UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[ ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES AND EXCHANGE ACT OF 1934
[X] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from September 1, 1996 to December 31, 1996
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 ( )
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 January 31, 1997
Common Stock, $0.10 par value 16,157,694
Transitional Small Business Disclosure Form. Yes ( ) No (X)
<PAGE>
PHOTOCOMM, INC.
INDEX
PART I Financial Information Page Number
Item 1. Financial Statements
Consolidated Balance Sheets-December 31, 1996 3
and August 31, 1996
Consolidated Statements of Operations - Four 4
Months ended December 31, 1996 and 1995
Consolidated Statements of Stockholders' Equity, 5
for the Four Months ending December 31, 1996
Consolidated Statements of Cash Flows - Four 6
Months ended December 31, 1996 and 1995
Item 2. Management's Discussion and Analysis 7
of Financial Condition and Results of
Operations
PART II Other Information
Item 1. Legal Proceeding 10
Item 6. Exhibits and Reports on Form 8-K 11
<PAGE>
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
PHOTOCOMM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
Assets 12/31/96 8/31/96
Current Assets:
Cash and cash equivalents $1,377,898 $ 200,105
Accounts receivable, net 4,557,102 5,599,356
Inventories 4,490,784 4,704,878
Other current assets 184,904 429,512
Total Current Assets 10,610,688 10,933,851
Property and equipment, net 2,551,616 2,517,806
Deferred tax asset 350,000 350,000
Other assets, net 1,774,457 1,784,318
Total Assets $15,286,761 $15,585,975
========== ==========
Liabilities and Stockholders' Equity
Current Liabilities:
Current installments of long-term debt $ 556,153 $ 82,096
Line of Credit - 1,399,099
Accounts payable 1,695,266 3,654,464
Other accrued expenses 1,341,811 78,635
Total Current Liabilities 3,593,230 5,214,294
Long-term debt, less current installments 134,490 638,388
Total Liabilities 3,727,720 5,852,682
Stockholders' Equity:
Preferred stock:$.001 par value,
5,000,000 shares authorized;
Series A 12% convertible preferred stock,
125,000 shares authorized; 38,972 and
109,972 shares issued and outstanding,
respectively 39 110
Series AA 11% convertible preferred stock,
200,000 shares authorized; 52,565
shares issued and outstanding 53 53
Common stock: $.10 par value, 25,000,000
shares authorized; 16,151,444 and
14,307,444 shares issued and
outstanding, respectively 1,615,144 1,430,744
Additional paid-in capital 15,458,405 12,428,128
Accumulated deficit (5,514,600) (4,125,742)
Total Stockholders' Equity 11,559,041 9,733,293
Total Liabilities and Stockholders'
Equity $15,286,761 $15,585,975
========== ==========
<PAGE>
PHOTOCOMM, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Four Months Ended
December 31,
1996 1995
Sales, net $ 9,705,486 $ 6,718,802
Cost of sales 7,507,952 5,012,289
Gross profit 2,197,533 1,706,513
Selling, general and 3,540,050 1,481,310
administrative expenses
Income (loss) from operations (1,342,517) 225,203
Other income (expenses):
Interest expense (59,673) (40,178)
Other, net 13,332 37,355
Income (loss) before income taxes (1,388,858) 222,380
Income tax - -
Net income (loss) (1,388,858) 222,380
Preferred stock dividends 67,753 60,505
Net income (loss) applicable to common
stockholders $(1,456,611) $ 161,875
========= ========
Net income (loss) per common and common
equivalent shares $ (.10) $ .01
========= ========
Weighted average number of common
shares and common equivalent shares 15,045,440 14,054,224
========== ==========
<PAGE>
<TABLE>
<CAPTION>
PHOTOCOMM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE FOUR MONTHS ENDED DECEMBER 31, 1996
(UNAUDITED)
Convertible Preferred Stock
-------------------------------------------
Series A Series AA Common Stock Additional
------- ------ ------- ----- --------------------- Paid-In Accumulated
Shares Amount Shares Amount Shares Amount Capital Deficit Total
------- ------ ------ ------ --------- -------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, August 31, 1996 109,972 $110 52,565 $53 14,307,444 $1,430,744 $12,428,128 ($4,125,742) $9,733,293
Common stock issued upon
exercise of stock options 560,000 56,000 584,816 640,816
Common stock issued as part
of GTC purchase agreement 1,000,000 100,000 2,541,543 2,641,543
Common stock issued upon
conversion of preferred stock
4 to 1 (71,000) (71) 284,000 28,400 (28,329)
Cash dividends on Series A
and Series AA preferred stock (67,753) (67,753)
Net Loss (1,388,858) (1,388,858)
------- ---- ------- ------- ---------- ---------- ----------- ----------- -----------
Balance, December 31, 1996 38,972 $39 52,565 $53 16,151,444 $1,615,144 $15,458,405 ($5,514,600) $11,559,041
======= ==== ======= ======= ========== ========== =========== =========== ===========
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
