<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES AND EXCHANGE ACT OF 1934
For the quarterly period ended May 31, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-12807
PHOTOCOMM, INC.
Incorporated in the State of Arizona IRS No. 86-0411983
7681 East Gray Road
Scottsdale, Arizona 85260
(602)948-8003
Check whether the Registrant (1) has filed all documents and
reports required to be filed by Section 13 or 15(d) of the Exchange
Act during the past 12 months (or 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 whether the Registrant 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
court. Yes (X) No ( )
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding as of 6/30/96
- ----- -------------------------
Common Stock, $0.10 par value 14,272,759
<PAGE> 2
PHOTOCOMM, INC.
INDEX
PART I Financial Information Page No.
--------------------- --------
Item 1. Financial Statements
Balance Sheets - May 31, 1996 and 3
August 31, 1995
Statements of Operations - Three Months 4
ended May 31, 1996 and 1995 and Nine
Months ended May 31, 1996 and 1995
Statements of Stockholders' Equity, 5
May 31, 1996 and August 31, 1995
Statements of Cash Flows - Nine Months 6
ended May 31, 1996 and 1995
Notes to Financial Statements 7
Item 2. Management's Discussion and Analysis 8-10
of Financial Condition and Results of
Operations
PART II Other Information
-----------------
Item 6. Exhibits 10
<PAGE> 3
PART I. FINANCIAL INFORMATION, ITEM 1. FINANCIAL STATEMENTS
PHOTOCOMM, INC. AND SUBSIDIARIES, CONSOLIDATED BALANCE SHEETS
MAY 31, 1996 and AUGUST 31, 1995, (UNAUDITED)
Assets 5/31/96 8/31/95
Current Assets:
Cash and cash equivalents $ 205,844 $ 520,269
Accounts receivable 2,995,704 2,352,548
Inventories 4,359,716 3,327,625
Other current assets 644,763 252,462
--------- ---------
Total Current Assets 8,206,027 6,452,904
Property and equipment at cost less --------- ---------
accumulated depreciation and amortization 2,570,100 2,063,957
Other assets 2,188,936 308,325
---------- ---------
Total Assets $12,965,063 $8,825,186
Liabilities and Stockholders' Equity
Current Liabilities:
Current installments of long-term debt $ 654,938 $ 135,949
Line of Credit 676,529 200,000
Accounts payable 1,738,517 1,129,156
Other accrued expenses 157,853 242,778
--------- ---------
Total Current Liabilities 3,227,837 1,707,883
--------- ---------
Long-term debt, less current installments 463,627 720,163
--------- ---------
Total Liabilities 3,691,464 2,428,046
Stockholders' Equity: --------- ---------
Preferred stock:$.001 par value,
5,000,000 shares authorized;
Series A 12% convertible preferred stock, 110 110
125,000 shares authorized;109,972 shares
issued and outstanding
Series AA 11% convertible preferred stock 61 69
200,000 shares authorized;60,965 and 69,365
shares issued and outstanding, respectively
Common stock;$.10 par value, 20,000,000 1,427,276 1,301,416
shares authorized;14,272,759 and
13,014,160 shares issued and
outstanding, respectively
Additional paid-in capital 12,457,136 10,369,422
Accumulated deficit ($808 restricted for
cost of treasury stock held) (4,610,176) (5,273,069)
Less: Cost of 400 treasury shares (808) (808)
--------- ---------
Total Stockholders' Equity 9,273,599 6,397,140
--------- ---------
Total Liabilities and Stockholders'
Equity $12,965,063 $8,825,186
See accompanying notes to consolidated financial statements.
