U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1996
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
Commission file number 0-22514
PHOTONICS CORPORATION
(Exact name of registrant as specified in its charter)
CALIFORNIA
(State of other jusidiction of incorporation or organization)
77-0102343
(I.R.S. Employer Inentification Number)
1515 CENTRE POINTE DRIVE
MILPITAS, CA 95035
(Address of principal executive offices)
Registrant's telephone number:, including area code:
(408) 942-4000
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act during the past 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 [ ].
The number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date:
COMMON STOCK, $0.001 PAR VALUE
(Class)
4,328,984
(Outstanding at June 14, 1996)
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(THIS PAGE INTENTIONALLY LEFT BLANK)111PHOTONICS CORPORATION
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FORM 10-QSB
FOR THE QUARTER ENDED MARCH 31, 1996
INDEX
PAGE NUMBER
PART I FINANCIAL INFORMATION
ITEM 1 Consolidated Interim Financial Statements 2
Consolidated Balance Sheet as of March 31,
1996 and 1996 and December 31 1995 3
Consolidated Statements of Operations for
Months Ended March 31, 1996 and 1995 4
Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 1996 and 1995 5
Notes to Consolidated Financial Statements 6
ITEM 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
PART II OTHER INFORMATION
ITEM 1 Legal Proceedings 10
ITEM 2 Changes in Securities 10
ITEM 3 Defaults Upon Senior Securities 10
ITEM 4 Submission of Matters of a Vote of Security
Holders 10
ITEM 5 Other Information 10
ITEM 6 Exhibits and Repoerts on Form 8-K 10
PHOTONICS CORPORATION
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FORM 10-QSB
PART I FINANCIAL INFORMATION
ITEM 1 CONSOLIDATED INTERIM FINANCIAL STATEMENTS
The condensed consolidated interim financial statements included herein have
been prepared by the Company, without audit , pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations, although the Company believes
that the disclosures made are adequate to make the information presented not
misleading. It is suggested that the condensed consolidated interim financial
statements be read in conjunction with the consolidated financial statements
and the notes thereto included in the Company's Annual Report on Form 10-KSB/A
for the year ended December 31, 1995 and the DTC Data Technology Corporation
Annual Report on Form 10-K.
The year-end balance sheet data was derived from audited financial statements,
but does not include all disclosures required by generally accepted accounting
principles.
The accompanying consolidated interim financial statements have been prepared,
in all material respects, in conformity with the standards of accounting
measurements set forth in Accounting Principles Board Opinion No. 28 and
reflect, in the opinion of management, all adjustments, which are of a normal
recurring nature, necessary to summarize fairly the financial position and
results of operations for such periods. The results of operations for such
interim periods are not necessarily indicative of the results to be expected
for the full year.
<TABLE>
<CAPTION>
2PHOTONICS CORPORATION
Consolidated Balance Sheet
(amounts in thousands, except share data and par value)
<S> <C> <C> <C> <C> <C> <C>
March 31, December 31,
1996 1995
ASSETS (unaudited) (audited)
CURRENT ASSETS:
Cash and cash equivalents 222 31
Accounts receivable 1651 1642
Inventories 711 774
Prepaid expenses and other current assets 217 155
Total current assets 2801 2602
Furniture and equipment 210 45
Other assets 14 14
Total assets 3025 2661
LIABILITIES AND SHAREHOLDERS EQUITY (DEFICIENCY)
CURRENT LIABILITIES:
Current portion of long term liabilities 0 155
Accounts payable 1605 2577
Accrued liabilities 2872 2573
Total current liabilities 4477 5305
Long term liabilities 0 1573
Deferred foreign taxes 1800 1800
Total liabilities 6277 8678
Minority interest in subsidiaries 125 125
SHAREHOLDERS' EQUITY (DEFICIENCY):
Common stock 4 18
Additional paid in capital 43972 40914
Treasury stock -477 -477
Capital stock subscribed 600 500
Accumulated deficit -47630 -47251
Total shareholders' equity (deficiency) 154 154
Total shareholders' equity -3377 -6142
(deficiency)
Total liabilities and shareholders' 3025 2661
equity
</TABLE>
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THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED
FINANCIAL STATEMENTS
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<TABLE>
<CAPTION>
PHOTONICS CORPORATION
Consolidated Statements of Operations
(amounts in thousands, except per share data)
(unaudited)
<S> <C> <C> <C> <C> <C>
Three months ended March 31,
1996 1995
Revenues:
Product sales 2497 5844
Costs and expenses:
Cost of Revenue 1887 4610
Research and development 160 208
Selling, general and administrative 837 683
Loss on disposal of assets and divestiture of 0 242
business unit
Income (loss) from operations -387 101
Interest income (expense) and other, net 8 5
Profit (loss) before taxes -379 106
Provision for taxes 0 0
Net Income (loss) -379 106
Net income (loss) per share -0.11 0.05
Shares used in per share calculation 3454822 2329157
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED
FINANCIAL STATEMENTS
1
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<TABLE>
<CAPTION>
PHOTONICS CORPORATION
Consolidated Statements of Cash Flows
(amounts in thousands)
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
Three Months Ended March 31,
1996 1995
Cash flows from operating activities:
Net income (loss) -379 106
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation 12 16
