<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to SECTION 13 OR 15(d)
of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 1997
OR
[ ] Transition Report Under Section 13 OR 15(d)
of the Securities Exchange Act of 1934
Commission File No. 0-12807
PHOTOCOMM, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Arizona 86-0411983
- ------------------------------ -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7681 East Gray Road, Scottsdale, Arizona 85260
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(Address of principal executive offices) (Zip Code)
Registrant s telephone number, including area code: (602)948-8003
Securities Registered under Section 12(b) of the Exchange Act:
Not Applicable
Securities Registered under Section 12(g) of the Exchange Act:
Common Stock, $0.10 par value
--------------------------------
Title of Class
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 and (2) has been subject to such filing requirements for the
past 90 days. Yes (X) No ( )
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not
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-K or any amendment to this
Form 10-K. ( )
As of March 3, 1998, the aggregate market value of the 7,887,178
shares of Common Stock of the Registrant issued and outstanding on
such date based on the average of the bid and ask prices as
represented by the Nasdaq SmallCap Market, excluding 8,779,447
shares held by all affiliates of the Registrant, was approximately
$17,250,000.
Number of shares of Common Stock outstanding at March 3, 1998:
16,666,544.
Documents incorporated by reference:
List hereunder the following documents incorporated by reference
and the part of the Form 10-K into which the document is
incorporated:
Portions of the definitive Proxy Statement for the Annual Meeting
of the Shareholders to by held on May 27, 1998 are incorporated by
reference into Part III, Items 10-13 of this Form 10-K.
<PAGE>
TABLE OF CONTENTS
PART I Page
Item 1. Business 1
Item 2. Properties 6
Item 3. Legal Proceedings 6
Item 4. Submission of Matters to a Vote of
Security Holders 6
PART II
Item 5. Market for Registrant s Common Equity and
Related Stockholder Matters 7
Item 6. Selected Financial Data 8
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
Item 7a. Quantitative and Qualitative Disclosure About
Material Risk 13
Item 8. Financial Statements and Supplementary Data 14
Item 9. Changes In and Disagreements with Accountants
on Accounting and Financial Disclosure 39
PART III
Item 10. Directors and Executive Officers of the Registrant 39
Item 11. Executive Compensation 39
Item 12. Security Ownership of Certain Beneficial
Owners and Management 39
Item 13. Certain Relationships and Related Transactions 39
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K 40
<PAGE> 1
PART I
Item 1. 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.
The Company was incorporated as Photocomm, Inc. in 1981 under the laws of
the State of Arizona. Effective April 1, 1998, Photocomm, Inc. will begin
doing business as ( dba ) Golden Genesis Company.
On November 21, 1996, the Company entered into a new financial and strategic
agreement with Golden Technologies, Inc. ("GTC"), a wholly owned subsidiary
of ACX Technologies, Inc. ( ACX ), and New World Power Corporation ( NWP )
(the "Stock Purchase Agreement"). Pursuant to the Stock Purchase Agreement,
GTC acquired NWP's 44% interest in the Company, and NWP and the Company
terminated all of their respective rights and options pursuant to prior
agreements. GTC also acquired from the Company 1,000,000 shares of newly
issued common stock, par value $0.10 per share (the Common Stock ), at a
purchase price of $2.75 per share.
In conjunction with the Stock Purchase Agreement, GTC also acquired 450,000
shares of Common Stock from Programmed Land, Inc., 450,000 shares of Common
Stock from Robert R. Kauffman, the Company's former President, 50,000 shares
of Common Stock from Myron Anduri, one of the Company's Vice Presidents, and
50,000 shares of Common Stock from Thomas LaVoy, the Company's former Chief
Financial Officer, in each case at a purchase price of $2.75 per share. As
a result of the Stock Purchase Agreement, the transactions contemplated
thereby and certain subsequent events, at March 19, 1998 GTC held
approximately 52% of the outstanding Common Stock and had the voting rights
to an additional 3% of the outstanding Common Stock. The Company granted
demand registration rights to GTC covering the shares purchased from NWP,
the Company and all other shares they may own, provided that GTC shall pay
50% of the costs of any demand registration.
In addition, the Stock Purchase Agreement granted GTC the preemptive right
to purchase its proportionate share of all future equity offerings of the
Company provided that GTC owns at least 20% of the shares of the issued and
outstanding stock of the Company or at least 6,000,000 shares. The Stock
Purchase Agreement also permits GTC to designate three members of the
Company's six member Board of Directors.
In accordance with the designation rights granted to GTC pursuant to the
Stock Purchase Agreement, Jeff Coors, John Coors and Jed Burnham were
appointed to the Board of Directors of the Company on November 21, 1996,
replacing three incumbent directors. On January 31, 1997 the Company s Board
of Directors terminated Robert R. Kauffman, President and Thomas LaVoy,
Chief Financial Officer. The Board replaced these executives with John
Coors, President and Jeffrey Brines, Chief Financial Officer.
On February 3, 1997, upon recommendation of the Audit Committee, the
Company s Board of Directors changed its fiscal year end to December 31 from
August 31.
On July 2, 1997, the Company acquired certain assets, customer contracts and
sales representative agreements of Integrated Power Corporation, Inc.
( IPC ). IPC specializes in highly engineered alternative power systems
incorporating solar, wind and diesel generators. IPC has historically
focused on the industrial markets in Northern Africa and the Middle East.
The Company believes the addition of these distribution channels will better
enable it to penetrate these active markets. The Company paid $450,000 in
cash to acquire these assets.
During 1997 the Company began implementing a plan to centralize operations,
warehousing and administration in Scottsdale, Arizona. The main objective
of the plan is to reduce costs and increase efficiencies. The less
efficient or higher cost locations were closed (Texas and Tucson) and their
operations moved to the Scottsdale facility. As a result of the plan the
current facility does not have enough space to support the continued growth
of the Company, and therefore the Company is moving its Scottsdale operation
to a new leased facility and selling the current land and building. The
Company has committed to a lease on the new facility with an initial lease
term through February 2000. The Company expects the move to take place in
the second quarter of 1998.
<PAGE> 2
On January 23, 1998 the Company acquired Silicon Energy Corporation, a
California corporation doing business as Utility Power Group ( UPG ). UPG
functions as a value added systems integrator of solar electric products,
specializing in on-grid and off-grid solar and hybrid power systems,
headquartered in Chatsworth, California. The acquisition was structured as
a merger, with Utility Power Group, Inc., a wholly owned subsidiary of the
Company, as the surviving corporation. The aggregate consideration paid by
the Company in connection with this merger was $1,250,000. The Company
issued 400,000 shares of its Common Stock valued at $650,000 and paid
$600,000 in cash.
Solar Electric Industry - Background
Solar electric power generation is a high technology industry using advanced
semiconductor devices that 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 United States space program were extremely expensive, but their
reliability and elimination of conventional fuel 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 for commercial use when first
developed, the potential of solar electric technology as an ideal energy
alternative generated worldwide 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 throughout the world.
Technology
The fundamental element of a solar electric system is the semiconductor
device, or cell, which generates a variable electric current that 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 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 last decade an estimated
one billion dollars has been invested worldwide by governments and
corporations in various research and development efforts targeted to achieve
cost reductions in manufacturing solar electric modules. These continuing
efforts have resulted in current module prices that are approximately 30% of
the pricing level of ten years ago.
Industry Structure
As a result of the extensive capital requirements and research expenditures
necessary to design, develop and produce solar electric modules, the
manufacturing side of the market 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 ( Siemens Solar ), a
division of Siemens A.G.; Solarex Corporation ( Solarex ), a jointly held
venture of Amoco Corporation and Enron Corp.; and Kyocera Corporation
( Kyocera ) in Japan. Other major international module manufacturers are BP
Solar International ( BP Solar ), a subsidiary of British Petroleum Company
p.l.c., Sharp Corporation, Sanyo Corporation, and United Solar Systems Corp.
( United Solar ).
<PAGE> 3
The major module manufacturers primarily market their product lines through
a network of distributors and dealers who resell modules, with complementary
components, to the end-user. The larger distributors in this marketing
channel are known as systems integrators who provide design, engineering and
technical service to their customers.
Markets and Products
The market for the Company s solar electric systems is primarily in remote
area applications, generally defined as those electric power applications
where access to utility power is relatively expensive, inconvenient or not
available.
The Company develops, engineers and distributes fully integrated systems to
service a variety of industrial customers needs, including:
* Communication systems where conventional utility power is not available or
the cost to extend a line to these sites is prohibitive.
* Traffic signal systems used in urban and remote areas where solar electric
applications can frequently be more cost-effective than conventional
electric systems that require installing a transformer and underground
cable.
* Remote monitoring systems used in production, consumption and scientific
data collection where solar electric systems provide reliable power to
customers who require monitoring of such diverse facilities or physical
locations as gas pipelines, remotely located weather stations or water
tables. Generally, only a small amount of power is needed to operate a
transmitter sending a signal over a phone line, a radio transmitter or via
satellite.
* Solar electric systems used by utility power providers who connect arrays
of modules directly to their power grid. These are known as grid
interconnected systems. A growing number of homeowners in the U.S., Europe,
and Asia are expressing a desire for green electricity. Surveys have shown
that a growing percentage of U.S. homeowners will pay a premium for energy
produced by clean, renewable sources, such as solar energy. Although this
form of electrical power generation continues to cost much more than
conventional sources, or fossil fuels, it is anticipated that as
restructuring in the U.S. Electric Utility Industry accelerates, and the
electric service monopolies are opened up to competition, solar will emerge.
The Company's products within these markets include complete solar electric
power systems, grid interconnected systems, system components and certain
accessory products. Complete systems consist of one or more solar modules;
controllers to monitor, regulate and control the output; and, in most
systems, batteries to store the energy generated by the solar modules.
Occasionally, backup generators or inverters, which 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. Grid interconnected systems consist of many solar modules,
controllers, inverters and support structures which are connected to a
utility s power grid. The Company also sells a line of proprietary non-
breakable (non-glass construction) solar modules, under the trade name
Duravolt(tm). Duravolt(tm) modules are utilized in applications requiring
maximum durability and rugged construction.
The Company s distribution market includes a wide range of customers. Today,
more than 500 solar energy dealers, predominantly located in North and South
America, are part of this service family. The Company delivers both products
and services as described below:
* Dealers are supported by delivery of a wide range of solar modules and
related hardware. These dealers and their customers are supported by the
Company s extensive dealer program, which includes product catalogs, expert
application assistance and advertising support to promote their businesses.
* The distribution market is also supported by the Company at the retail
level through Sunelco, the Company s wholly-owned subsidiary concentrating
in system integration and mail-order system design. An extensive catalog is
maintained by Sunelco to provide information about sizing and installation
of remote solar energy systems.
* Direct sales of solar electric systems to owners of recreational vehicles
and boats are an emerging market. Prepackaged solar energy systems provide
the customer with a new source of electricity when conventional sources are
unavailailable.
<PAGE> 4
* The water pumping system market is another market within the distribution
group. The Company manufactures solar electric pumps and designs complete
systems for deployment anywhere in the world. With the sun as the energy
source, water can be delivered at rates from .5 gallons per minute for small
residential customers to over 120 gallons a minute for agricultural or
village applications.
Products offered by the Company in these markets include solar modules,
inverters, controllers, batteries, battery chargers, switches, metering
devices, mounting hardware, water pumps, light fixtures and high efficiency
appliances, most of which are either integral to, or used in conjunction
with, solar electric power systems.
The Company manufactures a wide range of products used in solar systems and
sold in the distribution network. Products manufactured by the Company to
be used in industrial systems include modules (both Duravolttm and other
types), controllers, inverters, and module structures. Products
manufactured by the Company to be sold in its distribution network include,
specialty modules, controllers, inverters and water pump motors. The
Company s manufactured products account for approximately 15% of the
Company s sales.
Suppliers
The photovoltaic module is the most critical element comprising a solar
electric power system.
The Company has a photovoltaic module distribution agreement with United
Solar. The Company has the exclusive rights to distribute United Solar s
Unisolar brand module in the United States and Canada. United Solar is
believed to be the world s largest producer of thin film solar modules.
Thin film modules are lightweight durable modules which are less expensive
but also less efficient than traditional modules.
The Company also has a solar module distribution arrangement with Kyocera s
United States subsidiary Kyocera America, Inc. The Company represents
Kyocera solar electric modules in the United States, Canada, Latin America
and South America. Kyocera, the world's third largest manufacturer of solar
electric modules, offers the Company competitive terms and the opportunity
to develop and establish a Western Hemisphere dealer organization.
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. Suppliers for sales in markets outside
North America are generally the same as those for sales in North America
except when specific contracts require specific components.
Certain key systems components, such as Duravolt modules and electronic
controllers, are manufactured by the Company and considered to be
proprietary. Solar cells are the key raw material used in the Company s
manufacturing process. The Company can use solar cells from any of the
major module manufactures but the majority of the solar cells used in its
modules are from Kyocera. All other raw materials required in the Company s
manufacturing are available from a variety of sources at competitive prices.
Company Marketing Organization
The Company markets its products to a broad range of customers in both its
distribution and industrial markets. Within the North American distribution
market, Company sales are through a network of over 500 dealers who purchase
products from the Company for resale to their own customer accounts, and
through direct retail customers primarily accessed by the Company's Sunelco
mail-order operation. North American distribution sales accounted for
approximately 33%, 26%, 35% and 19% of the Company s sales for year ended
December 31, 1997, the four months ended December 31, 1996, and the years
ended August 31, 1996 and 1995, respectively. The Company has aggressively
expanded its distribution markets through certain international markets
including a wholly owned subsidiary in Australia and dealers in Central and
South America. International distribution sales accounted for approximately
20%, 13%, 16% and 13% of the Company s sales for the year ended December 31,
1997, the four months ended December 31, 1996, and the years ended August
31, 1996 and 1995, respectively. No single customer within the domestic or
international market accounted for more than 10% of the Company s annual
sales for any of the reported periods.
<PAGE> 5
Industrial sales, in which the Company develops, engineers and distributes
fully integrated systems, for a diverse array of industrial customers are
made either through direct sales employees of the Company or through
independent sales representatives. Industrial sales represented
approximately 47%, 60%, 45% and 48% of the Company's sales for the year
ended December 31, 1997, the four months ended December 31, 1996 and the
years ended August 31, 1996 and 1995, respectively. During the year ended
December 31, 1997 no single customer accounted for more than 10% of the
Company s sales. During the four months ended December 31, 1996 Motorola
Indonesia represented approximately 27% of the Company s sales and no other
customer accounted for more than 10% of the Company s sales. During the
year ended August 31, 1996, no single customer accounted for more than 10%
of the Company's sales. During the year ended August 31, 1995, the U.S.
