<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES AND EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-12807
PHOTOCOMM, INC.
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(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.)
4585 McIntyre St. Golden, CO 80403
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(Address of principal executive offices)
(Zip Code)
(303) 271-7500
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(Registrant's telephone number, including area code)
7681 East Gray Road, Scottsdale, AZ 85260
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(Former name, former address and former fiscal
year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days. Yes /X/ No / /
At May 11, 1998 16,667,169 shares of the Registrant's Common Stock
were outstanding.
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PHOTOCOMM, INC. d/b/a GOLDEN GENESIS COMPANY
INDEX
PART I Financial Information Page Number
Item 1. Financial Statements
Consolidated Balance Sheets - March 31,
1998 and December 31, 1997 3
Consolidated Statements of Operations -
Three Months ended March 31, 1998 and 1997 4
Consolidated Statements of Cash Flows -
Three Months ended March 31, 1998 and 1997 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 7
PART II Other Information
Item 6. Exhibits and Reports on Form 8-K 10
<PAGE> 3
I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PHOTOCOMM, INC. d/b/a GOLDEN GENESIS COMPANY
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
1998 1997
Assets (Unaudited)
Current Assets
Cash and cash equivalents $ 597,156 $ 1,182,307
Accounts receivable, net 8,708,749 7,276,527
Inventories 6,511,186 5,810,400
Property held for sale, net 1,017,779 1,017,779
Deferred tax asset 193,343 193,343
Other current assets 179,403 221,546
Total Current Assets 17,207,616 15,701,902
Property and equipment, net 1,760,361 1,683,560
Deferred tax asset 156,657 156,657
Goodwill, net 2,714,032 1,620,280
Other assets, net 399,462 342,243
Total Assets $22,238,128 $19,504,642
========== ==========
Liabilities and Stockholders' Equity
Current Liabilities
Current installments of long-term debt $ 80,701 $ 81,787
Accounts payable 4,237,081 2,912,173
Other accrued expenses 715,806 654,227
Total Current Liabilities 5,033,588 3,648,187
Long-term debt, less current installments 4,881,252 4,150,479
Total Liabilities 9,914,840 7,798,666
Commitments and contingencies
Stockholders' Equity
Preferred stock: $.001 par value,
5,000,000 shares authorized
Series A 12% convertible preferred stock,
125,000 shares authorized; 38,972
shares issued and outstanding 39 39
Series AA 11% convertible preferred stock,
200,000 shares authorized; 44,165 shares
issued and outstanding 44 44
Common stock: $.10 par value, 25,000,000
shares authorized; 16,660,544 and
16,245,044 shares issued and
outstanding, respectively 1,666,054 1,624,504
Additional paid-in capital 16,628,746 16,121,249
Accumulated other comprehensive loss (565,411) (439,890)
Accumulated deficit (5,406,184) (5,599,970)
Total Stockholders' Equity 12,323,288 11,705,976
Total Liabilities and Stockholders'
Equity $22,238,128 $19,504,642
========== ==========
See accompanying notes to consolidated financial statements.
<PAGE> 4
PHOTOCOMM, INC. d/b/a GOLDEN GENESIS COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended
March 31
1998 1997
Sales, net $ 9,792,325 $ 6,369,950
Cost of sales 7,903,914 4,874,889
Gross profit 1,888,411 1,495 061
Selling, general and 1,718,337 1,662,840
administrative expenses
Income (loss) from operations 170,074 (167,779)
Other income (expenses):
Interest expense (88,498) (14,196)
Other income (expense), net (13,309) (5,773)
Income (loss) before income taxes 68,267 (187,748)
Income tax - -
Net income (loss) 68,267 (187,748)
Preferred stock dividends 1,169 14,519
Net income (loss) applicable to common
stockholders $ 67,098 $ (202,267)
========= =========
Net income (loss) per basic share of
common stock $ 0.00 $ (0.01)
========= =========
Weighted average shares outstanding
- basic 16,547,266 16,164,722
========== ==========
Net income (loss) per diluted share of
common stock $ 0.00 $ (0.01)
========= =========
Weighted average shares outstanding
- diluted 16,961,825 16,164,722
========== ==========
Comprehensive loss $ (57,254) $ (201,681)
========== ==========
See accompanying notes to consolidated financial statements.