<PAGE> 4
PHOTOCOMM, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended Nine Months Ended
May 31 May 31
------------------ -----------------
1996 1995 1996 1995
---- ---- ---- ----
Sales, net $5,177,921 $6,292,979 $15,270,201 $15,424,609
Cost of sales 3,723,466 4,943,283 11,043,472 11,791,600
--------- --------- ---------- ----------
Gross profit 1,454,455 1,349,696 4,226,729 3,633,009
Selling, general,
administrative 1,272,626 1,091,043 3,543,568 2,953,199
--------- --------- --------- ---------
Income (loss)
from operations 181,829 258,653 683,161 679,810
Other income
(expense):
Interest expense (19,640) (28,549) (56,605) (65,161)
Other, net 9,072 21,085 36,337 54,534
------ ------ ------ ------
Net income(loss) $ 171,261 $ 251,189 $ 662,893 $ 669,183
======= ======= ======= ========
Income (loss) per
share $ .01 $ .02 $ .04 $ .05
=== === === ===
Weighted average
number of
common shares
outstanding 14,807,197 12,337,987 14,402,795 12,285,953
See accompanying notes to consolidated financial statements.
<PAGE> 5
<TABLE>
<CAPTION>
PHOTOCOMM,INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
MAY 31, 1996 AND AUGUST 31, 1995
(UNAUDITED)
Convertible Preferred Stock
------------------------------
Series A Series AA Common Stock Additional
--------------- ------------- -------------------- Paid-In Accumulated Treasury
Shares Amount Shares Amount Shares Amount Capital Deficit Shares Total
------- ------ ------ ------ ---------- ---------- ----------- ------------ ------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, August 31, 1995 109,972 $110 69,365 $69 13,014,159 $1,301,416 $10,369,421 ($5,273,069) ($808) $6,397,139
Common stock issued upon
exercise of stock options 390,000 39,000 371,663 410,663
Common stock issued as part
of Sunelco purchase agreement 225,000 22,500 377,500 400,000
Common stock issued as part
of Solarjack purchase agreement 560,000 56,000 1,344,000 1,400,000
Common stock issues upon
exercise of warrants 50,000 5,000 85,000 90,000
Preferred stock converted
to common 4 to 1 (8,400) (8) 33,600 3,360 (3,352) (0)
Cash dividends on Series A
and Series AA preferred stock (87,096) (87,096)
Net Income 662,893 662,893
------- ---- ------ ------ ---------- ---------- ----------- ------------ ------ ----------
Balance, May 31, 1996 109,972 $110 60,965 $61 14,272,759 $1,427,276 $12,457,136 ($4,610,176) ($808) $9,273,598
======= ==== ====== ====== ========== ========== =========== ============ ====== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 6
PHOTOCOMM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
NINE MONTHS ENDED MAY 31, 1996 AND 1995
(UNAUDITED)
1996 1995
---- ----
Cash flows from operating activities:
Net income $ 662,893 $ 669,183
Adjustments to reconcile net income to
net cash used by operating activities:
Depreciation and amortization 291,173 242,399
Increase in allowances for doubtful
accounts & inventory obsolescence 44,206 9,810
Increase in accounts receivable (671,794) (2,072,886)
Increase in inventory (1,073,327) (600,147)
Increase in accounts payable and
accrued expenses 524,435 1,143,284
Increase in other current assets (162,377) (65,839)
--------- ---------
Net cash used in operating
activities (384,791) (674,196)
--------- ---------
Cash flows from investing activities:
Purchase of property and equipment (270,365) (100,928)
Acquisition of other assets (411,818) -
--------- ---------
Net cash used in investing
activities (682,183) (100,928)
--------- ---------
Cash flows from financing activities:
Repayments of long-term debt (137,547) (91,417)
Proceeds from issuance of debt 476,529 550,000
Proceeds from issuance of common stock 500,663 52,396
Proceeds from issuance of preferred stock - 46,640
Cash dividends on preferred stock (87,096) (94,218)
Purchase of Treasury Shares - (808)
-------- --------
Net cash provided by financing
activities 752,549 462,593
-------- --------
Net decrease in cash and cash
equivalents (314,425) (312,531)
Cash and cash equivalents at beginning
of year 520,269 458,224
-------- --------
Cash and cash equivalents at end of
nine months $ 205,844 $ 145,693
======== =======
See accompanying notes to consolidated financial statements.
<PAGE> 7
PHOTOCOMM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1996
A. Basis of Presentation
The accompanying unaudited consolidated financial statements have
been prepared in accordance with generally accepted accounting
principles for presentation of interim financial information. They
do not include all information and presentation of footnotes
required by generally accepted accounting principles for
presentation of complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been
included.