PHOTOCOMM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Four Months Ended
December 31,
1996 1995
Cash flows from operating activities:
Net income (loss) $(1,388,858) $ 222,380
Adjustments to reconcile net income (loss)
to net cash used in operating activities:
Depreciation and amortization 148,982 99,124
Increase in allowances for doubtful
accounts & inventory obsolescence 20,161 7,713
Decrease in accounts receivable 1,023,746 104,684
Decrease (increase) in inventories 212,441 (1,144,207)
(Decrease) increase in accounts payable
and accrued expenses (696,022) 617,889
Decrease in other current assets 244,608 116,891
Net cash (used in) provided
by operating activities (434,942) 24,474
Cash flows from investing activities:
Purchase of property and equipment (155,419) (46,465)
Purchase of patents, trademarks and
other assets (17,512) (32,742)
Net cash used in investing
activities (172,931) (79,207)
Cash flows from financing activities:
Repayments of debt (1,428,940) (252,436)
Proceeds from issuance of common stock 3,282,359 332,817
Cash dividends on preferred stock (67,753) (60,505)
Net cash provided by financing
activities 1,785,666 19,876
Net increase (decrease) in cash and cash
equivalents 1,177,793 (34,857)
Cash and cash equivalents at beginning
of year 200,105 520,269
Cash and cash equivalents at end of quarter $1,377,898 $ 485,412
========= =========
<PAGE>
Item II. Management's Discussion and Analysis of Financial Conditions
and Results of Operations
On February 3, 1997, the Board of Directors of Photocomm, Inc. (the
"Company"), upon recommendation of the Board's Audit Committee,
changed its fiscal year-end to a calendar year ending on December 31
of each year from August 31.
Results of Operations
Four months ended December 31, 1996 vs. four months ended December 31,
1995.
Sales: Sales for the four month period ended December 31, 1996 were
$9,705,486, a 44% increase over sales of $6,718,802 for this same
period of 1995. The four month period for 1996 included a $2.2
million shipment to Motorola Indonesia for 789 solar radio monitoring
stations.
Distribution, wireless communications and international sales
increased approximately 12% during the four month period ending December
31, 1996 versus the same 1995 period. In general, sales revenue increases
are due to volume increases with little or no effect related to price
changes.
Gross Profit: (Sales less cost of sales) increased 29% from $1,706,513
in the four month period ended December 31, 1995 to $2,197,533 in this
same four month period in 1996. The gross profit for the 1996 period
included a charge of $547,100 for slow moving inventories and other
related items that have been determined to be either obsolete product
lines or overvalued relative to the market. The increase in gross
profit is primarily due to increased sales, with a 3% improvement in
gross margin (exclusive of the $547,100 inventory adjustment)
attributable to sales mix of higher profit manufactured products and
industrial systems, versus lower margin distribution and international
sales. The Company's sales mix in 1995 was approximately 60%
industrial products and 40% distribution sales. During this same
period in 1996, the mix shifted towards industrial products of
approximately 70% and distribution of 30%. The shift was largely
driven by the large Motorola sale for industrial systems.
Selling, General and Administrative Expenses (SG&A): SG&A expenses
increased 139% from $1,481,310 in the four month period ended December
31, 1995 to $3,540,050 for the same period in 1996. The increase in
SG&A in 1996 was largely driven by an approximate $1,300,000 charge,
including accrued obligations relating to former executives of
approximately $1,100,000, increased labor costs and expanded
marketing programs.
Labor costs increased $430,000 in the four month period of 1996 as
compared to the same period in 1995. Most of this increase was a
result of salary increases and increased staffing of $230,000, and
bonus and benefit awards or $200,000. Staffing increases were largely
in industrial sales from the Company's start-up of its Australia
subsidiary in October of 1996 and from its acquisition of Solarjack
and Sunelco. The increase in sales and marketing expenses of
$250,000 is attributed primarily to increased levels of promotion
for the Company's new solar water pumping division and industrial
markets.
Other Income (Expense): The Company's non-operating income and
expense is primarily comprised of interest expense and consulting
income. Interest expense increased in this four month period ended
December 31, 1996 versus 1995 due to additional outstanding
indebtedness through November 1996. The Company paid off bank lines
of credit balances after the GTC closing on or about November 21,
1996.
Income Tax: The Company did not recognize any income tax benefit or
expense for the four months ended December 31, 1996 or 1995.