<PAGE> 5
PHOTOCOMM, INC. d/b/a GOLDEN GENESIS COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended
March 31,
1998 1997
Cash flows from operating activities:
Net income (loss) $ 68,267 $ (187,748)
Adjustments to reconcile net income to
net cash used in operating activities,
net of effects of acquisitions:
Depreciation and amortization 160,729 121,761
Change in accounts receivable (782,942) 934,637
Change in inventories 1,213,114 (1,162,194)
Change in accounts payable and
accrued expense (1,337,688) (66,573)
Change in other current assets 42,143 17,535
Net cash used in operating activities (636,377) (342,582)
Cash flows from investing activities:
Purchase of property and equipment (155,581) (136,491)
Cash paid for acquisitions and other
assets, net of cash acquired (369,948) (7,982)
Net cash used in investing activities (525,529) (144,473)
Cash flows from financing activities:
Repayments of debt (196,643) (498,884)
Proceeds from issuance of debt 750,000 102,250
Proceeds from issuance of common stock 23,398 56,889
Cash dividends on preferred stock - (14,519)
Net cash provided by (used in)
financing activities 576,755 (354,264)
Net decrease in cash and cash equivalents (585,181) (841,319)
Cash and cash equivalents at beginning
of period 1,182,307 1,377,898
Cash and cash equivalents at end of period $ 597,156 $ 536,579
========= =========
Non-cash investing and financing activities:
Stock issued for acquisitions $ 650,000
See accompanying notes to consolidated financial statements.
<PAGE> 6
PHOTOCOMM, INC. d/b/a GOLDEN GENESIS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
(UNAUDITED)
NOTE 1. Inventories
Inventories consist of the following:
March 31, December 31,
1998 1997
Raw materials and goods purchased for resale $6,499,251 $5,702,452
Work-in-process 141,521 209,494
Less allowance of obsolescence (129,586) (101,546)
Total Inventories $6,511,186 $5,810,400
NOTE 2. Reclassifications
Certain reclassifications have been made in the 1997 financial statements
to conform to the classifications used in 1998. In addition, all earnings
per share data presented have been adjusted for the adoption of Statement
of Financial Accounting Standards ("SFAS") No. 128 "Earnings Per Share."
Note 3. Acquisition
On January 23, 1998 the Company acquired Silicon Energy Corporation, a
California corporation doing business as Utility Power Group ( UPG ). UPG,
headquartered in Chatsworth, California, functions as a value added systems
integrator of solar electric products, specializing in on-grid and off-grid
solar and hybrid power systems. The acquisition was structured as a merger
with Utility Power Group, Inc., a wholly owned subsidiary of Photocomm,
Inc. (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. The acquisition of UPG was
accounted for as a purchase and has been included in the Company s results
of operations since January 23, 1998. 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 $1,134,102 is being amortized over 20 years using the
straight-line method.
Note 4. 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 was adopted
by the Company in the first quarter of 1998. The Company's comprehensive
income consists of net income, preferred stock dividends and certain
foreign currency translation adjustments.
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
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operating segments. It also establishes standards for related disclosure
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.
Item 2. Management's Discussion and Analysis of Financial Conditions and
Results of Operations
Business Overview
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. In addition, the industrial
market includes customers that use solar electric systems connected
directly into power grids.
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 its wholly owned subsidiary, 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 and
activities to consolidate manufacturing, operations support and
administration. Management believes that the consolidation will allow the
Company to serve customers with higher quality goods and services at a
lower overall cost.
Results of Operations
Three months ended March 31, 1998 vs. three months ended March 31, 1997.
Sales: Sales for the first quarter of 1998 were $9,792,325, a 54% increase
over the $6,369,950 for the first quarter of 1997. First quarter revenue
included an increase in base business operations of $1,201,375 or 19% and
sales of $2,221,000 from the recently acquired Utility Power Group ("UPG")
subsidiary and contracts resulting from the acquisition of certain assets
of Integrated Power Corporation ("IPC").
The Company's sales mix in the first quarter of 1998 was approximately 64%
industrial products and 36% distribution sales as compared to 40%
industrial products and 60% distribution during the first quarter of 1997.
The shift was largely due to the addition of sales by Utility Power Group,
<PAGE> 8
two large projects delivered to telecommunications customers which are
industrial businesses and decreased sales by the Australia subsidiary which
is primarily a distribution business.
Gross Profit: Gross Profit increased 26% from $1,495,061 in the first
quarter of 1997 to $1,888,411 in the first quarter of 1998. Gross profit
margins decreased from 23% in the first quarter of 1997 to 19% in the first
quarter of 1998. The decrease in gross profit margin was primarily due to
an increase in competition in both the distribution and industrial markets
and the inclusion of sales of UPG and two telecommunications projects
shipped internationally which were at lower margins than the Company's
historical margins. As the Company enhances its reputation in the
international market through the successful completion of the current
projects the Company believes it will be able to command greater margins
for superior products and services. In addition the Company believes it
will be able to reduce operating costs through the consolidation of
manufacturing, operations and administration in the new Scottsdale
facility.
Selling, General and Administrative Expenses ("SG&A"): SG&A expenses
increased 3% from $1,662,840 in the first quarter of 1997 to $1,718,337 in
the first quarter of 1998. SG&A as a percentage of sales decreased from 26%
in the first quarter of 1997 to 18% in the first quarter of 1998. The
decrease in SG&A as a percentage of sales is a result of the Company's
strategy of consolidating operations, manufacturing and administration in
Scottsdale Arizona.
Other Income (Expense): The Company's non-operating income and expense is
primarily comprised of interest expense and consulting income.