B. Seasonal Nature of the Business
Revenues of the Company are generally greater in its third and
fourth quarters (March through August) due to seasonal factors.
C. Income Taxes
At May 31, 1996, the Company utilized net operating loss
carryforwards of approximately $662,893 to offset fiscal 1996
income for federal income tax purposes.
D. Acquisition and Stockholders' Equity
Effective October 3, 1995, Photocomm acquired all of the assets and
assumed the related liabilities of Sunelco, Inc., a distributor of
solar electric products located in Hamilton, Montana. The
aggregate consideration paid by Photocomm in connection with this
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.
On February 2, 1996, Photocomm acquired all of the assets,
excluding accounts receivable, of Solarjack, a solar electric
pumping products manufacturer located in Safford, Arizona. The
aggregate consideration paid by Photocomm in connection with this
acquisition was approximately $1,700,000. The Company paid
$300,000 in cash and 560,000 shares of its Common Stock, $0.10 par
value, valued at $1,400,000. The assets purchased consisted of
inventories of $224,256; fixed assets of $441,578; and goodwill and
intangible assets valued by the parties at $1,035,000.
<PAGE> 8
Item 2. Management's Discussion and Analysis of Financial
Conditions and Results of Operations
This discussion and analysis should be read in conjunction with the
consolidated financial statements and the related notes thereto
included elsewhere in this report.
Results of Operations
Three and nine months ended May 31, 1996 vs. three and nine months
ended May 31, 1995.
Sales: Sales for the third quarter ended May 31, 1996 and May 31,
1995 respectively are $5,177,921 versus $6,292,979, a 17.8%
decrease. Sales for the nine months ended May 31, 1996 and 1995
are $15,270,201 versus $15,424,609, a 1% decrease. The sales
revenue decrease for the quarter is attributed to reduced
government sales of $2,690,000 from 1995, and nine months to date
reductions of $4,492,000. When government sales revenues are
factored out of 1995 sales, the Company experienced a 44% increase
in sales for the third quarter and 40% increase for the nine months
ended May 31, 1996 versus comparable prior year periods. The sales
revenue increases for the quarter and nine months are partially
attributable to added sales from the acquisitions of Sunelco, Inc.
and Jadco Manufacturing, Inc., and increased revenues from the
Company's core business accounts in industrial products and
systems, and distribution business in domestic and international
markets. In general, sales revenue increases are due to volume
increases, with little or no effect related to price changes.
Gross Profit: Gross profit (sales less cost of sales) increased
7.8% and 16.4% for the third quarter and nine months ended May 31,
1996 versus the same period in 1995. Gross profits were $1,454,455
or 28.1% for the third quarter and $4,226,729 or 27.7% for the nine
months ended May 31, 1996 compared to $1,349,696 or 21.5% for the
third quarter of 1995 and $3,633,009 or 23.6% for the nine months
ended May 31, 1995. The 7.8% increase in the third quarter is
attributed to increases in gross profit percentages from 21.5% in
1995 to 28.1% in 1996, offsetting sales reduction for the period of
$1,115,058. The 16.4% increase for the nine months ended May 31,
1996 versus 1995 are attributed to increased gross profit margins
to 27.7% from 23.6% for the prior year comparable period.
The gross profit percentage improvement is attributed to higher
profit business associated with industrial products and systems
business in 1996 versus 1995, the addition of retail sales from the
Sunelco acquisition and the reductions of lower margin government
contract business in 1996 versus 1995.
Selling, General and Administrative Expenses (SG&A): SG&A Expenses
in 1996 were $1,272,626 for the third quarter and $3,543,568 for
the nine months ended May 31, 1996, compared to $1,091,043 and
$2,953,199 for the same periods in the prior year. The 17% and 20%
increase from the prior year are attributed to additional sales and
<PAGE> 9
marketing expenses, with most of the increases associated to
additional marketing expenses from the Sunelco and Solarjack
acquisitions in October 1995 and February 1996, respectively.