Realization of the net operating losses generated during the four
months ended December 31, 1996, and the remaining operating losses
generated in prior periods of $1,350,000, is dependent on generation
of future taxable income and limited by ownership changes. At this
time, management has not determined that it is more likely than not
that all the deferred tax asset will be realized and has provided a
valuation of $1,900,000. The realizability of the deferred tax asset
will be monitored on a quarterly basis. The Company utilized net
operating loss carryforwards of $65,000 in the four months ended
December 31, 1995 to offset income tax expense.
Net Income (Loss): The Company experienced a net loss of ($1,388,858)
in the four month period of 1996 versus net income of $223,380 for
the same period in 1995. Without the inventory write-down and other
accrued charges discussed above in the aggregate of $1,822,830, net
income before taxes would have been $433,972, a 95% improvement from
the prior year.
Liquidity and Capital Resources: On November 21, 1996, the Company
entered into a new financial and strategic agreement with Golden
Technologies Company, Inc. ("GTC"). In connection with the agreement,
GTC acquired from the Company 1,000,000 shares of unregistered common
stock for $2.75 a share resulting in net proceeds to the Company of
$2,641,513. Additionally, exercise of vested stock option shares
resulted in net proceeds to the Company of $640,816.
The Company's working capital position improved by 23% during the four
months ended December 31, 1996. Working capital increased to
$7,017,458 at December 31, 1996 from $5,719,557 at August 31, 1996.
The current ratio is 3.0 at December 31, 1996 versus 2.1 at August 31,
1996, and the debt to equity ratio is .6 at December 31, 1996 versus
.7 at August 31, 1996. The Company has accrued approximately
$1,100,000 in severance expenses under Agreements with former Company
executives which are the subject of pending Arbitration Proceedings,
which will require significant cash payments upon resolution of the
proceedings. See "Legal Proceedings."
Net cash used in operating activities for the four month period ended
December 31, 1996 was $434,942. The Company's operating cash uses
include reduction of accounts payable of $696,022 and net losses of
$1,268,858. Reduction in accounts receivables of $1,023,746 and
inventories of $212,441 largely offset the cash uses described above.
Cash used for purchases of property and equipment of $155,419 was
primarily for a hybrid CellPak demonstration system to be utilized in
promoting the Company's wireless power systems. The system is located
in Scottsdale, Arizona.
Cash provided by financing activities of $1,785,666 was comprised of
proceeds from the GTC stock purchase agreement of $2,641,543 and
exercise of employee stock options of $640,816, offset by reductions
of bank lines and other debt of $1,428,940.
Although there can be no assurance, the Company believes that its
future operating cash flows, anticipated bank lines of credit, and
ability to access additional equity, will provide adequate funding for
current obligations, projected operations and planned expansion for
the next twelve months and the foreseeable future. The Company is
currently in discussion with other banks and ACX Technologies to
secure new lines of credit. The former bank line expired at the
discretion of current management.
Forward-Looking Statements
These statements should be read in conjunction with the financial
statements and notes thereto included in the Company's Form 10-K for
the year ended August 31, 1996. The accompanying financial statements
have not been examined by independent accountants in accordance with
generally accepted auditing standards, but in the opinion of the
management of Photocomm, such financial statements include all
adjustments necessary to summarize fairly the Company's financial
position and results of operations. All adjustments made to the
interim financial statements presented are of a normal recurring
nature. The results of operations for the four month period ended
December 31, 1996 may not be indicative of results that may be
expected for the year ending December 31, 1997.
Special Note on Forward Looking Statements
The statements made in this Report that are not historical facts
contain forward-looking information that involves risks and
uncertainties. Important factors that may cause actual results to
differ from such forward-looking statements include, but are not
limited to, market demand and acceptance of the Company's products,
the impact of competitive technologies, products and services, risks
associated with the pending Arbitration Proceedings and any other
litigation and claims to which the Company may be a party,
availability of capital resources, availability of critical materials
or supply, the effect of economic and business conditions and other
risks detailed from time to time in the Company's filings with the
Securities and Exchange Commission.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
On February 25, 1997, the Company instituted arbitration proceedings
before the American Arbitration Association ("AAA") in Phoenix,
Arizona to enforce its agreements with its former chief executive
officer, Robert R. Kauffman, and chief financial officer, Thomas C.
LaVoy, and to resolve certain disputes primarily concerning the
severance provisions of those agreements ("Arbitration Proceedings").
As previously announced, Mr. Kauffman's and Mr. LaVoy's employment was
terminated by the Company's Board of Directors on January 31, 1997.
Mr. Kauffman continues to serve as a director of the Company.
