<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 March 31, 1997
[ ] 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 ( )
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 4/30/97
- ----- ----------------------
Common Stock, $0.10 par value 16,209,744
Transitional Small Business Disclosure Form. Yes ( ) No (X)
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PHOTOCOMM, INC.
INDEX
PART I Financial Information Page Number
Item 1. Financial Statements
Balance Sheets - March 31, 1997 and 3
December 31, 1996
Statements of Operations - Three Months ended 4
March 31, 1997 and 1996
Statements of Cash Flows - Three Months 5
ended March 31, 1997 and 1996
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis 6
of Financial Condition and Results of
Operations
PART II Other Information
Item 1. Legal Proceeding 9
Item 4. Submission of Matters to a Vote of 10
Security Holders
Item 6. Exhibits and Reports on Form 8-K 10
<PAGE> 3
PART I. FINANCIAL INFORMATION, ITEM 1. FINANCIAL STATEMENTS
PHOTOCOMM, INC. AND SUBSIDIARIES, CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
Assets 3/31/97 12/31/96
- ------ ------- --------
Current Assets:
Cash and cash equivalents $ 536,579 $ 1,377,898
Accounts receivable, net 3,622,466 4,557,102
Inventories 5,652,978 4,490,784
Other current assets 167,369 184,904
--------- ----------
Total Current Assets 9,979,392 10,610,688
Property and equipment, net 2,596,916 2,551,616
Deferred tax asset 350,000 350,000
Other assets, net 1,752,455 1,774,457
---------- ----------
Total Assets $14,678,763 $15,286,761
========== ==========
Liabilities and Stockholders' Equity
- ------------------------------------
Current Liabilities:
Current installments of long-term debt $ 82,055 $ 556,153
Accounts payable 1,802,893 1,695,266
Other accrued expenses 1,167,611 1,341,811
---------- ---------
Total Current Liabilities 3,052,559 3,593,230
Long-term debt, less current installments 211,954 134,490
--------- ---------
Total Liabilities 3,264,514 3,727,720
Stockholders' Equity:
Preferred stock:$.001 par value,
5,000,000 shares authorized;
Series A 12% convertible preferred stock,
125,000 shares authorized; 38,972
shares issued and outstanding 39 39
Series AA 11% convertible preferred stock,
200,000 shares authorized; 48,365 and
52,565 shares issued and outstanding,
respectively 48 53
Common stock: $.10 par value, 25,000,000
shares authorized; 16,209,744 and
16,151,444 shares issued and
outstanding, respectively 1,620,974 1,615,144
Additional paid-in capital 15,495,537 15,458,405
Accumulated deficit (5,702,348) (5,514,600)
--------- ---------
Total Stockholders' Equity 11,414,250 11,559,041
Total Liabilities and Stockholders' ---------- ----------
Equity $14,678,763 $15,286,761
========== ==========
See accompanying notes to consolidated financial statements.
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PHOTOCOMM, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended
March 31
1997 1996
---- ----
Sales, net $ 6,369,950 $ 4,923,100
Cost of sales 4,818,833 3,432,396
--------- ---------
Gross profit 1,551,117 1,490,704
Selling, general and 1,718,896 1,220,875
administrative expenses --------- ---------
Income (loss) from operations (167,779) 269,829
Other income (expenses):
Interest expense (14,196) (18,082)
Other income (expense), net (5,773) 6,599
--------- --------
Income (loss) before income taxes (187,748) 222,395
--------- --------
Income tax - -
--------- --------
Net income (loss) (187,748) 258,346
Preferred stock dividends 14,519 0
Net income (loss) applicable to common
stockholders $ (202,267) $ 258,346
========= ========
Net income (loss) per common and common
equivalent shares $ (.01) $ .02
========= ========
Weighted average number of common
shares and common equivalent shares 16,464,711 15,111,435
========== ==========
See accompanying notes to consolidated financial statements.
<PAGE> 5
PHOTOCOMM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended
March 31
1997 1996
Cash flows from operating activities: ---- ----
Net income (loss) $ (187,748) $ 258,346
Adjustments to reconcile net income to
net cash used in operating activities:
Depreciation and amortization 121,761 134,240
(Decrease) increase in allowances for
doubtful accounts & inventory obsolescence (28,087) 23,550
Decrease in accounts receivable 943,279 667,715
Increase in inventories (1,142,749) (1,030,351)
Decrease in accounts payable and
accrued expenses (66,573) (224,050)
Decrease (increase) in other current
assets 17,535 (137,455)
Net cash used in operating -------- --------
activities (342,582) (308,005)
-------- --------
Cash flows from investing activities:
Purchase of property and equipment (136,491) (172,442)
Purchase of patents, trademarks and
other assets (7,982) (393,539)
Net cash used in investing -------- --------
activities (144,473) (565,981)
-------- --------
Cash flows from financing activities:
Repayments of debt (498,884) (33,841)
Proceeds from issuance of debt 102,250 400,000
Proceeds from issuance of common stock 56,889 145,626
Cash dividends on preferred stock (14,519) -
Net cash provided by (used in) ------- --------
financing activities (354,264) 511,785
------- --------
Net decrease in cash and cash equivalents (841,319) (362,201)
Cash and cash equivalents at beginning 1,377,898 485,412
of year --------- -------
Cash and cash equivalents at end of quarter $ 536,579 $ 123,211
========= =========
See accompanying notes to consolidated financial statements.