Navy represented 15% of the Company s sales, and no other single customer
accounted for more than 10% of the Company s sales.
Competition
The Company's principal competition in the distribution markets consists of
numerous regional distributors who purchase solar electric modules from the
major manufacturers and resell modules and other system components to
dealers or end-users. The major competitive factors are product price,
service, technical capability and delivery. The Company has an advantage
over the small regional distributors by having the resources to provide
better service, technical capability and delivery.
In the industrial markets the Company's competition consists principally of
the major international module manufacturers and distributors who have
technical capabilities to deliver fully integrated systems. Manufacturers
that market integrated systems include U.S.-based Siemens Solar and Solarex,
U.K.-based BP Solar and Japan-based Kyocera. Module pricing, technical
ability and service are the important competitive factors internationally.
The major module manufacturers have an advantage in module pricing but the
Company is able to compete evenly in service and technical capability.
Backlogs
The Company s products are generally shipped within one to two months after
receipt of an order. The Company backlog as of December 31, 1997 was
approximately $4,500,000. The comparable backorder level as of December 31,
1996 was approximately $4,300,000. All backlogged sales are expected to be
filled within the next fiscal year.
Subsidiary Operations
Balance of Systems Specialists, Inc. ("BOSS"), Photocomm Credit Corporation
and Photocomm of Texas, Inc. operated as wholly owned subsidiaries of the
Company until December 31, 1997 when they were merged into Photocomm, Inc.
The merger was done to reduce administrative costs of the Company.
Employees
On March 1, 1998, the Company employed a total of 115 persons, 6 of whom are
management and marketing personnel, 26 of whom are engaged principally in
sales, 36 of whom provide administrative, engineering and secretarial
services, and 47 of whom are manufacturing personnel. No employee is
subject to a collective bargaining agreement. The Company believes it has
favorable relations with its employees.
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.
<PAGE> 6
Item 2. Properties
The Company owns 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 expiration dates:
Lease Approximate
Expiration floor area in Location
Location Date square feet Purpose
Scottsdale, AZ November 1998 10,750 Sales and
warehousing
Safford, AZ December 1998 8,000 Manufacturing
San Diego, CA Month to month 325 Sales
Golden, CO Month to month 6,220 Administration
and sales
Houston, TX February 2001 2,500 Sales
Hamilton, MT September 1998 2,500 Sales
Fort Myers, FL Month to month 500 Sales
Brisbane, Australia September 1998 3,200 Sales and
warehousing
Frederick, MD Closed January 1998 10,000 Sales and
warehousing
Houston, TX Closed January 1998 5,000 Manufacturing,
warehousing
and sales
As of December 31, 1997, the Company is leasing 10,750 square feet of
office/warehouse space in a building adjacent to the corporate headquarters.
The Company's former President and former Chief Financial Officer own this
adjacent office/warehouse building. The present lease has been negotiated
at fair market value rates. Aggregate rental payments for the year ended
December 31, 1997 and the four months ended December 31, 1996 were $62,868
and $19,808, respectively. The term of the lease expires in November 1998.
On October 29, 1997 the Board of Directors approved a plan to relocate the
Scottsdale offices, manufacturing and warehouse functions to a new facility.
The new, 52,650 square foot facility will be leased with an initial lease
term through February 2000. The existing headquarters has been listed for
sale.
The Company believes that future space requirements can be met with the new
facility 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 consistent with its strategic objectives in fiscal 1998.
Item 3. Legal Proceedings
The Company has learned that it has been named as one of two dozen
defendants in a lawsuit. The suit appears to allege various violations of
securities laws and breaches of fiduciary duties, among other things.
Although the Company is named as a defendant in the lawsuit, no claim of
damages or other relief is expressly requested of it in the plaintiffs
complaint. Although the Company has not been served with process, the
Company will, if served, defend itself vigorously against these claims.
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted to a vote of the shareholders during the fourth
quarter ended December 31, 1997, through the solicitation of proxies or
otherwise.
<PAGE> 7
PART II
Item 5. Market for Registrant s Common Equity and Related Stockholder
Matters
The Company's Common Stock trades on the NASDAQ small cap 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 year ended December 31, 1997, the four months
ended December 31, 1996 and the year ended August 31, 1996.
Year ended August 31, 1996 Low High
First Quarter (through November 30, 1995) $2.03 $3.25
Second Quarter (through February 29, 1996) 2.43 3.37
Third Quarter (through May 31, 1996) 2.43 2.87
Fourth Quarter (through August 31, 1996) 2.12 2.87
Four months ended December 31, 1996
Period September 1, 1996 to December 31, 1996 $2.06 $2.81
Year ended December 31, 1997
First Quarter (through March 31, 1997) $2.06 $3.13
Second Quarter (through June 30, 1997) 1.88 2.50
Third Quarter (through September 30, 1997) 1.50 2.31
Fourth Quarter (through December 31, 1997) 1.38 2.03
On March 3, 1998 there were 786 stockholders of record for the Company's
Common Stock. The Company estimates that there are approximately 3,700
beneficial owners of the Company's Common Stock.
The Company has never paid cash dividends on its Common Stock, and it
intends for the foreseeable future to retain any earnings to support the
growth of its business.
<PAGE> 8
Item 6. Selected Financial Data
Selected financial data for the year ended December 31, 1997, the four months
ended December 31, 1996 and the years ended August 31, 1996, 1995, 1994 and
1993 follows. (In thousands, except per share data)
Income Data
<TABLE>
<CAPTION>
Four Months
Year Ended Ended Year Ended Year Ended Year Ended Year Ended
12/31/97 12/31/96 8/31/96 (1) 8/31/95 8/31/94 8/31/93
<S> <C> <C> <C> <C> <C>
Sales $ 32,829 $ 9,705 $ 22,995 $ 20,541 $ 14,272 $ 11,540
Gross profit 6,909 2,198 5,558 4,821 3,408 2,766
Net income (loss) (525) (1,389) 1,147 904 216 (493)
Net income (loss) per
basic common share (0.03) (0.10) 0.08 0.06 0.00 (0.08)
In-kind dividends declared, per:
Series A preferred share - - - - 0.15 0.60
Series B preferred share - - - - 0.20 0.60
Cash dividends declared, per:
Series A preferred share 0.46 0.30 0.60 0.60 0.45 -
Series AA preferred share 0.51 0.33 0.66 0.66 0.66 0.12
Weighted average number of
common shares outstanding 16,216 14,906 13,917 12,342 11,264 9,010
Balance Sheet Data
12/31/97 12/31/96 8/31/96 8/31/95 8/31/94 8/31/93
Total assets $19,505 $15,287 $15,586 $ 8,825 $ 7,327 $ 6,364
Working capital 12,054 7,017 5,719 4,745 3,253 1,360
Long-term debt 4,150 134 638 720 844 1,610
Stockholders equity 11,706 11,559 9,733 6,397 4,958 1,672
(1) Fiscal year 1996 includes the acquisitions of Solarjack Manufacturing, Inc. on February 2, 1996
and Sunelco, Inc. on October 3, 1995.
</TABLE>
<PAGE> 9
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
References herein to 1997 refer to the Company s fiscal year ended December
31, 1997. References herein to fiscal 1996 and fiscal 1995 refer to the
Company s previous fiscal years ended August 31, 1996 and 1995,
respectively.
Introduction
The Company markets, engineers, manufactures and distributes solar electric
systems utilized primarily in remote areas. Areas generally include those
where electric power is needed but access to electricity is not available,
costs are relatively high or access is inconvenient. Two primary markets
compose the majority of the Company s results from operations: the
industrial market and the distribution market.
The Company services a variety of customers in the industrial market. These
customers have power generation needs for communication systems, traffic
signal systems, and remote monitoring systems.
The Company s distribution market includes more than 500 solar energy
dealers, which are predominantly located in North and South America. The
Company delivers a wide range of solar modules and related hardware to the
dealer network. The distribution market also includes retail sales through
Sunelco, a system integrator and mail-order design firm, and direct sales to
end users of prepackaged solar systems for recreational vehicles and boats
and water pumping systems for small residential customers or large
agricultural and village applications.
The Company s operating results reflect the strategic decisions to increase
marketing resources to expand current domestic and international sales,
activities to consolidate manufacturing, operations support and
administration and settlement costs with former management. The
consolidation will allow the Company to serve customers with higher quality
goods and services at a lower overall cost.
Results of Operations
The following table sets forth certain operational data as a percent of net
sales for the periods indicated:
Four
Year months
ended ended Year ended
December 31, August 31,
1997 1996 1996 1995
Sales 100% 100% 100% 100%
Cost of sales 79% 77% 76% 77%
Gross profit 21% 23% 24% 23%
Selling, general & administrative 22% 36% 20% 19%
Income (loss) from operations (1%) (13%) 4% 4%
Year ended December 31, 1997 vs. year ended August 31, 1996.
Sales
Sales for 1997 were $32,829,360, a 43% increase over sales of $22,995,264,
for fiscal 1996. Sales increased in every market in which the Company
operates. Industrial sales increased $4,959,000 or 48%, primarily due to
the acquisition of the IPC contracts in July of 1997 and increased domestic
sales to industrial original equipment manufacturer customers. Sales to the
distribution network increased $4,875,000 or 39%, primarily due to the
increased number of domestic distributors, higher sales by the Company s new
Australian subsidiary and increased demand in South America.
<PAGE> 10
The Company s sales mix changed slightly during 1997 compared to fiscal
1996. The Company derived approximately 47% of its revenue from industrial
customers, and 53% from distribution markets, which primarily service
consumer-based dealers and retail customers. Sales during fiscal 1996 are
comprised of 45% from the industrial markets and 55% from distribution
markets. In 1997, international sales within the industrial and
distribution markets accounted for approximately 15% and 21% of the
Company s sales, respectively.
Gross Profits
Gross profits for 1997 were $6,908,758, a 24% increase over gross profits
of $5,557,927 for fiscal 1996. Gross margins were 21% in 1997 and 24% in
fiscal 1996. The increase in gross profits was due to a significant
increase in overall sales. The lower gross profit margins are
attributable to increased sales within the international distribution
markets, (where module suppliers are often the major competitors and the
Company is at a price disadvantage), costs associated with entering new
industrial markets, increased prices of solar modules resulting from
supply restrictions and lower absorption of fixed costs by Company
manufacturing facilities.
Selling, General and Administrative Expenses ( SG&A )
SG&A expenses for 1997 were $7,240,203, a 54% increase over SG&A expenses
of $4,707,316 for fiscal 1996. The increase was partially due to a 1997
compensation charge of approximately $800,000 for severance payments to
former executives of the Company.
Excluding severance, SG&A expenses would have been $6,440,203 for 1997, a
37% increase over fiscal 1996. The increase was attributable to overall
staffing increases including significant increases in sales and marketing
salaries and personnel, an expanded incentive bonus program, increased
facility costs, travel and other expenses for activities to support the
Company s continued growth.
Other Income (Expense)
The Company's non-operating income and expense is primarily comprised of
interest expense. Interest expense increased in 1997 versus fiscal 1996
due to additional outstanding indebtedness relating to investments in
upgraded infrastructure, former executive settlements and the acquisition
of IPC assets.
Income Tax
The Company did not recognize any income tax benefit or expense for 1997.
Utilization of the net operating loss ( NOL ) carryforward as of December
31, 1997 totaling approximately $8,500,000, is dependent on generation of
future taxable income and is limited by ownership changes. At this time,
management has not determined that it is more likely than not that all of
the deferred tax asset will be realized and has provided a valuation
allowance for a significant portion of the value of the NOL carryforward.
Net Loss
The Company experienced a net loss of $525,261 or $0.03 per diluted common
share in 1997 versus net income of $1,147,327 or $0.07 per diluted common
share in fiscal 1996. The change to a net loss position was primarily
due to severance charges and lower gross profit margins in 1997. In
addition, the Company recognized a $350,000 income tax benefit in fiscal
1996.
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 the same period of 1995. The
four month period for 1996 included a $2,200,000 sale to an Indonesian
telecommunications customer.
Distribution increased approximately 12% during the four month period
ending December 31, 1996 versus the same 1995 period. In general, sales
revenue increases were due to volume increases with little or no effect
related to price changes.
<PAGE> 11
Gross Profit
Gross profit increased 29% from $1,706,513 in the four month period ended
December 31, 1995 to $2,197,534 in the same period in 1996. Gross margins
were 25% in the four month period ended December 31, 1995 and 23% in the
four month period ended December 31, 1996. The gross profit for the 1996
period included a $410,600 charge related to inventory valuation
allowances. Exclusive of this inventory valuation allowance, gross margins
would have been 27% for the four month period in 1996, a 2% improvement
compared to the same period in 1995. This was attributable to the higher
margin realized on the Indonesian telecommunications sale in 1996.
Selling, General and Administrative Expenses
SG&A expenses increased 139% from $1,481,310 in the four month period
ended December 31, 1995 to $3,540,050 in 1996. The increase in SG&A in
1996 was largely driven by a $1,200,000 charge relating to severance with
former executives, 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 and bonus and benefit awards.
Staffing increases were largely the result of start-up of the Australia
subsidiary in October 1996 and from the acquisitions of Solarjack and
Sunelco. The increase in sales and marketing expenses was primarily
attributable to increased marketing of the Company's new solar water
pumping division, advertising cost associated with the retail distribution
business through Sunelco and new industrial markets.
Other Income (Expense)
The Company's non-operating income and expense is primarily comprised of
interest expense. Interest expense increased in the four month period
ended December 31, 1996 versus 1995 due to additional outstanding debt in
1996.
Income Tax
The Company did not recognize any income tax benefit or expense for the
four months ended December 31, 1996 or 1995. Utilization of the NOL
carryforward as of December 31, 1996 totaling approximately $8,000,000, is
dependent on generation of future taxable income and is limited by
ownership changes. The Company utilized NOL carryforward of $65,000 in the
four months ended December 31, 1995 to offset current income tax expense.
Net Loss
The Company experienced a net loss of $1,388,857 or $0.10 per diluted
common share in the four month period of 1996 versus net income of
$222,380 or $0.01 per diluted common share for the same period in 1995.
Without the inventory valuation allowance and other charges discussed
above in the aggregate of $1,822,830, net income would have been $433,972,
a 95% improvement from the same period in the prior year.