Other Income (Expense): The Company's non-operating income and
expenses consist mainly of interest expense and consulting income.
Interest expense for the quarter was approximately the same in the
third quarter and for the nine months compared to the same periods
in the prior year.
Net Income: The Company achieved a net income of $171,261 ($.01
per common share) for the quarter and $662,893 ($.04 per common
share) for the nine months ended May 31, 1996, representing a 31.8%
decrease for the quarter and approximately the same income for the
nine month period ended May 31, 1996 versus comparable prior year
periods.
The lower net income for the quarter of $171,261 versus $258,652 is
a result of reduced sales revenues, offset by significantly higher
gross profit margins in the Company's industrial products and
retail business, with corresponding offsets for increases in sales
expenses for retail operations.
Liquidity and Capital Resources: The Company's working capital
position continues to be stable. Working capital increased to
$4,978,190 at May 31, 1996 from $4,745,029 at August 31, 1995. The
current ratio is 2.5 at May 31, 1996 versus 3.8 at August 31, 1995
and the debt to equity ratio is .05 at May 31, 1996 versus .11 at
August 31, 1995. The reduction in current ratio and the reduction
in debt to equity ratio is a result of classifying a long-term
mortgage loan of $485,000 which is due in November of 1996 into
current liabilities. The Company expects to refinance the mortgage
loan in the fourth quarter of 1996. The effect of reclassifying
this debt back to a long-term liability causes a .5 increase in the
current ratio and a .5 increase to the debt to equity ratio, which
is consistent with the third quarter and year-end ratios of 1995.
Net cash used in operating activities for the nine months of
$384,791 was primarily due to increases in inventory and accounts
receivable of $1,745,121, with offsetting increases in accounts
payable and in other current assets of $362,058 with cash
contributions from profits and depreciation of $954,066.
Net cash used in financing activities for the nine months of
$682,183 was for the purchase of property and equipment, and the
acquisitions of Sunelco and Solarjack. Cash used for purchases of
property and equipment of $270,365 was primarily for manufacturing
equipment, leasehold improvements and computer equipment. Cash
used in the acquisitions of Sunelco and Solarjack was $411,818.
Cash provided by financing activities of $752,549 was comprised of
repayments of $137,547 of the long-term debt, offset by proceeds of
$977,192 from the issuance of common stock, borrowings on the line
of credit and payment of dividends of $87,096.
<PAGE> 10
On February 28, 1996, the Company renewed and expanded its
$1,000,00 credit line with First Interstate Bank of Arizona to
$1,200,000. The credit line is a revolving line with an annual
maturity on February 28, 1997. 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 one half of a
point per annum with interest-only payments payable monthly.
Although no assurances are possible, the Company believes that its
future operating cash flows, access to increased bank lines of
credit, and ability to access additional equity such as the
exercise of present outstanding employee stock options, will
provide adequate funding for current obligations, projected
operations and planned expansions for the next twelve months and
the foreseeable future.
PART II. OTHER INFORMATION
Item 6. Exhibits
(a) Exhibits
The following Exhibits are filed as part of this
Report:
Exhibit No. Description Page
10.16 Executive Compensation Agreement 11
between Photocomm, Inc. and Robert
R. Kauffman dated January 1, 1996.
11 Computation of Primary Net Income 17
per Common Share
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Date: July 15, 1996
PHOTOCOMM, INC.
By: /s/ Robert R. Kauffman By: /s/ Thomas C. LaVoy
Robert R. Kauffman Thomas C. LaVoy
Chief Executive Officer Chief Financial Officer
(Duly Authorized Officer and
Principal Financial Officer)
<PAGE> 11
EXHIBIT 10.16
EXECUTIVE COMPENSATION
This Executive Compensation Agreement (this "Agreement"), is
entered into as of the _1st_ day of January, 1996, between
PHOTOCOMM, INC., an Arizona corporation (the "Company"), and
ROBERT R. KAUFFMAN ("Executive"), but is effective as of the
first day of January, 1996 ("Effective Date"). The Company and
Executive are collectively referred to herein as the "Parties."