<PAGE> 6
PHOTOCOMM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
NOTE 1. Fiscal Year End
On February 2, 1997 the Board of Directors elected to change the
fiscal year end of Photocomm, Inc. and its subsidiaries (the
"Company") from August 31 to December 31. As a result, the Company
will be reporting interim financial information on a calendar
quarterly basis.
NOTE 2. Adoption of New Accounting Standards
Financial Accounting Standards No. 128, "Earnings per Share", was
issued in February 1997. The adoption of this new accounting
standard, which is required on December 31, 1997, will result in the
restatement of earnings per share for all periods presented. Based on
management's estimates, the adoption of this standard is not expected
to have a material effect on the Company's financial statements.
Item 2. Management's Discussion and Analysis of Financial Conditions
and Results of Operations
Business Overview
The Company is engaged in the manufacturing and marketing of solar
electric systems in the United States and abroad. To facilitate a
better understanding of the Company, the three major market areas of
focus are outlined as follows:
(1.) Distribution business: The Company distributes products through
dealer networks and retail catalog sales. This business is largely
domestic, however, there is an investment commitment for expanding and
developing international markets.
International distribution is currently centered in two regional
centers. The Central and South America markets are serviced through an
office in Florida, and on October 1, 1996 the Company opened an
Australia office through a wholly-owned subsidiary, Photocomm Pty.
Ltd. Although these offices are primarily focused on distribution
sales, the Company believes that there are future growth opportunities
in industrial applications worldwide.
Distribution sales have a steady level of base business, however,
there are seasonal swings in this largely domestic segment which
traditionally have resulted in increased levels of sales in the 2nd
and 3rd quarters. As international growth continues, we expect the
seasonality to diminish.
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(2.) Industrial base business: Industrial applications sales are
focused primarily within oil and gas communications and exploration
markets, which are not seasonal in nature. Additionally, the Company
expects this base business market to continue to grow as the Company
develops new domestic customers and identifies applications
internationally.
(3.) Industrial telecommunications business: Through developing
relationships with local carriers and large Original Equipment
Manufacturer's ("OEM's"), the Company has participated in large
projects within the telecommunications industry. Historically it has
not been possible to predict this activity quarter to quarter.
However, as these relationships continue to develop and new OEM
customer relationships are built, the Company expects to maintain a
more consistent level of this business.
Results of Operations
Three months ended March 31, 1997 vs. three months ended March 31,
1996.
Sales: Sales for the first quarter of 1997 were $6,369,950, a 29%
increase over sales of $4,923,100 for the first quarter of 1996.
First quarter revenue included an increase in base business operations
of 15% and sales of $720,000 from the newly formed Australia
subsidiary, Photocomm, Pty. Ltd.
The Company sales mix in 1997 was approximately 50% industrial
products and 50% distribution sales as compared to 60% industrial
products and 40% distribution during the first quarter 1996. The
shift was largely due to the addition of the Australia subsidiary
which is primarily a distribution business.
Gross Profit: (Sales less cost of sales) increased 4% from $1,490,704
in first quarter 1996 to $1,551,117 in first quarter of 1997. Gross
profit margins decreased from 30% in the first quarter of 1996 to 24%
in the first quarter of 1997. The decrease in gross profit is
primarily due to a higher mix of distribution sales, short-term solar
panel supply shortages and the corresponding price increase of these
items. Historically, gross margins are higher within the industrial
product group as compared to the distribution group. The panel
shortages are currently industry-wide and the Company is diligently
working with suppliers to resolve this issue long-term. Additionally,
the Australia operation has experienced lower gross profit margins
relative to the Company base business. As the distribution business
continues to grow in Australia, we expect the gross profit margins to
be comparable to our domestic base business.
Selling, General and Administrative Expenses (SG&A): SG&A expenses
increased 41% from $1,220,875 in the first quarter of 1996 to
$1,718,896 in the first quarter of fiscal 1997. The increase in SG&A
expenses are primarily attributed to staffing increases in marketing
and sales personnel, and marketing related activities which is
<PAGE> 8
intended to support continued growth in the industrial and
distribution groups for both domestic and international markets.
Other Income (Expense): The Company's non-operating income and
expense is primarily comprised of interest expense and consulting
income.