Year ended August 31, 1996 vs. year ended August 31, 1995
Net Sales
In 1996, the Company achieved a 12% increase in sales revenue over 1995.
Sales revenue totaled $22,995,264 in the fiscal year ended August 31, 1996,
compared to sales of $20,540,840 in the fiscal year ended August 31, 1995.
Approximately 20% of fiscal 1995 sales revenue, or $5.1 million, were from
non-recurring U.S. military contracts. Excluding military contracts, the
Company's commercial sales increased by 49%.
The sales revenue gains were primarily attributable to a $3,058,000 or 45%
increase in industrial products and systems; a $3,002,000 or 50% increase in
residential off-grid home and water pumping systems; and a $1,272,000 or 53%
increase in international sales. The increase in each of the Company's
markets was attributable to the introduction of improved products and
systems, and additional sales resulting from the 1996 Sunelco and Solarjack
acquisitions, as well as continued marketing successes with little or no
effect related to price changes.
In 1996, the Company's sales mix changed slightly from 1995. The Company
derived approximately 45% of its sales revenues from industrial, commercial
and government customers, with 55% from distribution markets. The sales mix
in fiscal 1995 was 48% from industrial products and 52% from distribution
markets. The change is primarily due to the addition of new consumer-based
business resulting from the acquisitions of Sunelco and Solarjack in 1996.
<PAGE> 12
Gross Profits
The Company's gross profits increased 15% to $5,557,927 for 1996 compared to
$4,821,264 in 1995. Gross margins were 24.2% in 1996 and 23.5% in 1995.
The gross profit increase was due to higher revenue volume and an increase
in gross profit margins in 1996 versus 1995. The higher gross profit
margins were attributable to higher profit business associated with
industrial products and systems, the addition of retail sales and
proprietary water pumping systems from the Sunelco and Solarjack
acquisitions, and the reduction of lower margin government contract business
in 1996 versus 1995.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased 21% in 1996 versus
1995. Selling, general and administrative expenses were $4,707,316 for 1996
and $3,898,174 for 1995. The increase for 1996 was attributable to
additional market development in an effort to expand revenue growth with
most of the increases associated with 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 expense consist mainly of interest
expense. Interest expense increased to $101,416 for 1996 from $96,502 for
1995. Interest expense was slightly higher in 1996 due to increased
borrowings on the Company's line of credit. The line was fully utilized and
increased in the last half of 1996, while in 1995 the credit facility was
approximately 50% utilized. Other income decreased to $48,132 for 1996 from
$77,386 for 1995.
Income Tax Benefit
In 1996, after three consecutive profitable fiscal years, the Company
determined that realization of a deferred tax asset was considered more
likely than not, and therefore, reduced the valuation allowance established
in previous years. The Company recognized a $350,000 income tax benefit
from the adjustment of the valuation allowance.
Net Income
The Company achieved net income of $1,147,327 or $0.07 per diluted common
share in 1996 compared to $903,974 or $0.06 per diluted common share in
1995. The 27% increase in net income was attributable to higher sales and
resulting gross profits and income tax benefits of net operating loss carry
forwards recognized in 1996. This was partially offset by increases in
selling, general and administrative expenses.
Liquidity and Capital Resources
The Company s liquidity is generated from both internal and external sources
and is used to fund short-term working capital needs, capital expenditures
and acquisitions. Internally generated liquidity is measured by net cash
flows from operations, as discussed below, and working capital. At December
31, 1997, the Company s working capital (current assets minus current
liabilities) was $12,053,715 with a current ratio (current assets divided by
current liabilities) of 4.30 to 1.
The Company has established an unsecured, $4,750,000 line of credit with
ACX, the parent of the Company s majority shareholder. This facility bears
interest, payable quarterly, at 1% below prime. The principal balance is
due October 31, 2000. At December 31, 1997, the Company had borrowed
$4,000,000 under this line for use in funding working capital needs, capital
expenditures, and the acquisition of the assets and certain contracts of
IPC. Subsequent to December 31, 1997, the Company borrowed an additional
$750,000 under this facility to fund, among other things, the Company s
acquisition of Utility Power Group.
In January 1997, the Company made a final payment of $481,775 and retired a
mortgage payable on its current headquarters building in Scottsdale,
Arizona.
As shown in the Consolidated Statement of Cash Flows, net cash used by
operations was $2,805,775, $434,941, $1,059,137, and $426,444 for the year
ended December 31, 1997, the four months ended December 31, 1996, and the
fiscal years ended August 31, 1996 and 1995, respectively. Increases in
accounts receivable and inventories resulting from the Company's significant
revenue growth account for the increased use of cash for operations between
the fiscal year ended August 31, 1996 and the year ended December 31, 1997.
During the four months ended December 31, 1996, the Company used $434,941
of cash for operations, compared with $24,474 generated from operations for
the comparable period of
<PAGE> 13
1995. A $696,022 decrease in current liabilities, partially offset by the
liquidation of inventory and receivables, was the primary use of cash for the
four months ended December 31, 1996. The Company used $1,059,137 for
operations during fiscal 1996, compared with $426,444 used for operations in
fiscal 1995. This increase in cash used for operations between fiscal 1995
and fiscal 1996 resulted from increases in receivables and inventories in
fiscal 1996.
During 1997, the Company invested $577,833 in capital expenditures to
upgrade equipment. This represents an increase of $260,060 over capital
expenditures in fiscal 1996. The Company invested $378,655 during 1997 for
the purchase of patents, trademarks, and other intangible assets, primarily
for the purchase of contracts from IPC. The Company believes these
contracts will provide access to key markets in the Middle East and Northern
Africa. During the fiscal year ended August 31, 1996, the Company invested
$713,325 in equipment purchases and acquisitions, compared with $135,519 in
capital expenditures in fiscal 1995. The increased capital spending in
fiscal 1996 resulted primarily from the Company s acquisitions of Sunelco
and Solarjack. The Company will continue to evaluate potential acquisitions
and planned capital spending in light of internally generated cash flows and
the availability of external sources of funds.
Although no assurances can be made, the Company currently expects that cash
flows from operations and access to its line of credit will be sufficient to
meet the Company s needs for working capital, temporary financing for
capital expenditures and acquisitions.
The impact of inflation on the Company s financial position and results of
operations has been minimal and is not expected to adversely affect future
results.
Year 2000 Conversion
Management has initiated an enterprise-wide program to prepare the
Company s computer and operating systems and applications for the year
2000. The Company expects to incur internal staff costs as well as
consulting and other expenses related to the year 2000 project. At this
point, the Company is not able to determine the estimated cost for its year
2000 project and, whether it will have a material impact on the operations
of the Company.
Forward-Looking Statements
Certain statements in this report that are not historical facts
contain forward-looking statements which involve uncertainties
and factors that may cause actual results to be materially
different from those that may be implied by such statements.
Forward-looking statements include, but are not limited to,
statements of the Company s beliefs, expectations and
strategies. Forward-looking statements and related 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
international operations including currency fluctuations,
litigation, seasonality, claims to which the Company may be a
party, availability of critical materials or supply, the
Company s ability to managed planned expansion of its business
and to integrate acquisitions of other businesses.
Item 7a. Quantitative and Qualitative Disclosure About Material Risk
Not Applicable
<PAGE> 14
Item 8. Financial Statements and Supplementary Data
Index to Financial Statements Page
Report of Independent Accountants December 31, 1997 and 1996 15
Independent Auditors Report - Years Ended August 31, 1996 and 1995 16
Consolidated Balance Sheets as of December 31, 1997 and 1996 17
Consolidated Statements of Operations for the year ended
December 31, 1997, the four months ended December 31, 1996
and the years ended August 31, 1996 and 1995 18
Consolidated Statements of Changes in Stockholders Equity for
the year ended December 31, 1997, the four months ended
December 31, 1996 and the years ended August 31, 1996 and 1995 19
Consolidated Statements of Cash Flows for the year ended
December 31, 1997, the four months ended December 31, 1996
and the years ended August 31, 1996 and 1995 21
Notes to Consolidated Financial Statements 22
<PAGE> 15
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of Photocomm, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, stockholders equity and cash flows
present fairly, in all material respects, the financial position of
Photocomm, Inc. and its subsidiaries at December 31, 1997 and 1996, and the
results of their operations and their cash flows for the year ended December
31, 1997 and the four months ended December 31, 1996, in conformity with
generally accepted accounting principles. These financial statements are
the responsibility of the Company s management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with generally
accepted auditing standards which 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, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.
Price Waterhouse LLP
Denver, Colorado
February 19, 1998
<PAGE> 16
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Photocomm, Inc.
We have audited the accompanying consolidated statements of operations,
stockholders' equity, and cash flows of Photocomm, Inc. and subsidiaries for
each of the years in the two-year period ended August 31, 1996. 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 accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the results of the operations and
the cash flows of Photocomm, Inc. and subsidiaries for each of the years in
the two-year period ended August 31, 1996 in conformity with generally
accepted accounting principles.
KPMG Peat Marwick LLP
Phoenix, Arizona
October 18, 1996
<PAGE> 17
PHOTOCOMM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, December 31,
1997 1996
Assets
Current assets
Cash & cash equivalents $ 1,182,307 $ 1,377,898
Accounts receivable, net of allowance
for doubtful accounts of $146,453
and $44,508, respectively 7,276,527 4,557,102
Inventories, net 5,810,400 4,490,784
Property held for sale, net 1,017,779 -
Deferred tax asset 193,343 -
Other current assets 221,546 184,904
Total current assets 15,701,902 10,610,688
Property & equipment, net 1,683,560 2,551,616
Goodwill, net 1,620,280 1,720,769
Deferred tax asset 156,657 350,000
Other assets, net 342,243 53,688
Total assets $19,504,642 $15,286,761
========== ==========
Liabilities and stockholders' equity
Current liabilities
Accounts payable $ 2,912,173 $ 1,695,266
Other accrued expenses 654,227 1,341,811
Current installments of long-term debt 81,787 556,153
Total current liabilities 3,648,187 3,593,230
Long-term debt, 4,150,479 134,490
Total liabilities 7,798,666 3,727,720
Commitments and contingencies (Note 13)
Stockholders' equity
Preferred stock: $0.001 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;
44,165 and 52,565 shares issued
and outstanding, respectively 44 53
Common Stock:
$0.10 par value, 25,000,000 shares
authorized; 16,245,044 and 16,151,444
shares issued and outstanding,
respectively 1,624,504 1,615,144
Additional paid-in capital 16,121,249 15,458,404
Accumulated deficit (6,039,860) (5,514,599)
Total stockholders' equity 11,705,976 11,559,041
Total liabilities and
stockholders equity $19,504,642 $15,286,761
========== ==========
See accompanying notes to consolidated financial statements.
<PAGE> 18
PHOTOCOMM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Four Months
Year Ended Ended Year Ended Year Ended
December 31, December 31, August 31, August 31,
1997 1996 1996 1995
<S> <C> <C> <C> <C>
Net sales $32,829,360 $ 9,705,486 $22,995,264 $20,540,840
Cost of sales 25,920,602 7,507,952 17,437,337 15,719,576
Gross profit 6,908,758 2,197,534 5,557,927 4,821,264
Selling, general and
administrative expenses 7,240,203 3,540,050 4,707,316 3,898,174
Income (loss) from
operations (331,445) (1,342,516) 850,611 923,090
Other income (expenses):
Interest expense (161,158) (59,673) (101,416) (96,502)
Other, net (32,658) 13,332 48,132 77,386
Income (loss)
before taxes (525,261) (1,388,857) 797,327 903,974
Income tax benefit - - 350,000 -
Net income (loss) $ (525,261) $(1,388,857) $ 1,147,327 $ 903,974
========== ========= ========= =========
Preferred stock dividend (41,954) (67,753) (92,022) (123,291)
========= ========= ========= =========
Net income (loss) applicable
to common stockholders $ (567,215) $(1,456,610) $ 1,055,305 $ 780,683
========= ========= ========= =========
Net income (loss) per basic
share of common stock $ (0.03) $ (0.10) $ 0.08 $ 0.06
========= ========== ========== =========
Weighted average shares
outstanding basic 16,215,919 14,906,251 13,917,490 12,342,442
Net income (loss) per diluted
share of common stock $ (0.03) $ (0.10) $ 0.07 $ 0.06
========= ========== ========== =========
Weighted average shares
outstanding diluted 16,215,919 14,906,251 14,535,144 13,105,628
========== ========== ========== ==========
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE> 19
PHOTOCOMM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Convertible Preferred Stock Additional
Series A Series AA Common Stock Paid-in Accumulated
Shares Amount Shares Amount Shares Amount Capital Deficit Total
<S> <C> <C> <C> <C> <C> <C>
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
Common stock issued upon
exercise of stock options 639,000 63,900 544,415 608,315
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 per share,
respectively (123,291) (123,291)
Series AA convertible
preferred stock converted
to common stock 4 to 1 (33,600) (34) 134,400 13,440 (13,406) -
Net income 903,974 903,974
Balance, August 31, 1995 109,972 $110 69,365 $69 13,014,159 $1,301,416 $10,368,614 $(5,273,069) $6,397,140
Common stock issued upon
exercise of stock options 391,085 39,108 351,740 390,848
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 issued upon
exercise of warrants 50,000 5,000 85,000 90,000
Series AA convertible
preferred stock converted
to common stock 4 to 1 (16,800) (16) 67,200 6,720 (6,704) -
Cash dividends on Series A
and Series AA preferred stock
$0.60 and $0.66 per share,
respectively (92,022) (92,022)
Net income 1,147,327 1,147,327
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
See accompanying notes to consolidated financial statements.
