======= =======
Weighted average shares:
Common shares
outstanding 12,342,442 12,342,442
Common equivalent shares
issuable upon exercise of
stock options (2) 530,248 802,127
Shares issuable upon
conversion of
preferred stock (3) N/A 859,435
--- -------
Total weighted average
shares, as adjusted 12,872,690 14,004,004
========== ==========
Earnings per share $ .06 $ .06
===== =====
(1) Prior year data is not included because the stock equivalents and
convertible securities are anti-dilutive. Earnings per share for prior
years is calculable from the face of the statement of operation.
(2) Amount calculated using the treasury stock method under the 20% rule.
(3) Amount calculated using the if-converted method assuming the conversion
took place at the later of the beginning of the fiscal year or issue date of
the securities.
<PAGE> 24
EXHIBIT 22
PHOTOCOMM, INC.
LIST OF SUBSIDIARIES
Balance of Systems Specialists, Inc., incorporated under the laws of
the State of Arizona. The subsidiary sometimes does business
as "BOSS".
Photocomm Credit Corporation, incorporated under the laws of the State of
of Arizona.
Photocomm of Texas, Inc., incorporated under the laws of the State of
Texas.
<PAGE> 25
Accountants' Consent
The Board of Directors
Photocomm, Inc.:
We consent to incorporation by reference in the Registration Statements
No. 33-40097 and 33-62392 on Form S-8 of Photocomm, Inc. of our report
dated October 13, 1995, relating to the consolidated balance sheets of
Photocomm, Inc. and subsidiaries as of August 31, 1995 and 1994, and
the related consolidated statements of operations, stockholders' equity
and cash flows for each of the years in the three-year period ended
August 31, 1995, which report appears in the August 31, 1995 annual
report on Form 10-KSB of Photocomm, Inc.
/S/ KPMG Peat Marwick LLP
Phoenix, Arizona
November 21, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
<PAGE> 26
This schedule contains summary financial information extracted from
the Consolidated Balance Sheets at August 31, 1995 and the Consolidated
Statement of Operations for the Twelve Months Ended August 31, 1995 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1995
<PERIOD-START> SEP-01-1994
<PERIOD-END> AUG-31-1995
<CASH> 520,269
<SECURITIES> 0
<RECEIVABLES> 2,377,548
<ALLOWANCES> 25,000
<INVENTORY> 3,327,625
<CURRENT-ASSETS> 6,452,904
<PP&E> 3,055,192
<DEPRECIATION> 991,235
<TOTAL-ASSETS> 8,825,186
<CURRENT-LIABILITIES> 1,707,883
<BONDS> 0
<COMMON> 1,301,416
0
179
<OTHER-SE> 5,095,545
<TOTAL-LIABILITY-AND-EQUITY> 8,825,186
<SALES> 20,540,840
<TOTAL-REVENUES> 20,618,226
<CGS> 15,539,814
<TOTAL-COSTS> 15,539,814
<OTHER-EXPENSES> 4,077,936
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 77,386
<INCOME-PRETAX> 903,974
<INCOME-TAX> 0
<INCOME-CONTINUING> 903,974
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 903,974
<EPS-PRIMARY> .06
<EPS-DILUTED> .06
</TABLE>