Income Tax: The Company did not recognize any income tax benefit or
expense for the three months ended March 31, 1997 or 1996. Realization
of the net operating losses generated during the three months ended
March 31, 1997 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.
Net Loss: The Company experienced a net loss of $(187,748), $(.01)
per common share, for the first quarter of 1997 versus net income of
$258,346, $.02 per common share, for the first quarter of 1996. The
lower sales margin and increased SG&A expenses as discussed above are
primarily responsible for this decrease.
Liquidity and Capital Resources: The Company's working capital
position has declined in the first quarter of 1997. Working capital
decreased to $6,926,838 at March 31, 1997 from $7,017,458 at December
31, 1996. The current ratio is 3.3 at March 31, 1997 versus 3.0 at
December 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, and are
expected to require significant cash payments upon resolution of the
proceedings. See "Legal Proceedings."
Net cash used in operating activities for the first quarter of fiscal
1997 was $342,582. The Company's operating cash uses included net
losses and increases in inventories of $1,330,497, offset by decreases
in accounts receivable and other current assets of $960,814.
Cash used for purchases of property and equipment of $136,491 was
primarily used for upgrading equipment in the manufacturing and
engineering operations of the Company.
Cash used in financing activities of $354,264 was comprised of
proceeds from issuances of debt and exercise of employee stock options
of $159,139 offset by the repayment of debt of $498,884.
Although no assurances are possible, 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 discussions to secure new lines of credit.
<PAGE> 9
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 three month period ended
March 31, 1997 may not be indicative of results that may be expected
for the year ending December 31, 1997.
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 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.
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.
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
<PAGE> 10
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 other terms of the Agreements and have refused 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.
Item 4. Submission of Matters to a Vote of Security Holders
On January 31, 1997, the Company held its Annual Meeting of
Shareholders and elected the following persons as Directors,
consisting of the entire Board of Directors:
Jeffrey H. Coors Chairman of the Board
Donald E. Anderson Director
Walter M. Baker Director
Jed J. Burnham Director
John K. Coors Director
Robert R. Kauffman Director
Gerrit J. Wolfaardt Director
There were no other matters voted on at the meeting.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The following Exhibits are filed as part of this Report:
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Page or
Exhibit No. Description Method of Filing
- ----------- ----------- ----------------
11 Computation of Primary Net Income 12
per Common Share
27 Financial Data Schedule 13
(b) Reports on Form 8-K
A report on Form 8-K was filed on February 10, 1997 to
report the change of fiscal year end, change in corporate auditors,
change in management of the Company and election of members of the
Board of Directors.
A report on Form 8-K was filed on February 25, 1997 to report
institution of arbitration proceedings to enforce agreements with
former executives.
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: May 14, 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> 12
EXHIBIT 11
PHOTOCOMM, INC.
COMPUTATION OF PRIMARY NET INCOME PER COMMON SHARE
(In thousands, except per share amounts)
Quarter ended Quarter ended
March 31, 1997 March 31, 1996
------------ --------------
Net income (loss) $ (187,748) $ 258,346
Preferred stock dividends (14,519) -
Reduction of interest expense N/A N/A
Interest revenue on assumed N/A N/A
purchase of the U.S. government
securities ------- -------
Net income (loss) applicable to $ (202,267) $ 258,346
common stockholders ========== =========
Weighted average shares:
Common shares outstanding 16,164,898 14,031,790
Common equivalent shares
issuable upon exercise of
stock options 299,813 639,757
Shares issuable upon conversion N/A N/A
of preferred stock --------- --------
Total weighted average shares,
as adjusted 16,464,711 14,671,547
Earnings (loss) per share $(.01) $.02
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
the Consolidated Balance Sheets at March 31, 1997 (Unaudited) and the
Consolidated Statement of Operations for the Three Months ended March
31, 1997 (Unaudited) and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 536,579
<SECURITIES> 0
<RECEIVABLES> 3,658,331
<ALLOWANCES> 68,074
<INVENTORY> 5,685,186
<CURRENT-ASSETS> 9,979,392
<PP&E> 4,106,453
<DEPRECIATION> 1,509,537
<TOTAL-ASSETS> 14,678,763
<CURRENT-LIABILITIES> 3,052,559
<BONDS> 0
<COMMON> 1,620,974
0
87
<OTHER-SE> 9,793,189
<TOTAL-LIABILITY-AND-EQUITY> 14,678,763
<SALES> 6,369,950
<TOTAL-REVENUES> 6,369,950
<CGS> 4,818,833
<TOTAL-COSTS> 4,818,833
<OTHER-EXPENSES> 1,718,896
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,196
<INCOME-PRETAX> (187,748)
<INCOME-TAX> 0
<INCOME-CONTINUING> (187,748)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (187,748)
<EPS-PRIMARY> (.01)
<EPS-DILUTED> (.01)
</TABLE>