Upon the occurrence of the Effective Date, this Agreement
automatically shall supersede any agreement between the Company
and Executive concerning Executive's employment by the Company.
SECTION I. AGREEMENT OF THE PARTIES
The Company agrees to employ Executive and Executive agrees to
serve in the employ of Company as follows:
(a) Executive agrees to serve the Company as President and Chief
Executive Officer during the term of this Agreement. Executive
further agrees to use his best efforts, and apply his skill and
experience, to the proper performance of his duties hereunder and
to the business and affairs of the Company. Executive agrees to
serve the Company faithfully, diligently and to the best of his
ability.
(b) The principal location from which Executive will serve the
Company and perform his duties hereunder shall be Scottsdale,
Arizona.
The Company shall compensate Executive for his services as
provided herein.
SECTION II. TERM OF EMPLOYMENT
Executive's employment shall commence under the terms of this
Agreement on the Effective Date, and shall continue hereunder
until December 31, 1998, unless this Agreement is terminated in
accordance with Section V. Notwithstanding the foregoing, the
term of this Agreement shall automatically renew and extend as of
January 1 of each year so that as of said date each year the
unexpired term hereof shall continue to be three (3) years,
unless and until either party gives written notice to the other
party at least thirty (30) days prior to January 1 of any year to
the effect that this Agreement should not be further extended, in
which event the term of this Agreement shall not then be further
extended and shall terminate two years following the next
succeeding January 1.
SECTION III. COMPENSATION; BENEFITS
A. Base Compensation. Commencing with the 1996 calendar year,
the Company shall pay Executive a base annual salary of $210,000.
Executive's base annual salary may be increased by the Company
during the term of this Agreement based upon the Executive's and
the Company's performance. Notwithstanding the foregoing, in the
case of substantial and persistent deterioration of the Company's
performance, the Company may reduce Executive's base annual
<PAGE> 12
salary consistent with similar salary reductions of other Company
officers until the Company's performance improves. Executive's
base annual salary shall be paid by the Company in semi-monthly
installments commensurate with the Company's normal employee pay
days.
B. Incentive Compensation. The Company shall also provide
Executive incentive compensation as follows:
1. Annual Cash Bonus. Executive shall be awarded an annual cash
bonus based upon Company performance in an amount to be
determined by the Board of Directors of the Company pursuant to
this subparagraph. Prior to or shortly after the beginning of
each fiscal year of the Company, Executive shall submit for Board
approval the Company's fiscal year performance goals, including
an operating plan and financial budget. Following the end of the
fiscal year the Board shall determine the extent to which said
goals have been achieved and the amount of the cash bonus based
upon such performance. The target amount of such cash bonus
shall be in the range of from thirty (30%) percent to fifty (50%)
percent of Executive's annual base salary and shall be payable
within thirty (30) days following public release of the Company's
fiscal year results.
2. Annual Stock Option Grant. For the first year of the term
hereof Executive shall be granted non-qualified stock options to
purchase 200,000 shares of the Company's common stock. The
number of options for subsequent years of the term hereof shall
be determined annually by the Board of Directors giving due
consideration to the number of options granted each prior year
and any changes in the capital structure of the Company. All of
the options shall be at the then existing market price as
determined by the Board, or an appropriate committee thereof,
with an exercise term of 10 years. Executive's options shall
have all rights and benefits related to stock options of the
Company contemplated by the Employee Stock Option Plan of the
Company.
C. Supplemental Benefits. Nothing contained in this Section III
shall affect or in any way limit Executive's rights as an
employee of the Company to participate in any profit sharing
plan, supplemental compensation arrangements or any other fringe
benefits offered by the Company to its employees as set forth in
the Company's employee handbook, and compensation received by
Executive hereunder shall be in addition to the foregoing.
Without limiting the generality of the foregoing, the Company
shall additionally provide the following supplemental benefits to
Executive:
1. Life and Disability Insurance. The Company shall maintain in
force (i) a Five Hundred Thousand Dollar ($500,000) term life
insurance policy with Executive's designated beneficiary, and
(ii) a disability insurance policy with a total monthly benefit
of at least 50% of Executive's monthly base salary.