Loss on disposal of QPI
Loss on disposal of fixed assets
Changes in operating assets and liabilities:
Accounts receivable -9 -525
Inventories 63 -435
Deposits and prepaid expenses -63 1221
Accounts payable -972 472
Accrued liabilities 299 -113
Net cash used in operating activities -1049 742
Cash flows from investing activities:
Acquisition of furniture and equipment -177 -27
Sale or redemption of short-term investments
Net cash used in investing activities -177 -27
Cash flows from financing activities:
Proceeds from capital stock subscriptions and private 100 796
placement
Proceeds resulting from the DTC acquisition 1344
Repurchase of treasury stock -2
Other equity transactions -22
Borrowings (repayments) of other debt -1474
Borrowings (repayments) of notes payable and bank -27 -87
borrowings
Borrowings (repayments) of bank borrowings
Net cash provided by financing activities 1417 -789
Net decrease (increase) in cash and cash equivalents 191 -74
Cash and cash equivalents at beginning of year 31 239
Cash and cash equivalents at end of period 222 165
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONSOLIDATED FINANCIAL STATEMENTS
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PHOTONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
(Unaudited)
1. Summary of Significant Accounting Policies
Effective March 5, 1996, Photonics Corporation, the Company,
acquired all the assets and certain liabilities of DTC Data
Technology Corporation (DTC) in exchange for the issuance to
DTC of shares and rights to shares of common stock representing
77.5% of the Company's outstanding stock. The transaction was
treated as a purchase for accounting purposes and DTC is
considered the acquirer. Accordingly, the financial statements
and accounting policies presented here are those of DTC and
should be read in conjunction with DTC's Form 10-K for the year
ended February 28, 1996. Although, DTC is considered the
acquirer, the Company is the registrant and therefore the
Company retains its December 31 year end. Accordingly, the
Consolidated Balance Sheet for March 31, 1996 is that of the
combined companies and the Consolidated Balance Sheet for
December 31, 1995 is that of DTC. The Consolidated Statement of
Operations for the Three Months Ended March 31, 1996 contains
two months of operations of DTC prior to the acquisition and
one month of the Company and the Consolidated Statement of
Operations for the Three Months Ended March 31, 1995 contains
three months of operations of DTC only. The Consolidated
Statement of Cash Flows for the Three Months Ended March 31,
1996 contains two months of operations of DTC prior to the
acquisition and one month of the Company and the Consolidated
Statement of Cash Flows for the Three Months Ended March 31,
1995 contains three months of operations of DTC only.
2. Loss per Share
For the quarter ended March 31,1996, the loss per share has
been computed based on the weighted average number of shares
outstanding after reflecting the effect of the 1 for 5 reverse
split of the Company's common stock which became effective
February 12, 1996. For the quarter ended March 31, 1995, loss
per share has been computed based on the weighted average
number of shares outstanding after reflecting the effect of the
exchange of .147853 shares of the Company for DTC shares.
3. Inventories
Inventories are stated at the lower of cost (on a first-in,
first-out basis) or market, and include material, labor and
attributable overhead.
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
March 31, December 31,
1996 1996
(unaudited) (unaudited)
<S> <C> <C> <C>
Raw materials and purchased parts 147 95
Work-in-process 97 247
Finished Goods 467 432
711 774
</TABLE>
PHOTONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
(Unaudited)
4. Property and Equipment
Property and equipment are stated at cost and, other than
leasehold improvements, are depreciated on a
straight-line basis over their estimated useful lives.
Leasehold improvements are amortized on a straight-line
basis over the lesser of their useful life or remaining
term of the related lease.
Property and equipment consisted of the following (in
thousands):
<TABLE>
<CAPTION>
March 31, December 31, 1996
1996 (unaudited)
(unaudited)
<S> <C> <C> <C>
Machinery and Equipment 2460 2174
Furniture and fixtures 942 471
Leasehold Improvements 145 94
Total 3547 2739
Less accumulated depreciation and amortization 3337 2694
210 45
</TABLE>
PHOTONICS CORPORATION
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FORM 10-QSB
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
First Quarter 1996 Versus First Quarter 1995
Net revenues for the current quarter total $2.5million, a
decrease of approximately $3.3 million or 57% from the
$5.8 million reported in the first quarter of 1995. The
decline in revenues can be attributed to i) a change in
standards for high end PC's which placed the IDE
controller on the motherboard obviating the need for
DTC's IDE controller card and ii) a shortage of working
capital which has slowed the delivery of backlogged
product.
The gross margin in the first of fiscal 1996 was
approximately 24% compared with approximately 21% for the
first quarter of the prior year.
Product development expenses were approximately $0.2
million, or 6% of net revenues during the current quarter
compared to approximately $0.2 million, or 4% of net
revenues in the first quarter of 1995.
Selling, general and administrative expenses were
approximately $0.8 million, or 34% of net revenues during
the first quarter of 1996 compared to $0.7 million or 12%
of net revenues reported in the first quarter of 1995.