Income Tax: The Company did not recognize any income tax benefit or expense
for the three months ended March 31, 1998 or 1997. Realization of the net
operating losses generated in prior periods is dependent on generation of
future taxable income and limited by ownership changes. At this time,
management has determined that it is more likely than not that $350,000 of
the deferred tax asset will be realized and therefore has provided a
valuation allowance for all but $350,000 of the deferred tax asset. The
realizability of the deferred tax asset will be monitored on a quarterly
basis.
Net Income (Loss): The Company reported a net income of $68,267, or $0.004
per diluted common share, for the first quarter of 1998 versus net loss of
$187,748, or $0.01 per diluted common share, for the first quarter of 1997.
Increased sales partially offset by the lower sales margins as discussed
above are primarily responsible for the increase in net income.
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 March 31,
1998, the Company s working capital (current assets minus current
liabilities) was $12,174,028 with a current ratio (current assets divided by
current liabilities) of 3.42 to 1.
<PAGE> 9
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 $4,750,000
under this line for use in funding working capital needs, capital
expenditures, and the July 1997 acquisition of the assets and certain
contracts of IPC and the January 1998 acquisition of UPG.
As shown in the Consolidated Statement of Cash Flows, net cash used by
operations was $636,377 and $342,582 for the first quarter of 1998 and 1997,
respectively. An increase in accounts receivable resulting from the
Company s significant revenue growth accounts for the increased use of cash
for operations between the first quarter of 1997 and the first quarter of
1998.
During the first quarter of 1998, the Company invested $155,581 in capital
expenditures to upgrade equipment. This represents an increase of $19,090
over capital expenditures in the first quarter of 1997. The Company invested
$369,948 net of cash acquired for the purchase of UPG in the first quarter of
1998. The UPG purchase included inventory at $1,977,000, accounts receivable
at $710,000 and liabilities at $2,724,000.
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.
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.
These statements should be read in conjunction with the financial
statements and notes thereto included in the Company's Form 10-K for the
year ended December 31, 1997. The accompanying financial statements have
not been examined by independent accountants in accordance with generally
accepted auditing standards, but in the opinion of the management of the
Company, such financial statements include all adjustments necessary to
summarize fairly the Company's financial position and results of
operations. All adjustments made to the interim financial statements
presented are of a normal recurring nature. The results of operations for
the three month period ended March 31, 1998 may not be indicative of
results that may be expected for the year ending December 31, 1998.
Forward-Looking Statements
The statements made in this Report that are not historical facts contain
forward-looking information that involves risks and uncertainties.
Important factors that may cause actual results to differ from such
forward-looking statements include, but are not limited to, market demand
<PAGE> 10
and acceptance of the Company's products, the impact of competitive
technologies, products and services, risks associated with any litigation
and claims to which the Company may be a party, availability of critical
materials or supply, the effect of economic and business conditions and
other risks detailed from time to time in the Company's filings with the
Securities and Exchange Commission.
PART II. OTHER INFORMATION
Item 6. Exhibits 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).
3.4 Amended and Restated Bylaws of the Company dated
February 11, 1998 (filed as Exhibit 3.2 to Form 8-K
on February 18, 1998 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).
<PAGE> 11
10.1 Agreement and plan of merger between Photocomm, Inc. and
Silicon Energy Corporation dated January 23, 1998 (filed as
Exhibit 2.1 to Form 8-K on February 18, 1998 and incorporated
herein by reference).
27 Financial Data Schedule 12
(b) Reports on Form 8-K
Form 8-K dated January 23, 1998 Acquisition of Utility Power Group, amended
and restated bylaws and potential litigation.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: May 14, 1998
PHOTOCOMM, INC.
By: /s/ John K. Coors By: /s/ Jeffrey C. Brines
John K. Coors Jeffrey C. Brines
Chief Executive Officer Chief Financial Officer
(Duly Authorized Officer and
Principal Financial Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheet at March 31, 1998 (Unaudited) and the
Consolidated Statement of Operations for the Three Months ended March 31,
1998 (Unaudited) and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 597,156
<SECURITIES> 0
<RECEIVABLES> 8,758,041
<ALLOWANCES> 49,292
<INVENTORY> 6,511,186
<CURRENT-ASSETS> 17,207,616
<PP&E> 4,061,624
<DEPRECIATION> 2,301,263
<TOTAL-ASSETS> 22,238,128
<CURRENT-LIABILITIES> 5,033,588
<BONDS> 0
<COMMON> 1,666,054
0
83
<OTHER-SE> 10,657,151
<TOTAL-LIABILITY-AND-EQUITY> 22,238,128
<SALES> 9,792,325
<TOTAL-REVENUES> 9,792,325
<CGS> 7,903,914
<TOTAL-COSTS> 7,903,914
<OTHER-EXPENSES> 1,718,337
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 88,498
<INCOME-PRETAX> 68,267
<INCOME-TAX> 0
<INCOME-CONTINUING> 68,267
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 68,267
<EPS-PRIMARY> 0.00
<EPS-DILUTED> 0.00
</TABLE>