2. Financial, Legal and Tax Services Reimbursement. The Company
shall reimburse Executive for expenses incurred by him for
personal financial, legal and tax services, up to a maximum of
$5,000.00 in any calendar year. The foregoing reimbursement
limit shall increase by five (5%) percent each calendar year
commencing January 1, 1997.
<PAGE> 13
3. Supplemental Medical Expense Reimbursement. The Company
shall directly pay or reimburse to Executive, medical expenses of
Executive and Executive's immediate family members which are
incurred in excess of the Company's group medical insurance
coverage to a limit of $7,500 each calendar year ("Supplemental
Medical Expense Reimbursement Plan"). The foregoing
Supplemental Medical Expense Reimbursement limit shall increase
by five (5%) percent each calendar year commencing January 1,
1997.
SECTION IV. SALARY CONTINUATION UPON DISABILITY
In the event Executive shall, by reason of illness or other
incapacity, become unable to perform the services agreed upon
herein, the Company shall continue to compensate Executive for
twelve (12) months commencing from the date of such illness or
other incapacity at his base monthly salary less any amounts
actually received by Executive from the disability insurance
policies carried by the Company for the benefit of Executive
pursuant to Section III.C above.
SECTION V. RETIREMENT
Upon achievement of sustained profitable Company performance, as
determined by the Board, the Company will develop and provide to
Executive an appropriate, competitive Supplemental Executive
Retirement Plan ("SERP").
SECTION VI. CONTINUATION OF MEDICAL EXPENSE BENEFITS
Coverage under the Company's group medical insurance plan ("Group
Plan") shall continue during Executive's disabled status with the
Company, and shall also continue in the event Executive should
die during active or disabled status with the Company for the
benefit of his surviving spouse and dependent children for two
(2) years following Executive's death. In the event that
Executive's, or Executive's spouse's and children's,
participation in the Group Plan is not permitted following his
disability or death under the general terms and provisions of the
Group Plan, the Company shall arrange to provide Executive, or
his spouse and children, with benefits substantially similar to
those which would be available under such Plan.
SECTION VII. TERMINATION
A. By Executive.
1. Without Cause. If Executive voluntarily terminates his
performance of services to the Company for any reason other than
for cause, then the Company's obligations to make any payments or
provide any benefits to Executive, in respect of periods after
such termination, automatically shall terminate and be forfeited.
<PAGE> 14
2. With Cause. If Executive voluntarily terminates his
performance of services to the Company for cause including (i)
the Company's failure to perform the Company's obligations under
this Agreement, and that failure continues for thirty (30) days
following written notice from Executive of nonperformance, or
(ii) the failure of the Board of Directors of the Company to
elect the Executive as Chief Executive Officer of the Company,
then the Company shall pay Executive a lump sum cash payment
equal to twice the amount of the highest annual base salary and
cash bonus paid to Executive during the three previous years and
Executive shall be entitled to such other payments as may be due,
or would have been due Executive under any of the provisions of
this Agreement had such termination not occurred and shall have
all his rights and remedies against the Company that are
available at law or in equity.
B. By the Company. In the event the Company discharges
Executive from his duty and right to perform services in
connection with this Agreement for any reason other than for
cause, the Company shall pay Executive a lump sum cash payment
equal to twice the amount of the highest annual base salary and
cash bonus paid to Executive during the three previous years and
Executive shall be entitled to such other payments as may be due,
or would have been due Executive under any of the provisions of
this Agreement had such termination not occurred and shall have
all his rights and remedies against the Company that are
available at law or in equity. For purposes hereof the Company
shall have "cause" to terminate Executive upon (i) conviction of
Executive of a crime constituting a felony, and (ii) after ninety
(90) days written notice to Executive by the Company concerning
said conditions: (aa) Executive's continued persistent gross
negligence in the performance of his duties hereunder, or (bb)
Executive's continued repeated and willful failure or refusal to
perform his significant duties hereunder. Any termination of
Executive by the Company that is not a termination for cause
shall be deemed a termination without cause.