<PAGE> 20
PHOTOCOMM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (CONTINUED)
Convertible Preferred Stock Additional
Series A Series AA Common Stock Paid-in Accumulated
Shares Amount Shares Amount Shares Amount Capital Deficit Total
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 stock purchase agreement 1,000,000 100,000 2,541,542 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
$0.60 and $0.66 per share,
respectively (67,753) (67,753)
Net loss (1,388,857) (1,388,857)
Balance, December 31, 1996 38,972 $39 52,565 $53 16,151,444 $1,615,144 $15,458,404 $(5,514,599) $11,559,041
Common stock issued upon
exercise of stock options 60,000 6,000 59,834 65,834
Common stock issued upon
conversion of preferred AA
stock 4 to 1 (8,400) (9) 33,600 3,360 (3,351) -
Settlement of stock options 650,000 650,000
Cash dividends on Series A
and Series AA preferred stock
$0.60 and $0.66 per share,
respectively (41,954) (41,954)
Cumulative translation adjustment (1,684) (1,684)
Net loss (525,261) (525,261)
Balance, December 31, 1997 38,972 $39 44,165 $44 16,245,044 $1,624,504 $16,121,249 $(6,039,860) $11,705,976
=====================================================================================
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE> 21
PHOTOCOMM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Four Months
Year Ended Ended Year Ended Year Ended
December 31, December 31, August 31, August 31,
1997 1996 1996 1995
Cash flows from operating activities:
Net income (loss) $(525,261) $(1,388,857) $1,147,327 $903,974
Adjustments to reconcile net income to
net cash used in operating activities:
Depreciation and amortization 615,846 148,982 379,227 312,356
Non-cash stock option
settlement charge 650,000 - - -
Change in accounts receivable (2,719,425) 1,042,254 (3,241,808) (870,272)
Change in inventories (1,319,616) 214,094 (1,177,997) (672,715)
Change in accounts payable
and other accrued expenses 529,323 (696,022) 2,361,164 (29,319)
Change in other current assets (36,642) 244,608 (177,050) (70,468)
Deferred tax benefit - - (350,000) -
Net cash used in operating
activities (2,805,775) (434,941) (1,059,137) (426,444)
Cash flows from investing activities:
Purchase of property and
equipment (577,833) (155,418) (317,773) (124,179)
Purchase of patents, trademarks
and other assets (378,655) (17,514) - (11,340)
Cash paid for acquisitions - - (395,552) -
Net cash used in investing
activities (956,488) (172,932) (713,325) (135,519)
Cash flows from financing activities:
Proceeds from issuance of debt 4,102,250 - 1,199,099 212,503
Repayments of debt (560,629) (1,428,940) (135,628) (123,518)
Proceeds from issuance of stock 65,833 3,282,359 480,849 658,314
Cash dividends on preferred stock (40,782) (67,753) (92,022) (123,291)
Net cash provided by
financing activities 3,566,672 1,785,666 1,452,298 624,008
Net increase (decrease) in
cash and cash equivalents (195,591) 1,177,793 (320,164) 62,045
Cash and cash equivalents at
beginning of period 1,377,898 200,105 520,269 458,224
Cash and cash equivalents at
end of period $1,182,307 $1,377,898 $200,105 $520,269
========= ========= ======= =======
See accompanying notes to consolidated financial statements.
<PAGE> 22
PHOTOCOMM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996, AUGUST 31, 1996 AND 1995
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
Photocomm, Inc. and its subsidiaries (the "Company") are engaged
in the designing, manufacturing and marketing of solar electric
systems in the United States, Australia, the Middle East, Asia and
South America. Subsequent to December 31, 1997 the Company began
doing business as Golden Genesis Company.
At December 31, 1997 and 1996, respectively, the Company was 55%
and 52% owned by Golden Technologies Company, Inc. ("GTC"), a wholly
owned subsidiary of ACX Technologies, Inc. ("ACX"). At December 31,
1997 ACX had the voting rights to an additional 3% of the Company's
$0.10 par value common stock ("Common Stock"). At August 31, 1996 the Company
was 46% owned by New World Power Corporation ("NWP"). At August 31, 1996 and
1995, Photocomm, Inc. was 10%, and 14% owned by Programmed Land, Inc.
("PLI"), respectively.
Basis of Presentation
The consolidated financial statements of the Company include the
accounts of Photocomm, Inc. and its subsidiaries, Balance of
Systems Specialists, Inc. ("BOSS"); Photocomm of Texas, Inc.
(previously Solar SignAge, Inc.); Photocomm Credit Corporation
(previously Sunland Industries, Inc.); Photocomm Pty. Ltd.
( Australia ); and Integrated Power Corporation, Inc. ( IPC ). All
material intercompany balances and transactions have been
eliminated in consolidation.
On December 31, 1997 the Company merged BOSS, Photocomm of Texas,
Inc. and Photocomm Credit Corporation into Photocomm, Inc. The
remaining subsidiaries were Australia and IPC.
Certain reclassifications have been made in the financial
statements for the years ended August 31, 1996 and 1995 to conform
to the classifications used in the financial statements as of and
for the four months ended December 31, 1996 and the year ended
December 31, 1997.
Revenue Recognition
Sales and related cost of sales are recorded when goods are
shipped and services rendered to customers.
Inventories
Inventories are valued at the lower of historical cost, determined
by the first-in, first-out method, or market. Provisions are made
for excess, obsolete and slow-moving inventory.
Inventories consist of the following: December 31, December 31,
1997 1996
Raw materials and goods purchased for resale $5,702,452 $4,275,115
Work-in-progress 209,494 267,322
Less allowance for obsolescence (101,546) (51,653)
$5,810,400 $4,490,784
========= =========
<PAGE> 23
Property and Equipment
Property and equipment are stated at cost. Costs of repairs and
maintenance are expensed when incurred.
Depreciation of equipment is computed using the straight-line
method over 5 to 10 years. Leasehold improvements are amortized
over the term of the lease or life of the asset, whichever is
shorter. The building is depreciated using the straight-line
method over 31.5 years.
Property and equipment consist of the following:
December 31, December 31,
1997 1996
Machinery and equipment $2,285,450 $1,841,219
Furniture and fixtures 526,775 418,429
Billboard systems 415,063 418,963
Leasehold improvements 108,104 89,686
Automobiles 10,381 10,381
Building - 891,284
Land - 300,000
3,345,773 3,969,962
Less accumulated depreciation (1,662,213) (1,418,346)
$1,683,560 $2,551,616
========= =========
Depreciation expense for the year ended December 31, 1997, the
four months ended December 31, 1996 and the years ended August 31,
1996 and 1995 was $425,745 $121,609, $305,503 and $281,273,
respectively.
As part of the Company s overall plan to centralize operations,
warehousing and administration in Scottsdale, the Company s Board
of Directors approved relocation of headquarters to a new larger
facility. The Board also approved placing the existing land and
building for sale. The land has an original cost of $300,000 and
the building has an original cost of $896,675 with accumulated
depreciation of $178,896. The move to the new facility is expected
to occur in the second quarter of 1998.
Goodwill and Other Assets
Goodwill, which represents the excess of the purchase price over
the fair value of net assets acquired, is amortized on a straight-
line basis over the expected periods of benefit, generally 20
years. The Company assesses the recoverability of the goodwill
and other assets by determining whether the amortization of the
goodwill balance over its remaining life can be recovered through
undiscounted future operating cash flows of the acquired
operations. The amount of goodwill impairment, if any, is measured
based on the requirements of Statement of Financial Accounting
Standards No. 121 Impairment of Long Lived Assets."
Goodwill and other assets consist of the following:
December 31, December 31,
1997 1996
Goodwill $1,896,400 $1,887,832
Less accumulated amortization (276,120) (167,063)
$1,620,280 $1,720,769
========== ==========
Other assets $ 560,416 $ 190,036
Less accumulated amortization (218,173) (136,348)
$ 342,243 $ 53,688
=========== ===========
<PAGE> 24
On July 2, 1997, the Company purchased certain assets and
contracts of Integrated Power Corporation, Inc. from Westinghouse
Electric Corporation for $450,000. Integrated Power Corporation
specializes in highly engineered alternative power systems
incorporating solar, wind and diesel generators. The assets
purchased included contracts, fixed assets and intangible assets.
Other Accrued Expenses
Other accrued expenses consist of the following:
December 31, December 31,
1997 1996
Employee compensation $257,747 $ 94,341
Accrued freight 177,408 -
Non-employee commission 134,701 -
Accrued severance - 1,080,000
Other 84,371 167,470
Total other accrued expenses $654,227 $1,341,811
======== ==========
Stock Based Compensation
The Company applies the provisions of Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" for its
stock-based compensation programs, and has not adopted the fair
value accounting rules as permitted by Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"). See Note 7.
Supplementary Cash Flow Information
The Company paid interest of $142,962, $26,466, $101,416 and
$96,737 for the year ended December 31, 1997, the four months
ended December 31, 1996 and the years ended August 31, 1996 and
1995, respectively.
No income taxes were paid for the year ended December 31, 1997,
the four months ended December 31, 1996 or the years ended August
31, 1996 and 1995.
For purposes of the statements of cash flows, the Company
considers all highly liquid debt instruments with an initial
maturity of three months or less at the time of purchase to be
cash equivalents.
Non-cash investing and financing activities include the following:
On October 1, 1995, in connection with the Sunelco acquisition
(see Note 3), the Company issued 225,000 shares of its common
stock valued at $400,000. On February 2, 1996, in connection with
the Solarjack acquisition (see Note 3), the Company issued 560,000
shares of its common stock valued at $1,400,000.
Use of Estimates
Management of the Company has made a number of estimates and
assumptions relating to the reporting of assets and liabilities,
the disclosure of contingent assets and liabilities and the
reporting of revenues and expenses to prepare these financial
statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates.
Earnings Per Share
The Company has adopted Statement of Financial Accounting
Standards No. 128, "Earnings Per Share" ("SFAS 128"). Applying
the provisions of SFAS 128 resulted in the restatement of earnings
per share for all periods presented in the accompanying financial
statements. See Note 9.
<PAGE> 25
Adoption of New Accounting Standards
SFAS No. 130, Reporting Comprehensive Income, was issued in June
1997. The statement establishes standards for reporting and
display of comprehensive income in financial statements. This
statement is effective for the Company s financial statements for
the year ended December 31, 1998 and the adoption of this standard
is not expected to have a material effect on the Company s
financial statements.
Statement of Financial Accounting Standards ( SFAS ) No. 131,
Disclosures about Segments of an Enterprise and Related
Information, was issued in June 1997. This statement establishes
standards for the way public business enterprises report
information about operating segments. It also established
standards for related disclosures about products and services,
geographical areas and major customers. This statement is
effective for the Company s financial statements for the year
ended December 31, 1998 and the adoption of this standard is not
expected to have a material effect on the Company s financial
statements.
(2) CHANGE IN FISCAL YEAR END
On February 3, 1997 the Board of Directors elected to change the
fiscal year end of the Company and its subsidiaries from August 31
to December 31. As a result, the audited financial statements
presented herein include the period as of and for the four months
ended December 31, 1996. The following supplemental unaudited
consolidated statement of operations and unaudited consolidated
statement of cash flows for the four months ended December 31,
1995 are presented for comparative purposes only.
Consolidated Statement of Operations (unaudited)
Four Months Ended
December 31,1995
Net Sales $ 6,718,802
Cost of sales 5,012,289
Gross profit 1,706,513
Selling, general and 1,481,310
administrative expenses
Income from operations 225,203
Other income (expense):
Interest expense (40,178)
Other, net 37,355
Income before taxes 222,380
Income taxes -
Net income $ 222,380
=========
Preferred stock dividends 60,505
Net income applicable to common
stockholders $ 161,875
=========
Net income per basic share of common stock $ 0.01
Weighted average shares outstanding - basic 13,354,205
Net income per diluted share of common stock $ 0.01
Weighted average shares outstanding - diluted 14,054,224
<PAGE> 26
Consolidated Statement of Cash Flows (unaudited)
Four Months Ended
December 31,1995
Cash flows from operating activities:
Net income $ 222,380
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 99,124
Decrease in accounts receivable 122,974
Increase in inventories (1,154,784)
Increase in accounts payable
and accrued expenses 617,889
Decrease in other current assets 116,891
Net cash provided by operating activities 24,474
Cash flows from investing activities:
Purchase of property and equipment (46,465)
Purchase of patents, trademarks and
other assets (32,742)
Net cash used in investing activities (79,207)
Cash flows from financing activities:
Repayments of debt (252,436)
Proceeds from issuance of common stock 332,817
Cash dividends on preferred stock (60,505)
Net cash provided by financing activities 19,876
Net decrease in cash and cash equivalents (34,857)
Cash and cash equivalents at beginning of period 520,269
Cash and cash equivalents at end of period $ 485,412
=========
(3) ACQUISITIONS
On January 23, 1998 the Company acquired Silicon Energy
Corporation, a California corporation doing business as Utility
Power Group ( UPG ). UPG functions as a value added systems
integrator of solar electric products, specializing in on-grid and
off-grid solar and hybrid power systems, headquartered in
Chatsworth, California. The acquisition was structured as a merger
with Utility Power Group, Inc., a wholly owned subsidiary of the
Company, as the surviving corporation. The aggregate
consideration paid by the Company in connection with this merger
was $1,250,000. The Company issued 400,000 shares of its common
stock valued at $650,000 and paid $600,000 in cash. The Company s
principal stockholder financed the cash portion of the merger.
Michael J. Stern, former President of UPG, has joined the Company
as a Vice President. The acquisition of UPG was accounted for as
a purchase and will be included in the Company s results of
operations commencing on January 23, 1998.
On February 2, 1996, the Company acquired all of the assets,
excluding certain accounts receivable, of Solarjack
Manufacturing, Inc. ("Solarjack"), a solar electric pumping
products manufacturer located in Safford, Arizona. The
aggregate consideration paid by the Company in connection with
this acquisition was $1,737,240. The Company paid $337,240 in
cash and 560,000 shares of its
<PAGE> 27
common stock, valued at
$1,400,000. The acquisition of Solarjack has been accounted for
as a purchase. Accordingly, the purchase price was allocated to
the net assets acquired based upon their estimated fair market
values. The excess of purchase price over the fair market
values of net assets acquired of $1,091,406 is being amortized
over 20 years using the straight-line method.
On October 3, 1995, the Company acquired all of the assets and
liabilities of Sunelco, Inc. ("Sunelco"), a distributor of solar
electric products located in Hamilton, Montana. The aggregate
consideration paid by Photocomm in connection with this
acquisition was $914,986. The Company issued 225,000 shares of
its common stock, valued at $400,000, assumed Sunelco
liabilities of $456,674 and paid $58,312 in cash. The
acquisition of Sunelco has been accounted for as a purchase.
Accordingly, the purchase price was allocated to the net assets
acquired based upon their estimated fair market values. The
excess of purchase price over the fair market values of net
assets acquired of $458,312 is being amortized over 20 years
using the straight-line method.
In connection with the Sunelco and Solarjack acquisitions, the
Company entered into covenants not to compete with the principal
owners of the acquired companies. Pursuant to these agreements,
Photocomm makes monthly payments through February 2001, in a
total aggregate amount of $400,000.