Prior year's results include a $125,000 reversal of an
unrealized employee termination package. Additionally,
the Company has increased commissions and CO-OP
advertising allowances in an effort to sell more product.
The Company reported a loss from operations of
approximately $0.4 million during the current quarter
versus income from operations of approximately $0.1
million in the first quarter of 1995. The decline in
revenue is primarily responsible for the difference
between the results of the first quarter of 1996 and
1995.
Liquidity and Capital Resources
Cash and cash equivalents increased from $32,000 as of
December 31, 1995 to $222,000 as of March 31, 1996. This
increase was due primarily to positive cash flows from
financing activities less cash used in operating
activities.
On November 14, 1994, DTC arranged a private line of
credit for $300,000 from CMC/TOPAZ Industries, Inc. This
line of credit has subsequently been increased to
$700,000. The terms of this line of credit are 2 points
on each draw down plus 12% per annum. Each draw down
matures at the end of a 60 day period. As of December 31
1995 there was no outstanding balance. As of March 31,
1996 the outstanding balance was $513,000.
At December 31, 1995, DTC owed $1,728,000 to DTC
Technology Corporation. This debt was collateralized by a
secured interest in receivables and inventories. At the
end of fiscal 1995, this interest rate was 9.5% which was
.5% over prime. As of March 31, 199, this debt had been
converted to equity as provided in the Credit Assignment
and Liquidation Agreement between the two parties.
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PHOTONICS CORPORATION
FORM 10-QSB
On August 31, 1995, the Comapny, together with DTC,
announced that they had executed an agreement under which
the Company would acquire all the assets and certain
liabilities of DTC in exchange for the issuance to DTC of
shares and/or rights to shares of common stock
representing 77.5% of Photonics outstanding common stock
(the "Acquisition"). The Acquisition became effective
March 5, 1996.The transaction treated as a purchase for
accounting purposes and DTC is considered athe acquiarer.
Accordingly, the assets and liabilities of Photonics
Corporation were recorded at fair value, and the
historical results of operations of the combined entity
will be those of DTC.
PHOTONICS CORPORATION
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FORM 10-QSB
PART II OTHER INFORMATION
ITEM 1 Not Applicable
ITEM 2 Changes in Securities -
Effective February 9, 1996, the Common Stock of the
Company was subject to a 1 for 5 reverse split.
Outstanding Common Stock as of the effective date was
4,439,712. These shares were converted to 887,942 shares
post split. As a result of the split the Company was
issued a new CUSIP number, 7193W207, and a new stock
symbol, PHOX.
Effective March 5, 1996, the Company purchased all of the
assets and certain liabilities of DTC Data Technology
Corporation ("DTC") in exchange for 3,441,041 shares of
the Company's Common Stock and a reserve of 150,752
shares to satisfy the assumption of the outstanding DTC
stock options. Subsequent to the acquisition, the Company
had 4,328,984 shares of Common Stock outstanding.
ITEM 3 Not Applicable
ITEM 4 Submission of Matters of a Vote of Security
Holders
A Special Meeting of Shareholders of Photonics
Corporation, a California corporation ("Photonics"), was
held at 9:00 a.m., local time, on February 6, 1996 at
1515 Centre Pointe Drive, Milpitas, California 95035,
(the "Special Meeting"), for the following purposes:
1. To consider and vote upon a proposal to approve and
adopt the Asset Purchase Agreement dated as of August 31,
1995 and as amended on September 29, 1995 and December
15, 1995 (the "Agreement") between Photonics and DTC Data
Technology Corporation, a Delaware corporation ("DTC")
whereby among other things, Photonics would purchase all
assets and assume certain liabilities of DTC, and would
issue 3,441,434 shares of Photonics Common Stock to DTC
and assume all DTC currently outstanding options. An
aggregate of 172,405 shares of Photonics Common Stock
would be issuable upon exercise of assumed DTC options.
The results of the vote are as follows: for -2,906,857,
against - 51,867, and abstaining - 28,925.
2. To consider and vote upon a proposal to amend
Photonics' Article of Incorporation to provide for a
one-for-five reverse split of Photonics' Common Stock.
The results of the vote are as follows: for - 4,047,697,
against - 104,717, and abstaining - 33,475.
3. To consider and vote upon a proposal to amend
Photonics' Bylaws to increase the authorized size of the
Board of Directors of Photonics to a number between seven
and nine, with the exact number fixed at seven. The
results of the vote are as follows: for - 4,123,082,
against - 70,607, and abstaining - 21,025.
The foregoing items of business are more fully described
in the Joint Proxy Statement / Prospectus which
accompanied the Notice of Special Meeting.
ITEM 5 Not Applicable
ITEM 6 Not Applicable
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PHOTONICS CORPORATION
FORM 10-QSB
SIGNATURE
Pursuant to the requirements of Section 3 or 15(d) 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.
DTC DATA TECHNOLOGY CORPORATION
Date: __________________________
By:___W. Morris Chubb___________
CHIEF FINANCIAL OFFICER