C. Other Payments. In the event Executive's employment pursuant
to this Agreement is terminated for any reason the Executive
shall be entitled to any and all vested rights under any profit
sharing, pension or other employee benefit plan of the Company in
accordance with the terms and provisions of such plans, and all
deferred compensation payments previously agreed upon by
Executive and the Company, if any.
SECTION VIII. ACCELERATED VESTING OF STOCK OPTIONS
At the option of Executive, all of the stock options for the
purchase of the Company's stock held by the Executive, or as many
of said options as elected by Executive, shall become immediately
exercisable and vested: (i) should the Company discharge
Executive from his right and duty to perform services under this
Agreement at any time without cause, (ii) if the Board of
Directors of the Company fails to elect the Executive as Chief
Executive Officer of the Company, or (iii) if any single
shareholder or group of affiliated shareholders acquire in excess
of fifty (50%) percent of the voting securities of the Company
and elects a majority of the Board of Directors of the Company.
<PAGE> 15
SECTION IX. CONFIDENTIALITY
Executive agrees that, during the continuance of this Agreement
and thereafter, he shall not (otherwise than pursuant to his
duties hereunder) disclose without the written consent of the
Company, any material or substantial, confidential or proprietary
know-how, data or information pertaining to the Company, or its
business, personnel or plans, to any person, firm, corporation or
other entity, for any reason or purpose whatsoever. Executive
acknowledges and agrees that all memoranda, notes, records and
other documents made or compiled by Executive or made available
to Executive concerning the Company's business shall be the
Company's exclusive property and shall be delivered by Executive
to the Company upon expiration or termination of this Agreement
or at any other time upon the request of the Company.
The provisions of this Section IX shall survive the expiration or
termination of this Agreement or any part thereof, without regard
to the reason therefor.
SECTION X. COVENANT NOT TO COMPETE
The Parties acknowledge that Executive's willingness to enter
into this Agreement and to continue as an employee of the Company
constitutes a material inducement to the Company's agreement to
make payments to Executive as set forth herein including those to
be made upon termination. The Parties further acknowledge that
Executive's performance of all terms of this Agreement is
necessary to protect the Company's legitimate business interests.
Executive agrees, that, during the continuance of this Agreement
and for a period of one (1) year thereafter, he will not, on
behalf of himself, or on behalf of any other person, company,
corporation, partnership or other entity or enterprise, directly
or indirectly, as an employee, proprietor, stockholder, partner,
consultant, or otherwise, engage in any business or activity
competitive with the business activities of the Company as they
are now or hereafter undertaken by the Company.
The provisions of this Section X shall be void in the event
Executive is terminated without cause or Executive terminates his
performance under this Agreement with cause including (i) the
Company's failure to perform the Company's obligations under this
Agreement, and that failure continues for thirty (30) days
following written notice from Executive of nonperformance, (ii)
the failure of the Board of Directors of the Company to elect the
Executive as Chief Executive Officer of the Company, or (iii) if
any single shareholder or group of affiliated shareholders
acquire in excess of fifty (50%) percent of the voting securities
of the Company and elects a majority of the Board of Directors of
the Company.
In the event Executive's employment under this Agreement is
occasioned by a termination of Executive for cause, the one (1)
year period contained in this Section X shall instead be two (2)
years.
SECTION XI. DEDUCTIONS AND WITHHOLDING
Executive agrees that the Company and its affiliated companies
shall withhold from any and all payments required to be made to
Executive in accordance with this Agreement all federal, state,
local and other taxes that the Company or any such affiliates
determine are required to be withheld in accordance with
applicable statutes and regulations from time to time in effect.
<PAGE> 16
SECTION XII. NOTICES
All notices, requests, demands and other communications hereunder
shall be in writing and shall be deemed given when delivered
personally or when deposited in the U.S. Mail if sent by
registered or certified mail, prepaid and return receipt
requested, to the other party hereto at his or its mailing
address as set forth on the signature page of this Agreement, and
in the case of the Company, marked to the attention of Secretary.