The accompanying consolidated statements of operations reflect
the operating results of Sunelco and Solarjack since the
effective dates of the acquisitions. Proforma unaudited
consolidated operating results of the Company, Sunelco and
Solarjack for the years ended August 31, 1996 and 1995, assuming
the acquisitions had occurred on September 1, 1994, would be as
follows: sales, $23,615,238 and $23,335,369; net income,
$1,249,076 and $1,162,457; and basic and diluted earnings per
share, $0.08 each year. These unaudited proforma results have
been prepared for comparative purposes only and include certain
adjustments such as additional amortization expense as a result
of goodwill. They do not purport to be indicative of the
results of operations which actually would have resulted had the
combination been in effect on September 1, 1994 or of future
results of operations of the consolidated entities.
(4) OPERATING LEASES
The Company has leases covering office facilities and equipment.
Total rental expense was approximately $366,000, $98,000,
$226,000 and $118,000 for the year ended December 31, 1997, the
four months ended December 31, 1996 and the years ended August
31, 1996 and 1995, respectively.
Future minimum lease payments for non-cancelable operating
leases are as follows:
Years ending December 31 Amount
1998 $532,626
1999 467,435
2000 499,023
2001 473,823
2002 473,823
Thereafter 2,369,115
<PAGE> 28
(5) LONG-TERM DEBT
Long-term debt consists of the following:
December 31, December 31
1997 1996
Notes payable to ACX Technologies, Inc.
(a related party), variable annual interest
rate calculated at 1% below prime rate,
interest payments due quarterly beginning in
1998, principal due in full October 31, 2000. $4,000,000 $ -
Notes payable to Arizona Department of
Commerce, annual interest rate of 5%,
monthly payments of $5,966 through December
1999; collateralized by land, building
and equipment. 135,984 199,053
Notes payable to Arizona Department of
Commerce, annual interest rate of 5%,
monthly payments of $1,448 through January
2004; collateralized by land, building
and equipment. 91,002 -
Mortgage payable, interest rate of 10.625%,
principal and interest payable in monthly
installments of $4,852, with a final payment
of $481,775 made in January 1997. The mortgage
was collateralized by land and building. - 481,775
Other 5,280 9,815
4,232,266 690,643
Current Installments 81,787 556,153
$4,150,479 $ 134,490
========= ========
Maturities of the long-term debt in years subsequent to 1997 are as
follows: 1998, $81,787; 1999, $86,243; 2000, $4,014,506; 2001,
$15,248; 2002 $16,028; and thereafter, $18,454.
(6) INCOME TAXES
The Company did not have any income tax expense for the year ended
December 31, 1997, the four months ended December 31, 1996, or the
year ended August 31, 1995. The Company's tax benefit of $350,000
in the year ended August 31, 1996 resulted from the recognition of
a deferred tax asset.
<PAGE> 29
The tax effects of temporary differences, which give rise to
significant portions of the deferred tax assets (liabilities) as of
December 31, 1997 and 1996, are as follows:
1997 1996
Net operating loss carryforwards $3,376,242 $2,834,683
Inventory allowances 130,388 125,034
Depreciation and other property related 49,119 42,701
Intangible assets 103,816 64,041
Employee benefits 4,460 442,233
Allowance for doubtful accounts receivable 58,493 17,776
Total gross deferred tax asset 3,722,518 3,526,468
Less: valuation allowance (3,372,518) (3,176,468)
Net deferred tax asset $ 350,000 $ 350,000
========= =========
The change in the valuation allowance was a net increase of
$196,050 and $1,806,468 for the year ended December 31, 1997 and
the four months ended December 31, 1996, respectively. In
assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion or
all of the deferred tax assets will not be realized. The ultimate
realization of deferred tax assets is dependent upon generation of
future taxable income during the periods in which those temporary
differences become deductible. Management considers the scheduled
reversal of deferred tax liabilities, projected future taxable
income, and tax planning strategies in making this assessment.
Based upon the level of historical taxable income and projections
for future taxable income over the periods which the deferred tax
assets are deductible, management believes it is more likely than
not that the Company will realize the deferred tax asset, net of
the valuation allowance.
The increase in the valuation allowance for the year ended
December 31, 1997 resulted primarily from generation of additional
net operating loss ( NOL ) carryforwards.
The Company has NOL carryforwards for federal income tax purposes
of approximately $8,500,000 at December 31, 1997. These NOLs
expire in the years 2000 through 2013. Due to ownership changes,
the Company is limited to $1,000,000 per year of net operating
loss carryforwards which may be utilized. Included in the NOL
amount is approximately $1,500,000 attributable to the tax
deductions taken for stock options exercised, the benefit of which
will be credited to additional paid-in capital when realized.
(7) STOCK OPTION PLANS
The Company s 1990 Stock Option Plan (the 1990 Plan ) provides
for the issuance of 2,895,000 shares of common stock. The 1996
Stock Option Plan (the 1996 Plan ) provides for the issuance of
3,100,000 shares of common stock. The Non-Employee Directors
Stock Option Plan (the Directors Plan ) provides for the issuance
of 100,000 shares of common stock.
Options granted under the 1990 Plan may be either (i) options
intended to constitute incentive stock options ( ISOs ) under the
Internal Revenue Code or (ii) non-statutory options. ISOs may be
granted under the 1990 Plan to employees and officers of the
Company. Options granted under the 1996 Plan and the Directors
Plan are non-statutory options.
A committee consisting of non-affiliated members of the Board of
Directors administers the 1990 and 1996 Plans. The committee
determines and designates from time to time those employees of the
Company to whom options are to be granted.
<PAGE> 30
The stockholders approved the Directors Plan. Under the Directors
Plan, non-employee members of the Board of Directors are granted
10,000 options to acquire shares when they become a member of the
board and 3,000 options to acquire shares annually upon meeting
certain requirements. The options are immediately 25% vested,
become 50% vested on the first anniversary of grant and 100%
vested on the second anniversary of grant. The exercise price is
set at the stock price on the date of grant.
ISOs granted under the 1990 Plan may not be granted at a price
less than the fair market value of the common stock on the date of
grant (or less than 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. The options generally
become exercisable over a four year period, and ultimately lapse
if unexercised at the end of ten years.
Activity under the Company s stock option plans is as follows:
Number of Shares Option Price
Incentive Non-Statutory Per Share
Outstanding August 31, 1994 584,000 1,345,000 $0.75-$1.88
Granted 145,500 252,000 $1.68
Exercised (149,000) (490,000) $0.75-$1.88
Canceled (40,000) - $0.88-$1.88
Outstanding August 31, 1995 540,500 1,107,000 $0.75-$1.88
Granted 207,000 315,000 $2.75
Exercised (111,085) (280,000) $0.75-$1.88
Canceled (32,375) - $0.75-$2.75
Outstanding August 31, 1996 604,040 1,142,000 $0.88-$2.75
Granted - 36,000 $2.69
Exercised (60,000) (500,000) $0.88-$1.88
Canceled - -
Outstanding December 31, 1996 544,040 678,000 $0.88-$2.75
Granted 90,000 1,852,000 $1.69-$3.09
Exercised (45,000) (15,000) $0.88-$1.88
Canceled (37,350) (597,000) $0.88-$2.75
Outstanding December 31, 1997 551,690 1,918,000 $0.88-$3.09
At December 31, 1997 and 1996 and August 31, 1996 and 1995, options to purchase
1,453,915, 812,207, 796,041 and 1,032,212 shares, respectively, were exercisable
at prices ranging from $0.88 to $2.94.
At December 31, 1997 the plans had the following options outstanding:
Shares Exercise price Weighted average Weighted average
Range exercise price remaining life
91,125 $0.88 - $1.25 $1.05 3.95
1,033,915 $1.63 - $2.44 $1.93 7.06
1,344,650 $2.46 - $3.09 $2.80 8.54
At December 31, 1997 the plans had the following options exercisable:
Shares Exercise price Weighted average
Range exercise price
91,125 $0.88 - $1.25 $1.05
1,002,415 $1.63 - $2.44 $1.93
360,375 $2.46 - $2.94 $2.68
<PAGE> 31
All options granted under any plan are non-transferable during an
optionee's lifetime (except as noted below), but are transferable
at death by will or by laws of descent and distribution or
disability. 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 (except as
noted below).
On June 18, 1997, the Company entered into severance agreements
with two former executives that included amending certain option
agreements by allowing them to be transferable. As a result,
500,000 options were transferred to Programmed Land, Inc., a
corporation controlled by certain Directors of the Company, and
400,000 options were transferred to certain Directors of the
Company. At December 31, 1997 these options were included in the
outstanding non-statutory options. A separate option agreement was
amended to permit immediate vesting at termination and extended
exercise period after termination. In connection with the
severance agreements, the Company recorded a non-cash $650,000
compensation charge related to stock option activity.
The Company applies Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees, and related
interpretations in accounting for its stock option plans. If the
Company had elected to recognize compensation cost based on the
fair value of the options at grant date as allowed by Statement
of Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation, compensation expense of $562,287,
$102,898, and $310,979 would have been recorded for the year
ended December 31, 1997, the four months ended December 31, 1996
and the year ended August 31, 1996, respectively. Net income
(loss) and earnings per share would have been reduced to the pro
forma amounts indicated below:
Four months
Year ended ended Year ended
December 31, December 31, August 31,
1997 1996 1996
Net income (loss)
As reported $ (525,261) $(1,388,857) $1,147,327
Pro forma (1,087,548) (1,491,755) 836,348
Earnings (loss) per share
As reported - Basic (0.03) (0.10) 0.08
As reported Diluted (0.03) (0.10) 0.07
Pro forma - Basic (0.07) (0.10) 0.05
Pro forma Diluted (0.07) (0.10) 0.05
The fair value of each option grant is estimated on the date of
grant using the Black-Scholes option pricing model with the
following assumptions: (i) dividend yield of 0%; (ii) expected
volatility of 22.6%; (iii) risk-free interest rate ranging from
5.4% to 5.5%; and (iv) expected life of 2.41 to 5.41 years. The
weighted average per share fair value of options granted during
the year ended December 31, 1997, the four months ended December
31, 1996 and the year ended August 31, 1996 was $0.56, $0.69,
and $0.92, respectively.
(8) STOCKHOLDERS EQUITY
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) is payable in cash. The Company has
the right to redeem the outstanding preferred stock at any time
for $5.00 per share. The preferred stock has voting rights
based upon the common stock conversion rate. During the year
ended December 31, 1997, the four months ended December 31, 1996
and the years ended August 31, 1996 and 1995 the Company paid cash dividends
of $17,537, $43,806, $51,619 and $65,983, respectively.
<PAGE> 32
As of December 31, 1997 $481 of accrued dividends were payable.
During the four months ended December 31, 1996 71,000 shares
were converted to 284,000 common shares in accordance with the
common stock conversion rights of the agreement.
The $6.00 Series AA Convertible Preferred Stock is 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. During the year ended December 31, 1997, the
four months ended December 31, 1996 and the years ended August
31, 1996 and 1995 the Company paid cash dividends of $23,248,
$23,946, $40,403 and $57,308, respectively. As of December 31,
1997 $687 of accrued dividends were payable. During the year
ended December 31, 1997, 8,400 shares of Series AA Convertible
Preferred Stock were converted to 33,600 common shares and
during the year ended August 31, 1996, 16,800 shares of Series
AA Convertible Preferred Stock were converted to 67,200 common
shares in accordance with the common stock conversion rights of
the agreement.
NWP owned 6,612,447 shares of common stock at August 31, 1996
which represented approximately 46.2% of the issued and
outstanding shares of common stock and approximately 44.2% of
the total voting shares of the Company.
On November 21, 1996, the Company entered into an agreement with
Golden Technologies Company, Inc. ( GTC ) and NWP (the "Stock
Purchase Agreement"). Pursuant to the Stock Purchase Agreement,
GTC acquired NWP's 44% interest in the Company, and NWP and the
Company terminated all of its rights and options pursuant to a
November 9, 1993 stock purchase agreement between NWP,
Westinghouse, PLI and Robert R. Kauffman, the Company s former
president. GTC also acquired from the Company 1,000,000 shares
of unregistered common stock for $2.75 per share. In
conjunction with the Stock Purchase Agreement, GTC also acquired
an additional 1,000,000 common shares held by related parties
of the Company at $2.75 per share.
The Company granted demand registration rights to GTC covering
the shares purchased from NWP and the Company and all other
shares they may own, as long as GTC pays 50% of the costs of any
demand registration. In addition, GTC has the preemptive right
to subscribe for its proportionate share of all future equity
offerings of the Company provided that GTC owns at least 20% of
the issued and outstanding stock of the Company or 6,000,000
shares. GTC is a wholly owned subsidiary of ACX Technologies,
Inc. ("ACX"), a New York Stock Exchange company.
On June 18, 1997 the Company entered into a settlement agreement
with Robert R. Kauffman. Pursuant to this agreement, GTC
acquired the rights to an additional 197,000 common shares and
75,763 preferred shares. Each of the preferred shares are
convertible to four common shares for an additional 303,052
equivalent common shares. As collateral for a loan in the
settlement agreement GTC acquired the voting rights to an
additional 500,000 shares. As of December 31, 1997, GTC owned
or had the voting rights to approximately 58% of the issued and
outstanding shares of common and preferred stock of the Company.
(9) EARNINGS PER SHARE
Effective for the year ended December 31, 1997, earnings per
common share ( EPS ) is computed using SFAS No. 128 Earnings
Per Share. All prior periods have been restated to conform to
SFAS No. 128. The following is a reconciliation between basic
and diluted earnings per common share as calculated under SFAS
No. 128.
<PAGE> 33
Four months
Year ended ended
December 31, December 31,
1997 1996
Income EPS Shares Income EPS Shares
Net loss $(525,261) $(1,388,857)
Preferred stock
dividends (41,954) (67,753)
Basic EPS $(567,215) $(0.03) 16,215,919 $(1,456,610) $(0.10) 14,906,251
Effect of dilutive
securities
Stock options
Diluted EPS $(567,215) $(0.03) 16,215,919 $(1,456,610) $(0.10) 14,906,251
Year ended Year ended
August 31, August 31,
1996 1995
Income EPS Shares Income EPS Shares
Net Income $1,147,327 $ 903,974
Preferred stock
dividends (92,022) (123,291)
Basic EPS $1,055,305 $0.08 13,917,490 $ 780,683 $0.06 12,342,442
Effect of dilutive
securities
Stock options 617,654 763,186
Diluted EPS $1,055,305 $0.07 14,535,144 $ 780,683 $0.06 13,105,628
Options to purchase 2,436,690 shares of common stock and 351,926
common share equivalents relating to 87,982 weighted average
series A and series AA convertible preferred stock were
outstanding at December 31, 1997. These shares were not
included in computation of diluted EPS because the effect of
adding the shares would increase EPS.