As previously disclosed, the Company entered into Executive
Compensation Agreements with Messrs. Kauffman and LaVoy in November
1996 (the "Agreements"). Under the terms of the Agreements, the
Company is obligated to provide certain severance benefits in the
event of a termination of the executive's employment without cause.
The severance benefits include a lump sum cash severance payment,
accelerated vesting of all outstanding stock options and the
continuation of certain other benefits specified in the Agreements.
The Agreements provide that the severance payments and benefits shall
not be made in an amount which shall result in payments and benefits
in the aggregate being deemed an "excess parachute payment" pursuant
to Section 280G of the Internal Revenue Code. The Agreements further
provide that as a condition precedent to receiving any severance
payments or benefits, each executive shall sign an appropriate legal
release on the terms specified in the Agreements. The Agreements
provide for mandatory arbitration of claims, disputes and other
matters in question arising under the Agreements.
Mr. Kauffman and Mr. LaVoy have asserted various claims against the
Company, including demands for compensation and benefits in addition
to those provided by the Agreements, treble damages and demands that
their Company Common Stock and options to purchase Company Common
Stock be purchased by ACX Technologies, Inc., an affiliate of a major
shareholder of the Company. Mr. Kauffman and Mr. LaVoy also have
disputed that they are obligated under the Agreements to deliver legal
releases of all legal claims as a condition to their receipt of
severance and other benefits under the Agreements. The Company
commenced the Arbitration Proceedings in order that the claims and
allegations of Mr. Kauffman and Mr. LaVoy may be resolved through
arbitration as required by the Agreements. The Arbitration
Proceedings are in their initial stages, no response has been filed by
Mr. Kauffman and Mr. LaVoy and accordingly, the Company is unable to
predict the timing or ultimate resolution of the Arbitration
Proceedings.
The descriptions in this Report of the Agreements and the Arbitration
Proceedings are summaries and are qualified in their entirety by
reference to the Exhibits to the Company's Current Report on Form 8-K
dated February 25, 1997.
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The following Exhibits are filed as part of this Report:
Page or
Exhibit No. Description Method of Filing
11 Computation of Primary Net Income 11
per Common Share
27 Financial Data Schedule 12
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the
period for which this report is filed.
SIGNATURES
In accordance with 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: March 18, 1997
PHOTOCOMM, INC.
By: /s/ John K. Coors By: /s/ Jeffrey C. Brines
John K. Coors Jeffrey C. Brines
Chief Executive Officer Chief Financial Officer
(Duly Authorized Officer and
Principal Financial Officer)
<PAGE>
EXHIBIT 11
PHOTOCOMM, INC.
COMPUTATION OF PRIMARY NET INCOME PER COMMON SHARE
(In thousands, except per share amounts)
Quarter ended Quarter ended
December 31, 1996 December 31, 1995
Net income (loss) $(1,388,858) $ 222,380
Preferred stock dividends 67,753 65,505
Reduction of interest expense N/A N/A
Interest revenue on assumed N/A N/A
purchase of the U.S. government
securities
Net (loss) applicable to common $(1,456,611) $ 161,875
stockholders ========== ==========
Weighted average shares:
Common shares outstanding 14,906,251 13,354,205
Common equivalent shares 139,189 700,019
issuable upon exercise of
stock options
Shares issuable upon conversion N/A N/A
of preferred stock
Total weighted average shares, 15,045,440 14,054,224
as adjusted
Earnings (loss) per share $(.10) $.01
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
the Consolidated Balance Sheets as of November 30, 1996 (Unaudited)
and the Consolidated Statement of Operations for the Three Months
ended November 30, 1996 (Unaudited) and is qualified in its entirety
by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 4-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> SEP-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 1,377,898
<SECURITIES> 0
<RECEIVABLES> 4,601,610
<ALLOWANCES> 96,161
<INVENTORY> 4,542,437
<CURRENT-ASSETS> 10,610,688
<PP&E> 3,969,962
<DEPRECIATION> 1,418,346
<TOTAL-ASSETS> 15,286,761
<CURRENT-LIABILITIES> 3,593,230
<BONDS> 0
<COMMON> 1,615,144
0
92
<OTHER-SE> 9,943,805
<TOTAL-LIABILITY-AND-EQUITY> 15,286,761
<SALES> 9,705,486
<TOTAL-REVENUES> 9,705,486
<CGS> 7,507,952
<TOTAL-COSTS> 7,507,952
<OTHER-EXPENSES> 3,540,050
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 59,673
<INCOME-PRETAX> (1,388,858)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,388,858)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,388,858)
<EPS-PRIMARY> (.10)
<EPS-DILUTED> (.10)
</TABLE>