Either party may change the address which such communications
hereunder shall be sent by sending notice of such change to the
other party as herein provided.
SECTION XIII. SEVERABILITY
If any provision of this Agreement or any part hereof is invalid,
unlawful or incapable of being enforced by reason of any rule of
law or public policy, all conditions and provisions of this
Agreement which can be given effect without such invalid,
unlawful or unenforceable provision shall, nevertheless, remain
in full force and effect.
SECTION XIV. BOARD APPROVAL
By execution of this Agreement, the Company acknowledges that
this Agreement has been reviewed and adopted by a resolution
approved by a majority of the members of the Board of Directors
of the Company.
SECTION XV. COMPLETE UNDERSTANDING; PRIOR AGREEMENTS
This Agreement (which includes all employee benefit plans of
Company referenced herein) constitutes the complete understanding
between the Parties with respect to the undertaking of Executive
hereunder, and no statement, representation, warranty or covenant
has been made by either party with respect thereto except as
expressly set forth herein. Unless otherwise specifically
referred to herein, this Agreement shall, from and after the
Effective Date, supersede, in all respects, all previous
agreements in regard to employment between Executive and the
Company. This Agreement shall not be altered, modified, amended
or terminated except by written instrument signed by each of the
Parties hereto.
SECTION XVI. GOVERNING LAW
This Employment Agreement shall be governed by, and construed and
enforced in accordance with, the laws of the State of Arizona.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement effective as of the day and year first above written.
PHOTOCOMM, INC.
an Arizona corporation
By: /s/ Donald E. Anderson /s/ Robert R. Kauffman
---------------------- ----------------------
Donald E. Anderson Robert R. Kauffman
Chairman of the Board 13670 N. 85th Place
7681 E. Gray Road Scottsdale, AZ 85260
Scottsdale, Arizona 85260
<PAGE> 17
EXHIBIT 11
PHOTOCOMM, INC.
COMPUTATION OF PRIMARY NET INCOME PER COMMON SHARE
(In thousands, except per share amounts)
Quarter ended(1) Nine months ended(1)
May 31, 1996 May 31, 1996
Net income $ 171,261 $ 662,893
Preferred stock dividends (26,591) (87,096)
declared
Reduction of interest N/A N/A
expense
Interest revenue on assumed N/A N/A
purchase of U.S. government
securities --- ---
Net income applicable to $ 144,670 $ 575,797
common stockholders ========= =========
Weighted average shares:
Common shares outstanding 14,258,316 13,782,378
Common equivalent shares 548,881 620,417
issuable upon exercise of
stock options (2)
Shares issuable upon conversion
of preferred stock N/A N/A
--- ---
Total weighted average shares,
as adjusted 14,807,197 14,402,795
========== ==========
Earnings per share $.01 $.04
==== ====
(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.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
the Consolidated Balance Sheets at May 31, 1996 (Unaudited) and the
Consolidated Statement of Operations for the Nine Months ended May
31, 1996 (Unaudited) and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> AUG-31-1996
<PERIOD-START> SEP-01-1995
<PERIOD-END> MAY-31-1996
<CASH> 205,844
<SECURITIES> 0
<RECEIVABLES> 3,049,342
<ALLOWANCES> 53,638
<INVENTORY> 4,359,716
<CURRENT-ASSETS> 8,206,027
<PP&E> 3,767,135
<DEPRECIATION> 1,197,035
<TOTAL-ASSETS> 12,965,063
<CURRENT-LIABILITIES> 3,227,837
<BONDS> 0
<COMMON> 1,427,276
0
171
<OTHER-SE> 7,846,152
<TOTAL-LIABILITY-AND-EQUITY> 12,965,063
<SALES> 15,270,201
<TOTAL-REVENUES> 15,270,201
<CGS> 11,043,472
<TOTAL-COSTS> 11,043,472
<OTHER-EXPENSES> 3,543,568
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 56,605
<INCOME-PRETAX> 662,893
<INCOME-TAX> 0
<INCOME-CONTINUING> 662,893
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 662,893
<EPS-PRIMARY> .04
<EPS-DILUTED> .04
</TABLE>