(10) RETIREMENT SAVINGS PLAN
The Company has a 401(k) Retirement Savings Plan (the "Plan")
which covers certain employees 21 years of age and over who have
completed ninety days 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. Company contributions to the
Plan were $60,000, $65,000, $36,000 and $14,500 for the year
ended December 31, 1997, the four months ended December 31, 1996
and the years ended August 31, 1996 and 1995, respectively.
<PAGE> 34
(11) RELATED PARTIES
As of December 31, 1997 ACX owned or had the voting rights to
approximately 58% of the Company s common stock through its
wholly-owned subsidiary GTC. ACX has loaned $4,000,000 to the
Company under a revolving credit facility. Subsequent to
December 31, 1997 the Company borrowed an additional $750,000
under this facility. Interest accrues at 1% under the prime rate
and is payable quarterly. The principal is due October 31, 2000.
(See Note 5) The Company has $4,000,000 principal and $50,834
interest outstanding at December 31, 1997. The Company incurred
$131,917 in interest expense related to this note during the year
ended December 31,1997.
During the year ended December 31, 1997 the Company purchased
$9,495 in goods and services from GTC. The Company had $3,868 in
accounts payable to GTC at December 31, 1997.
The Company sells solar electric systems and related products to
GTC s subsidiaries. Sales are on equivalent terms to those
provided to non-related customers. Total sales to GTC s
subsidiaries in 1997 were $823,570.
As of December 31, 1997, the Company had receivables from GTC s
subsidiaries of $568,605.
The Company also purchases inventory and certain administrative
services from GTC s subsidiaries. Purchases are on equivalent
terms to those provided by non-related vendors. Total purchases
during the year ended December 31, 1997 from GTC s subsidiaries
were $107,710.
As of December 31, 1997, the Company had payables to GTC s
subsidiaries of $92,358.
The Company leases approximately 10,750 square feet of warehouse
and sales office space in a building owned by Robert Kaufmann,
the Company s former President, and Thomas LaVoy, the Company s
former Chief Financial Officer. Rental expense for this lease
was $84,567, $27,988 and $80,024 for the year ended December 31,
1997, the four months ended December 31, 1996 and the year ended
August 31, 1996, respectively. Future minimum lease payments of
$55,978 for this lease are included in the minimum lease payment
schedule. See Note 4. The rental payments required by the lease
are $5,167 per month from November 1, 1996 to October 31, 1997
and $5,598 from November 1, 1997 to expiration. The lease
expires November 1, 1998.
Robert R. Kauffman purchased 10,000 shares of Series AA
Convertible Preferred Stock for $50,000 in the year ended August
31, 1995. Robert R. Kauffman sold 35,763 shares of Series A
Convertible Preferred Stock and 40,000 shares of Series AA
Convertible Preferred Stock to GTC as a part of the settlement
agreement.
<PAGE> 35
(12) 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 aggregated approximately
$11,600,000, $1,400,000, $4,200,000, and $2,700,000 for the year
ended December 31, 1997, the four months ended December 31, 1996
and the years ended August 31, 1996 and 1995, respectively.
This represents 35%, 14%, 18%, and 13% of consolidated net
sales for the year ended December 31, 1997, the four months
ended December 31, 1996 and the years ended August 31, 1996 and
1995, respectively. Prior to the year ended December 31, 1997,
sales were primarily in North and South America. For the year
ended December 31, 1997, sales were approximately $1,600,000,
$2,600,000, $4,700,000 and $2,700,000 in Australia, the Middle
East, North and South America, and other parts of the world,
respectively.
<PAGE> 36
(13) COMMITMENTS AND CONTINGENCIES
Financial instruments, which potentially expose the Company to a
concentration of credit risk, consist principally of cash and
trade receivables. The Company places substantially all of its
cash with major financial institutions. The balances , at
times, may exceed federally insured limits. At December 31,
1997, the Company had approximately $698,000 which exceeded the
insured limit. Approximately 49% of the Company s accounts
receivable was due from five customers at December 31, 1997.
On February 18, 1998 the Company announced that it had been
named as one of two dozen defendants in a lawsuit. Although the
Company has not been served, the suit appears to allege various
violations of securities laws and breaches of fiduciary duties,
among other things. Although the Company is named as a
defendant in the lawsuit, no claim of damages or other relief is
expressly requested of it in the plaintiffs complaint. If
served, the Company will defend itself vigorously against these
claims.
The Company is named as a defendant in various actions and
proceedings arising in the normal course of business. In all
such cases, the Company is denying the allegations made against
it and vigorously defending against them. Although the eventual
outcome of these lawsuits cannot be predicted, it is
management s opinion that these suits will not materially affect
the Company s financial position or results of operations.
<PAGE> 37
(14) SUPPLEMENTAL FINANCIAL INFORMATION
Additions
Balance at charged to Balance
beginning costs and at end
of period expenses Deductions1 of period
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
Year ended
August 31, 1996:
Allowance for
doubtful accounts 25,000 48,832 47,832 26,000
Reserve for obsolete
inventory 25,000 131,935 106,935 50,000
Four months ended
December 31, 1996:
Allowance for
doubtful accounts 26,000 16,000 (2,508) 44,508
Reserve for obsolete
inventory 50,000 410,600 408,947 51,653
Year ended
December 31, 1997:
Allowance for
doubtful accounts 44,508 103,580 1,635 146,453
Reserve for obsolete 51,653 90,000 40,107 101,546
inventory
1 Allowance for doubtful accounts: Uncollectible accounts written off, net of
recoveries from accounts previously written off.
<PAGE> 38
(15) UNAUDITED QUARTERLY FINANCIAL DATA
Fiscal 1996
quarter ended 11/30/95 2/29/96 5/31/96 8/31/96
Sales $ 5,281,000 $ 4,811,000 $ 5,178,000 $ 7,725,000
Gross profit 1,288,000 1,397,000 1,409,000 1,464,000
Net income 221,000 273,000 173,000 480,000
Net income per basic
share of common stock $ 0.01 $ 0.02 $ 0.01 $ 0.03
Net income per diluted
share of common stock $ 0.01 $ 0.02 $ 0.01 $ 0.03
Fiscal 1997
quarter ended 3/31/97 6/30/97 9/30/97 12/31/97
Sales $ 6,370,000 $ 7,865,000 $ 8,569,000 $10,025,000
Gross profit 1,495,000 1,285,000 2,175,000 1,954,000
Net income (loss) (188,000) (917,000) 478,000 102,000
Net income (loss) per basic
share of common stock $ (0.01) $ (0.06) $ 0.03 $ 0.01
Net income (loss) per diluted
share of common stock $ (0.01) $ (0.06) $ 0.03 $ 0.01<PAGE>
<PAGE> 39
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
On February 3, 1997, the Board of Directors of the Company, upon
recommendation of the Board s Audit Committee, appointed Price
Waterhouse LLP as the independent accountants to audit and report
on the financial statements of the Company for the transition
period ended December 31, 1996 and the year ended December 31,
1997. Also on February 3, 1997, at the recommendation of the
Audit Committee, the Board of Directors dismissed KPMG Peat
Marwick LLP as its independent accountants.
The reports of KPMG Peat Marwick LLP on the financial statements
for the fiscal years ended August 31, 1996 and 1995 contained no
adverse opinion or disclaimer of opinion and were not qualified
or modified as to uncertainty, audit scope or accounting
principle.
The Company provided notice to KPMG Peat Marwick LLP on February
6, 1997 and filed a Form 8-K on February 7, 1997 in accordance
with Item 304 of Regulation S-K.
PART III
Certain information required by Part III is omitted from this
Report in that the registrant will file a definitive Proxy
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 10. Directors and Executive Officers of the Registrant
The information concerning the Company's directors required by this
item is incorporated by reference to the Company's Proxy Statement.
The information concerning the Company's executive officers
required by this item is incorporated by reference to the Company's
Proxy Statement.
Item 11. Executive Compensation
The information required by this item is incorporated by reference
to the Company's Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and
Management
The information required by this item is incorporated by reference
to the Company's Proxy Statement.
Item 13. Certain Relationships and Related Transactions
The information required by this item is incorporated by reference
to the Company's Proxy Statement.
<PAGE> 40
PART IV
Item 14. Exhibits, Financial Statement Schedule and Reports on
Form 8-K
(a) Exhibits
The following exhibits are filed as part of this report:
Exhibit
Number Description
Page
3.1 Articles of Merger (filed as Exhibit 3-B to the
Company's Annual Report on Form 10-KSB 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-QSB for the quarter ended
May 31, 1990 and incorporated herein by reference).
3.3 Amended and Restated Bylaws of the Company dated
November 19, 1996 (filed as Exhibit 3.3 to the
Company s Annual Report on Form 10-KSB for the year
ended August 31, 1996 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-KSB 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 Golden Technologies, Inc. and ACX Technologies,
Inc. dated November 21, 1996 (filed as Exhibit 4.5 to
the Company s Annual Report on Form 10-KSB for the year
ended August 31, 1996 and incorporated herein by reference).
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-QSB for the quarter ended
May 31, 1990 and incorporated herein by reference).
<PAGE> 41
10.2 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-QSB for the quarter ended
February 28, 1991 and incorporated herein by reference).
10.3 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-QSB for the quarter ended
May 31, 1993 and incorporated herein by reference).
10.4 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).
10.5 Agreement and Plan of Reorganization between
Photocomm, Inc., Jadco Manufacturing and James C.
Allen dated January 31, 1996 (filed as Form 8-K on
February 14, 1996 and incorporated herein by reference).
10.6 Executive Compensation Agreement between Photocomm,
Inc. and Myron Anduri dated November 20, 1996
(filed as Exhibit 10.12 to the Company s Annual Report
on Form 10-KSB for the year ended August 31, 1996 and
incorporated herein by reference).
10.7 Executive Compensation Agreement between Photocomm,
Inc. and Donald Anderson dated November 20, 1996
(filed as Exhibit 10.13 to the Company s Annual Report
on Form 10-KSB for the year ended August 31, 1996 and
incorporated herein by reference).
10.8 Stock Purchase Agreement dated November 15, 1996
among Golden Technologies Company, Inc., The New
World Power Corporation and Photocomm, Inc. (filed
as Exhibit 10.17 to the Company s Annual Report on Form
10-KSB for the year ended August 31, 1996 and
incorporated herein by reference)
10.9 Photocomm, Inc. 1996 Stock Option Plan and Non-
Statutory Stock Option Agreement dated September
16, 1996 and November 19, 1996, respectively
(filed as Exhibit 3.3 to the Company s Annual Report
on Form 10-KSB for the year ended August 31, 1996 and
incorporated herein by reference).
10.10 Agreement and plan of merger between Photocomm, Inc. and
Silicon Energy Corporation dated January 23, 1998 (filed as
Form 8-K on February 18, 1998 and incorporated herein by
reference).
10.11 Loan agreement and promissory note between Photocomm, Inc.
and ACX Technologies, Inc. dated November 30, 1997. 44
<PAGE> 42
10.12 Settlement agreements and mutual releases between Photocomm,
Inc. and Robert R. Kauffman and Thomas C. LaVoy dated June
18, 1997 (filed as Exhibits 10.1 and 10.2 to the Company's
Quarterly Report on Form 10-QSB for the Quarter ended June
30, 1997 and incorporated herein by reference).
22 List of Subsidiaries 57
23 Consents of Independent Accountants 58
27 Financial Data Schedule 60
(b) Reports on 8-K
The following reports on Form 8-K were filed during the year
ended December 31, 1997.
February 25, 1997 Arbitration proceedings relating to former
executives employment agreements.
January 31, 1997 Change in Registrant s Certified Accountant
and annual meeting results.
(c) Financial Statements: Page
Incorporated in 10-K item 8. 14
(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> 43
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.
Date: March 31, 1998 By /s/ John K. Coors
President &
Chief Executive Officer
Date: March 31, 1998 By /s/ Jeffrey C. Brines
Chief Financial Officer
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.
PHOTOCOMM, INC.
Date: March 31, 1998 By /s/ Jeffrey H. Coors
Chairman of the Board
And Director
Date: March 31, 1998 By /s/ John K. Coors
President &
Chief Executive Officer
and Director
Date: March 31, 1998 By /s/ Jed J. Burnham
Director
Date: March 31, 1998 By /s/ Walter M. Baker
Director
Date: March 31, 1998 By /s/ Donald E. Anderson
Director
Date: March 31, 1998 By /s/ Norman E. Miller
Director
Date: March 31, 1998 By /s/ Gerrit J. Wolfaardt
Director
<PAGE> 44
EXHIBIT 10.11
LOAN AGREEMENT
$4,750,000
LOAN
FROM
ACX TECHNOLOGIES, INC.,
a Colorado Corporation
TO
PHOTOCOMM, INC.,
an Arizona Corporation
As of November 30, 1997
LOAN AGREEMENT
THIS LOAN AGREEMENT ("Agreement"), dated as of this 30th day of
November 1997, is between ACX TECHNOLOGIES, INC., a Colorado
Corporation ("Lender"), and PHOTOCOMM, INC., an Arizona
Corporation ("Borrower").
ARTICLE I
DEFINITIONS
In addition to all other definitions set forth herein, the
following terms shall have the meanings set forth below:
A. Business Day. A day that banks are not required or
authorized to close in New York City, New York, or Denver,
Colorado.
B. Loan Documents. This Agreement, the Note and all other
documents, instruments or agreements evidencing or governing the
Loan, as such documents have been, are being and may be amended,
restated or modified from time to time.
C. Loan Expenses. All reasonable charges, costs, fees and
expenses of any nature whatsoever of or incurred by Lender at any
time in connection with the administration, repayment or
enforcement of the Loan or the Loan Documents, including, but not
limited to, fees and disbursements of Lender's attorneys and
their staff, search fees, and credit reporting and investigation
fees.
D. Maturity Date. The earlier of acceleration of the Loan or
October 31, 2000.
<PAGE> 45
E. Note. The Amended and Restated Promissory Note, in the
principal amount of $4,750,000, dated November 30, 1997, as such
Note may be amended, restated, modified, renewed or extended at
any time and from time to time.
F. Obligations. All obligations of any nature whatsoever of
Borrower to Lender whether now existing or hereafter arising,
including, without limitation, Borrower's obligations, covenants
and agreements under the Loan Documents.
II.
THE LOAN AND LOAN TERMS
A. The Loan Amount. Pursuant to the terms of this Agreement and
the other Loan Documents, Lender hereby agrees to make available
to Borrower a revolving line of credit in the maximum principal
amount of $4,750,000 (the "Loan"). The Loan is subject to the
terms, conditions and limitations set forth in this Agreement and
the other Loan Documents.
B. Loan Terms.
1. Maturity. The Loan shall mature and be due and payable in
full on the Maturity Date. Interest shall be payable quarterly
in accordance with the terms of the Note.
2. Principal Payments. The entire outstanding principal balance
of the Loan, together with all other amounts due Lender, shall be
due and payable in full on the Maturity Date.
III.
CONDITIONS PRECEDENT TO LENDER'S
OBLIGATION TO MAKE THE LOAN
The Lender's obligation to fund the Loan shall be subject to
performance and satisfaction of the following conditions (all
documents must be acceptable in form and substance to Lender):
A. Initial Funding. The full amount of the Loan has already been
advanced by Lender to Borrower and is outstanding under the Note.
B. Subsequent Advances. Prior to or simultaneous with any
subsequent advance of the Loan:
1. Request for Advance. If so required by Lender, Lender shall
have received a notice of borrowing in the form attached hereto
as Exhibit A by 10:00 a.m. Golden, Colorado time on the Business
Day before Borrower wishes to receive an advance under the Loan.
Each such request shall be in the minimum amount of $25,000, and
in increments of $5,000 thereafter.
2. Representations and Warranties. All of the representations
and warranties of the Borrower set forth in the Loan Document
shall be true and correct as of the date of the advance, with the
same effect as those representations and warranties had been made
on the date of the Advance.
3. Event of Default. There shall be no Event of Default (or
event that with the notice of the passage of time or both) would
constitute an Event of Default.
4. Other Agreements. The Borrower shall perform and comply with
all the agreements and conditions required to be performed or
complied with by the Borrower on or prior to the date hereof of
the advance.
<PAGE> 46
5. Amount of Advance. The requested amount of the advance,
together with all other amounts outstanding under the Loan, shall
not exceed $4,750,000.
6. Other Conditions. Borrower shall have complied with such
other conditions as Lender may reasonably require.
IV.
REPORTING REQUIREMENTS
Borrower shall provide and deliver, or cause to be provided and
delivered,
such information as may be necessary or as Lender may reasonably
request to determine whether Borrower is complying with its
obligations under this Agreement or to determine the financial
condition of Borrower (all of such documentation must be
reasonably acceptable to Lender).
V.
REPRESENTATIONS AND WARRANTIES OF BORROWER
Borrower represents and warrants to Lender as follows, all of
which representations and warranties are material and each of
which is made to induce Lender to make the Loan, each of which is
being relied on by Lender in making the Loan, and all of which
are true as of the date hereof and shall continue to be true and
correct until the Loan is repaid in full.
A. Authority and Enforceability. Borrower has full power to
enter into and perform its obligations under this Agreement, the
Note and all other Loan Documents and any other document or
instrument contemplated hereby or executed or delivered pursuant
hereto. This Agreement, the Note and all other Loan Documents
constitute, and any other agreement required hereby will
constitute, when executed and delivered by Borrower to the
Lender, valid and binding obligations of Borrower enforceable in
accordance with their terms.
B. No Conflict. The execution and delivery of this Agreement,
the Note and all other Loan Documents and consummation of all the
transactions contemplated hereby and thereby, do not and will not
conflict with, or be in contravention of, any law, order, rule or
regulation applicable to Borrower or any document, agreement or
instrument to which Borrower is a party or by which any property
of Borrower is bound or affected.
C. Information Correct. All information furnished in any
document required to be furnished under or in connection with
this Agreement is accurate and complete in all material respects
as of the date or for the periods covered thereby.
VI.
AFFIRMATIVE COVENANTS OF BORROWER
Until payment or performance in full of all the Obligations,
Borrower shall:
A. Pay Note. Duly and promptly pay or cause to be paid each and
every installment of the principal and of interest on the Note as
the same become due, without notice or demand other than, in the
case of interest, the statement setting forth the amount thereof.
B. Performance of Other Obligations. Promptly and strictly
perform and comply with all other terms, conditions, covenants
and prohibitions required by the terms of any of the Loan
Documents.
<PAGE> 47
C. Compliance with Laws. Comply promptly with all laws
applicable to the conduct and operation of Borrower's business.
D. Notifications. Promptly notify Lender in writing of the
occurrence of (i) any Event of Default or any event that is
reasonably likely to become an Event of Default upon notice or
the passage of time or both, (ii) any material adverse change in
the business, property, assets, value, operations or condition,
financial or otherwise, of Borrower and (iii) the pendency or
threat of any material litigation or arbitration and of any
material tax deficiency or other material proceeding before any
governmental body or official materially adversely affecting
Borrower.
E. Payment of Taxes and Other Obligations. Duly and punctually
pay and discharge all state and federal income taxes and all
other taxes, assessments and other charges against Borrower.
F. Payment of Loan Expenses. Immediately upon demand, but in
any event with five Business Days after demand, pay or reimburse
Lender for all Loan Expenses incurred by Lender at any time and
from time to time after the occurrence of an Event of Default.
G. Indemnity. Borrower shall indemnify Lender against and shall
reimburse and pay Lender for all fees and reasonable costs and
expenses (including, without limitation, attorneys' fees, court
costs and legal expenses and consultants' and experts' fees and
expenses), incurred or expended by Lender in connection with
(i) the breach by Borrower of any representation or warranty
contained in any of the Loan Documents, (ii) the failure by
Borrower to perform any agreement, covenant, condition, indemnity
or obligation contained in any of the Loan Documents, or
(iii) Lender's exercise of any of its rights and remedies under
any of the Loan Documents.
VII.
NEGATIVE COVENANTS OF BORROWER
Until payment or performance in full of all of the Obligations,
Borrower shall not assign or attempt to assign any of its rights
or delegate any of its duties hereunder or under the other Loan
Documents.
VIII
EVENTS OF DEFAULT
The occurrence of any one or more of the following events or
existence of one or more of the following conditions shall
constitute an Event of Default under this Agreement and all other
Loan Documents:
A. Failure to Pay Note. Borrower shall fail to pay, when due,
the principal of or interest on the Note, or any installment
thereof (whether due on the date provided for therein or by
acceleration or otherwise).
B. Misrepresentation. Any representation or warranty made by
Borrower or any other party to Lender herein or in connection
with the making of the Loan, or in any certificate, statement or
report made pursuant to this Agreement or the other Loan
Documents is false, misleading or erroneous in any material
respect;
C. Covenant Default. The failure of Borrower to properly
perform or observe any obligation contained in Sections 6.1, 6.2,
6.4, 6.6 or Article VII above.
D. Other Obligations. The failure of Borrower to properly
perform or observe any obligation contained herein (other than
the obligations to make payments
<PAGE> 48
under the Note or the other Loan
Documents or the obligations set forth in Section 8.3 above),
which failure is not cured within ten Business Days after receipt
of written notice from Lender.
E. Default Under Loan Documents. The occurrence of any default
by Borrower, or the occurrence of any event or circumstance
defined as an event of default, under any of the Loan Documents
other than this Agreement, not cured within the applicable cure
period, if any, set forth therein.
F. Bankruptcy. Borrower shall make a general assignment for the
benefit of creditors; file a petition in bankruptcy; be
adjudicated insolvent or bankrupt or admit in writing the
inability to pay debts as they mature; petition or apply to any
tribunal for the appointment of a receiver or any trustee or
similar officer for Borrower, for a substantial part of the
assets of Borrower; or shall commence any proceeding under any
bankruptcy, reorganization, arrangement, readjustment of debt,
dissolution or liquidation law or statute of any jurisdiction,
whether now or hereafter in effect; or if there shall have been
filed any such petition or application, or any such proceeding
shall have been commenced against Borrower that remains
undismissed for a period of forty-five days or more; or Borrower,
by any act or omission shall indicate his consent to, approval of
or acquiescence in any such petition, application or proceeding,
or the appointment of a receiver of or any trustee or similar
officer for Borrower, or any substantial part of any of the
properties of Borrower, or shall suffer any such receivership or
trusteeship to continue undischarged for a period of forty-five
days or more;
G. Judgment. Any judgment shall be entered against Borrower,
unless Borrower is diligently appealing such judgment by
appropriate proceedings.
H. Other Indebtedness. Borrower shall fail to pay when due the
principal or interest on (a) any indebtedness or any amount due
under any guaranty (other than nonrecourse indebtedness) in
excess of $150,000 or there shall occur any other event that
results in the acceleration of the maturity thereof, (b) any
indebtedness or any amount due under any guaranty to Lender or
any affiliate of Lender or there shall occur any event that would
permit Lender or any affiliate or subsidiary of Lender to
accelerate the maturity of any indebtedness or obligation to
Lender.
I. Loan Documents. This Agreement or any other Loan Document
shall at any time for any reason cease to be in full force and
effect.
J. Contest Loan Documents. Borrower shall contest the validity
or enforceability of, or deny that it has any or further
liability or obligations under, this Agreement or any other Loan
Document.
K. Material Adverse Change. There shall occur a material
adverse change, as defined by Lender in the condition, final or
otherwise or Borrower.
IX.
REMEDIES
A. Right to Accelerate. Upon the occurrence of any Event of
Default and at any time thereafter, Lender shall be under no
further obligation to make payments or disbursements hereunder.
Upon the occurrence of an Event of Default under Section 8.6
above, the Loan, with all accrued interest and other amounts
payable hereunder, shall be immediately due and payable without
any action on the part of Lender. Upon the occurrence of any
other Event of Default, the Loan, with all accrued interest and
other amounts payable hereunder, shall, at the option of Lender,
become immediately due and payable without presentment, demand,
protest or other notice of any kind, all of which are expressly
waived by Borrower. Lender may declare a default under all other
Loan Documents, and Lender may proceed with every remedy
available at
<PAGE> 49
law or in equity or provided for herein or in any
document executed in connection herewith, and all reasonable
expenses incurred by Lender in connection with any remedy shall
be deemed indebtedness of Borrower to Lender and a part of the
Obligations. Lender may apply the proceeds from any collateral,
if applicable, for the Loan or from any other source against any
of the Obligations as and in any order it sees fit.
B. Other Remedies. Without limiting the foregoing, upon the
occurrence of an Event of Default hereunder, Lender shall have
the right to exercise all rights provided under the Loan
Documents or any applicable law.
C. No Effect of Delay. No delay or failure of Lender in the
exercise of any right or remedy provided for hereunder shall be
deemed a waiver of the right by Lender, and no exercise or
partial exercise or waiver of any right or remedy shall be deemed
a waiver of any further exercise of such right or remedy or of
any other right or remedy that Lender may have. The enforcement
of any rights of Lender as to any security for the Loan shall not
affect the rights of Lender to enforce payment of the Loan and to
recover judgment for any portion thereof remaining unpaid. The
rights and remedies herein expressed are cumulative and not
exclusive of any right or remedy that Lender shall otherwise
have.
X.
RIGHTS AND DUTIES OF LENDER
A. Right to Assign. Lender may assign to one or more lenders or
other entities all or a portion of its rights under the Loan. In
the event of an assignment of all of its rights, the Lender may
transfer the Loan and all of the Loan Documents to the assignee.
After any such assignment or transfer, provided that the
assignee(s) agree in writing to assume and be bound by the Loan
Documents, the Lender shall be forever relieved and fully
discharged from any liability or responsibility in the matter,
and the Lender shall retain all rights and powers hereby given
with respect to property not so transferred. The Lender may sell
participations to one or more lenders or other entities in or to
all or a portion of its rights under this Loan.
B. Reliance Upon Attorneys. Lender may rely upon advice
received from time to time from reputable attorneys, and any
action taken by Lender upon the basis of any such advice shall be
deemed to be reasonable.
C. Acceptance and Consent by Lender. The phrases "acceptable to
Lender" and "as Lender may require" as used in this Agreement,
shall, unless otherwise qualified, mean acceptable to Lender in
Lender's sole and absolute discretion and as Lender may require
in Lender's sole and absolute discretion. In addition, any
consent by or other action required by Lender hereunder or under
any other Loan Document or any discretion to be rendered by
Lender hereunder or under any other Loan Document shall be in
Lender's sole and absolute discretion unless otherwise indicated.
XI.
MISCELLANEOUS
A. Amendments. No provision or term of this Agreement may be
amended, modified, revoked, supplemented, waived or otherwise
changed except by a written instrument duly executed by Borrower
and Lender and designated as an amendment, supplement or waiver.
B. Counting of Days. If any time period ends on other than a
Business Day, the period shall be deemed to end on the next
succeeding Business Day.
<PAGE> 50
C. Notices. Except as otherwise expressly set forth herein, any
notice required to be given to any party pursuant to any
provision of this Agreement shall be in writing, shall be
(i) hand delivered, (ii) sent by registered or certified mail,
return receipt requested, postage prepaid, or (iii) sent by
Federal Express or other nationally recognized overnight courier
service and, if hand delivered, shall be deemed received when
delivered, if mailed shall be deemed received two Business Days
after having been deposited in the United States mail, postage
prepaid and if sent by Federal Express or other nationally
recognized overnight courier service, shall be deemed received
one Business Day after having been deposited with Federal Express
or other nationally recognized overnight courier service if
designated for next day delivery addressed as follows:
1. If to Borrower:
Photocomm, Inc.
7681 East Gray Road
Scottsdale, Arizona 85260
2. If to Lender:
ACX Technologies, Inc.
16000 Table Mountain Parkway
Golden, Colorado 80403
Attention: Jed Burnham
Chief Financial Officer
with a copy to:
Holme Roberts & Owen LLP
1700 Lincoln, Suite 4100
Denver, Colorado 80203
Attention: Robert H. Bach, Esq.
Either party may change its address for the giving of notice by
providing notice hereunder.
D. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all
of which together shall constitute one instrument.
E. Captions and Pronouns. The captions and headings of the
various sections of this Agreement are for convenience only, and
are not to be construed as confining or limiting in any way the
scope or intent of the provisions hereof.
F. Entire Agreement. This Agreement, the Note and the other
Loan Documents executed in connection herewith constitute and
incorporate the entire agreement between Lender and Borrower
concerning the subject matter of this Agreement and supersede any
prior agreements between Lender and Borrower concerning the
subject matter thereof.
G. Conflict. If any term of the Loan Documents shall conflict
with this Agreement, this Agreement shall govern to the extent of
the conflict.
H. Use of Terms. As used herein words in any gender shall be
deemed to include the other genders and the singular shall be
deemed to include the plural, and vice versa.
I. Rights Cumulative. Each right, power and remedy of Lender
under this Agreement and the other Loan Documents is cumulative
and in addition to every other right, power or remedy, existing
or implied, given now or hereafter existing, at law or in equity,
and each and every right, power and remedy set forth herein or
otherwise so existing may be exercised from time to time as
<PAGE> 51
often and in such order as may be deemed expedient by Lender, and the
exercise or the beginning of the exercise of one right, power or
remedy shall not be a waiver of the right to exercise at the same
time or thereafter any other right, power or remedy; and no delay
or omission of Lender in the exercise of any right, power or
remedy accruing hereunder or arising otherwise shall impair any
such right, power or remedy, or be construed to be a waiver of
any default or acquiescence therein.
J. Waiver. Lender shall not be deemed to have waived any
provision of this Agreement or any Loan Document unless such
waiver is in writing and is signed by Lender. Without limiting
the generality of the foregoing, neither Lender's acceptance of
any payment with knowledge of a default by Borrower, nor any
failure by Lender to exercise any remedy following a default by
waiver by Lender of any particular default on the part of
Borrower shall be deemed a waiver of any other default or of any
similar default in the future.
K. No Third-Party Beneficiaries. No person shall be a third-
party beneficiary of or be entitled to assert any rights in
connection with any provision of any of the Loan Documents; all
provisions of the Loan Documents are intended solely for the
benefit of Borrower and Lender.
L. Provisions Several/Illegality. The unenforceability or
invalidity of any provision or provisions hereof shall not render
any other provision or provisions herein contained unenforceable
or invalid, and in lieu of each such illegal, invalid or
unenforceable provision there shall be added automatically as a
part of this Agreement a provision as similar in terms to such
illegal, invalid, or unenforceable provision as may be possible
and be legal, valid and enforceable.
M. Governing Law. This Agreement, the Note, and Loan Documents
shall be governed by and construed in accordance with the laws of
the State of Colorado.
N. Waiver of Jury Trial. Borrower hereby waives any right to
jury trial of any claim, cross-claim or counterclaim relating to
or arising out of or in connection with this Agreement or any of
the other Loan Documents.
O. Jurisdiction and Venue. At the sole option of Lender, any
action concerning this Agreement or any other Loan Document may
be brought in (i) the Colorado District Court for the City and
County of Denver, Colorado, (ii) in the United States District
Court for the District of Colorado, or (iii) any other court
where venue and jurisdiction are proper and Borrower hereby
irrevocably agrees that all claims in respect of any such action
or proceeding may be heard and determined in any of the courts
described above. Borrower hereby consents to nonexclusive venue
and jurisdiction in any of the courts described above and hereby
irrevocably waives the defense of inconvenient forum to the
maintenance of any such action or proceeding. The Borrower
hereby irrevocably agrees that the summons and complaint or any
other process in any action in any jurisdiction may be served by
mailing to the address of Borrower set forth in Section 11.3 or
by hand delivery to a person of suitable age and discretion at
the address set forth in Section 11.3. Such service will be
complete on the date such process is so mailed or delivered, and
the undersigned will have thirty days from such completion of
service in which to respond in the manner provided by law. The
Borrower may also be served in any other manner permitted by law,
in which event the Borrower's time to respond shall be the time
provided by law.
P. Computation of Time Periods. In this Agreement in the
computation of periods of time from a specified date to a later
specified date, the word "from" means "from and including" and
the words "to" and "until" each means "to but excluding."
<PAGE> 52
Q. Time of the Essence. Time is of the essence hereof with
respect to the dates, terms and conditions of this Agreement, the
Note and the other Loan Documents.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day first above written.
BORROWER:
PHOTOCOMM, INC.,
an Arizona corporation
By:________________________________
__________________________(name)
_________________________(title)
LENDER:
ACX TECHNOLOGIES, INC.,
a Colorado corporation
By:________________________________
__________________________(name)
_________________________(title)
<PAGE> 53
EXHIBIT A
(Attached to and forming a part of
the Loan Agreement, dated as of November 30, 1997
between ACX Technologies, Inc.
and Photocomm, Inc.)
NOTICE OF BORROWING
Reference is made to that certain Loan Agreement, dated as of
November 30, 1997 (the "Loan Agreement") by and between ACX
Technologies, Inc., a Colorado corporation (the "Lender"), and
Photocomm, Inc., an Arizona corporation (the "Borrower").
Capitalized terms used herein have the meaning set forth in the
Loan Agreement.
Pursuant to the terms of the Loan Agreement, the Borrower
requests the Lender to make an advance to the Borrower in the
principal amount of $____________________.
The Borrower hereby certifies that:
(a) The representations and warranties of the Borrower set forth
in the Loan Documents are true and correct on and as of the date
hereof, with the same effect as though such representations and
warranties had been made on and as of the date hereof;
(b) There does not exist on the date hereof any Event of Default
or any condition or event which with notice or the passage of
time or both is reasonably likely to constitute an Event of
Default;
(c) The Borrower has performed and complied with all agreements
and conditions of the Loan Documents required to be performed or
complied with by the Borrower on or prior to the date hereof.
(d) There has been no material adverse change in the condition,
financial or otherwise, of the Borrower since ____________.
(e) The requested amount of the advance, together with all other
amounts outstanding under the Loan, will not exceed $4,750,000.
IN WITNESS WHEREOF, this instrument is executed this ___ day of
___________, 199_.
BORROWER:
PHOTOCOMM, INC.,
an Arizona corporation
By:________________________________
__________________________(name)
_________________________(title)
<PAGE> 54
AMENDED AND RESTATED
PROMISSORY NOTE
$4,750,000 As of November 30, 1997
FOR VALUE RECEIVED, the undersigned, PHOTOCOMM, INC., an
Arizona corporation ("Maker"), having an address of 7681 East
Gray Road, Scottsdale, Arizona 85260, promises to pay to the
order of ACX TECHNOLOGIES, INC., a Colorado corporation
("Payee"), with an address of 16000 Table Mountain Parkway,
Golden Colorado 80403, the sum of FOUR MILLION SEVEN HUNDRED
FIFTY-THOUSAND AND NO/100 DOLLARS ($4,750,000) or so much as be
outstanding hereunder (the "Principal Sum"), together with
interest on the unpaid Principal Sum, payable as follows:
(a) Interest shall be due and payable quarterly, in arrears,
commencing on December 31, 1997 and continuing on the last
day of each calendar quarter thereafter through and including
the Maturity Date. Except as specifically set forth below,
interest shall accrue at such fluctuating rate, adjustable
the day of any change, whether or not Maker has notice of
such change, that is equal to one (1) percentage point below
the publicly announced prime lending rate (the "Prime Rate")
of Norwest Bank.
(b) The entire unpaid Principal Sum together with any and
all accrued and unpaid interest hereunder shall be due and
payable on or before October 31, 2000 ("Maturity").
(c) All interest hereunder shall be calculated on the basis
of a 360-day year, actual days elapsed.
This Note may be prepaid, either in whole or in part, at any time
without premium or penalty on the conditions that (i) Maker gives
Payee at least one (1) day advance written notice of any
prepayment together with the amount thereof, (ii) each prepayment
shall be in increments of $25,000 and (iii) all interest accrued
on the unpaid Principal Sum is also paid.
Maker shall make all payments due under the terms of this Note to
Payee at the above address or at such other place as may be
designated to Maker in writing by Payee.
This Note amends and restates, and is a replacement of the
Promissory Note dated June 18, 1997 from Maker payable to Payee
(the "Existing Note"). This Note evidences all amounts advanced
and outstanding under the Existing Note.
Whenever Payee shall sustain or incur any losses or out-of-pocket
expenses with respect to the Note in connection with (a)
prepayment of this Note in whole or in part, (b) repayment of
overdue amounts under this Note, (c) failure by Maker to pay all
principal and interest of this Note, when due hereunder (whether
at maturity, by reason of acceleration, or otherwise), Maker
shall pay, on demand, to Payee, in addition to any other
penalties or premiums hereunder, an amount sufficient to
compensate Payee for all such losses or out-of-pocket expenses,
including, without limitation, all costs and expenses of a suit
or proceeding, (or any appeal thereof) brought for recovery of
all or any part of or for protection of the indebtedness
evidenced by this Note or to enforce Payee's rights hereunder or
thereunder, including reasonable attorney's fees.
It is not intended hereby to charge interest at a rate in excess
of the maximum rate of interest permitted to be charged to Maker
under applicable law, but if, notwithstanding such intention,
interest in excess of the maximum rate shall be paid hereunder,
the excess shall be retained by Payee as additional cash
collateral for the payment of this Note, unless such retention
<PAGE> 55
is not permitted by law, in which case the interest rate on this
Note shall be adjusted to the maximum permitted under applicable
law during the period or periods that the interest rate otherwise
provided herein would exceed such rate.
Time is of the essence hereof. At the option of the Payee,
payment of the Principal Sum and any and all accrued interest
thereon may be accelerated, and such amounts shall be immediately
due and payable without further notice or demand upon the
occurrence (and continuation as hereinafter specified) of any of
the following:
(1) Failure to make any payment of any and all amounts required
to be paid hereunder when due or declared due.
(2) Default under any document executed in connection with the
indebtedness evidenced by this Note.
Unpaid principal and interest due and payable hereunder shall
bear interest at the greater of 3% points above the publicly
announced prime of Norwest Bank (the "Default Interest Rate")
from the due date until paid.
The remedies provided in this Note shall be cumulative, and shall
be in addition to any other rights or remedies now or hereafter
provided by law or equity. No delay, failure or omission by any
holder of this Note, in respect of any default by the Maker, to
exercise any right or remedy shall constitute a waiver of the
right to exercise the right or remedy upon any such default or
subsequent default.
Makers and any endorser herein waives presentment, demand, notice
of dishonor, notice of acceleration and protest and assents to
any extension of time with respect to any payment due under this
Note, to any substitution or release of collateral and to the
addition or release of any party. No waiver of any payment or
other right under this Note shall operate as a waiver of any
other payment or right.
This Note may not be changed orally, but only by an agreement in
writing, signed by the party against whom enforcement of any
waiver, change, modification or discharge is sought.
If any of the provisions of this Note shall be held to be invalid
or unenforceable, the determination of invalidity or
unenforceability of any such provision shall not affect the
validity or enforceability of any other provision or provisions
hereof.
This Note shall be binding upon Maker and its successors and
assigns and shall inure to the benefit of and be enforceable by
the Payee and its successors and assigns.
All notices to Maker expressly required in this Note shall be in
writing and shall be delivered by hand delivery or mailed by
certified mail, return receipt requested, postage prepaid,
addressed to Maker at its address set forth below its signature
hereto, or at such other address as Maker shall notify the holder
hereof. All such notices or other communications shall be deemed
to be properly given upon receipt of delivery by the Maker.
At the option of the holder hereof, an action may be brought to
enforce this Note in the District Court in and for the City and
County of Denver, State of Colorado, or in any other court in
which venue and jurisdiction are proper. Maker and all signers
or endorsers hereof consent to such venue and jurisdiction and to
service of process under Colorado Revised Statutes (1973)
Sections 13-1-124(1)(a) and 13-1-125, in any action commenced to
enforce this Note.
<PAGE> 56
This Note shall be construed and enforced in accordance with the
laws of the State of Colorado.
IN WITNESS WHEREOF, Maker has caused this instrument to be
executed as of the day and year first above written.
MAKER:
PHOTOCOMM, INC.,
an Arizona corporation
By: _________________________
_________________________
_________________________
<PAGE> 57
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 Arizona.
Photocomm of Texas, Inc., incorporated under the laws of the State
of Texas.
Integrated Power Corporation, incorporated under the laws of the
State of Maryland.
Photocomm Pty. Ltd., incorporated under the laws of Australia.
As of January 1, 1998 the subsidiaries Balance of Systems
Specialists, Inc., Photocomm Credit Corporation and Photocomm of
Texas, Inc. were merged with Photocomm, Inc. to create one
corporation. The surviving corporation is Photocomm, Inc.
<PAGE> 58
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the
Registration Statements on Form S-8 (Nos. 33-40097, 33-62392, 33-
01801 and 33-01799) of Photocomm, Inc. of our report dated February
19, 1998 relating to the consolidated financial statements of
Photocomm, Inc. as of and for the four months ended December 31,
1996 and as of and for the year ended December 31, 1997, which
report appears on page 15 of this Annual Report on Form 10-K.
PRICE WATERHOUSE LLP
Denver, Colorado
March 30, 1998
<PAGE> 59
INDEPENDENT ACCOUNTANTS' CONSENT
The Board of Directors
Photocomm, Inc.:
We consent to incorporation by reference in the Registration
Statements (No. 33-40097, 33-62392, 33-01801 and 33-01799) on Form
S-8 of Photocomm, Inc. of our report dated October 18, 1996,
relating to the consolidated statements of operations,
stockholders' equity and cash flows of Photocomm, Inc. and
subsidiaries for each of the years in the two-year period ended
August 31, 1996, which report appears in the December 31, 1997
annual report on Form 10-K of Photocomm, Inc.
KPMG Peat Marwick LLP
Phoenix, Arizona
March 30, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
the Consolidated Balance Sheet at December 31, 1997 and the
Consolidated Statement of Operations for the Twelve Months Ended
December 31, 1997, and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> Year
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-START> Jan-1-1997
<PERIOD-END> Dec-31-1997
<CASH> $ 1,182,307
<SECURITIES> 0
<RECEIVABLES> 7,422,980
<ALLOWANCES> 146,453
<INVENTORY> 5,810,400
<CURRENT-ASSETS> 15,701,902
<PP&E> 3,345,773
<DEPRECIATION> 1,662,213
<TOTAL-ASSETS> 19,504,642
<CURRENT-LIABILITIES> 3,648,187
<BONDS> 0
<COMMON> 1,624,504
0
83
<OTHER-SE> 10,081,389
<TOTAL-LIABILITY-AND-EQUITY> 19,504,642
<SALES> 32,829,360
<TOTAL-REVENUES> 32,829,360
<CGS> 25,920,602
<TOTAL-COSTS> 33,160,805
<OTHER-EXPENSES> 32,658
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 161,158
<INCOME-PRETAX> (525,261)
<INCOME-TAX> 0
<INCOME-CONTINUING> (525,261)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (525,261)
<EPS-PRIMARY> (0.03)
<EPS-DILUTED> (0.03)
</TABLE>
