<PAGE>
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 SEPTEMBER 30, 1997
[_] 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 or other jurisdiction of incorporation or organization)
77-0102343
(I.R.S. Employer Identification 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 share outstanding of each of the issuer's classes of common stock,
as of the latest practicable date:
COMMON STOCK, $0.001 PAR VALUE
(Class)
4,436,405
(Outstanding at September 30, 1997)
<PAGE>
PHOTONICS CORPORATION
FORM 10-QSB
PHOTONICS CORPORATION
dba
DTC DATA TECHNOLOGY
FOR THE QUARTER ENDED SEPTEMBER 30, 1997
INDEX
Page Number
------------
INTRODUCTION PHOTONICS CORPORATION
Introduction 2
General 2
The Market 2
The Competition 3
The Strategy 3
Intellectual Property 3
Employees 4
Sales, Distribution and Customer Service 4
Research & Development 4
Manufacturing 5
Current Developments 5
PART I FINANCIAL INFORMATION 6
ITEM 1 Consolidated Interim Financial Statements 7
Consolidated Balance Sheet as of Sept. 30, 1997 and
December 31, 1996 8
Consolidated Statements of Operations for the Three
months and six months ending Sept. 30, 1997 9
Consolidated Statement of Cash Flows 10
Notes to Consolidated Financial Statements 12
ITEM 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 13
PART II OTHER INFORMATION 13
ITEM 1 Legal Proceedings 13
ITEM 2 Changes in Securities 13
ITEM 3 Defaults Upon Senior Securities 13
ITEM 4 Submission of Matters to a Vote of Security Holders 13
ITEM 5 Other Information 13
ITEM 6 Exhibits and Reports on Form 8-K 13
1
<PAGE>
PHOTONICS CORPORATION
FORM 10-QSB
INTRODUCTION
This report contains forward-looking statements and the Company's actual results
could differ materially from those anticipated in these forward-looking
statements as a result of numerous factors, including those set forth below and
elsewhere in this report. The industry in which the Company competes is
characterized by extreme rapid changes in technology and frequent new product
introductions. The company believes that its long-term growth will depend
largely on its ability to continue to enhance existing products and to introduce
new products and features that meet the continually changing requirements of
customers. While the Company has invested in new products and processes and
feels confident that it can keep abreast of current technology trends, there can
be no assurance that it can continue to introduce new products and features on a
timely basis or that certain of its products and processes will not be rendered
noncompetitive or obsolete by its competitors.
GENERAL
Photonics was incorporated in 1985 to design, develop and market wireless
infrared local area network products (IR-LAN) based on diffuse infrared
technology.
DTC Data Technology Corporation ("DTC") was founded in 1979 to design, develop
and market intelligent storage controllers and chip sets used primarily in
connection with IBM compatible personal computers. On March 5, 1996 Photonics
acquired assets and liabilities in exchange for the issuance to DTC of shares
and rights to shares of common stock representing 77.5% of Photonics outstanding
stock.
As the DTC stockholders own a majority of the combined entity, and the
management and control comes from DTC, the transaction is accounted for as
though DTC was the acquirer. Accordingly, the assets and liabilities of
Photonics Corporation were recorded at fair value. The historical results of
the operation of Photonics Corporation as reported herein, are those of DTC.
As DTC Data Technology has the established name recognition, and established
sales channels, it is the intent of the Company to eventually rename the company
DTC Data Technology Corporation. As the Company caused a fictitious name
statement to be recorded with the state of California on June 11, 1996, and as
the reported history belongs to DTC Data Technology the legal entity is known as
Photonics Corporation dba DTC Data Technology. For brevity sake, the company is
herein after referred to as DTC or the Company.
THE MARKET
DTC dominated the Integrated Device Electronics ("IDE") and Enhanced IDE
("EIDE") controller card market in 1994-1995. During that period DTC developed
comprehensive distribution channels with established name and trademark
recognition. Starting in 1995, the IDE controller market started to decline as
Intel entered into the motherboard business and incorporated the IDE controller
function into its motherboard chipset. Today, the transition from add-on IDE
cards to on-board built-in IDE function is complete. Now, the IDE controller
cards are used by Original Equipment Manufacturers ("OEM") for inclusion with
IDE CD-ROM, Tape and other IDE peripheral devices. System Integrators and Value
Added Resellers ("VAR") use IDE Input/Output "(I/O") controller cards for
maintaining and upgrading existing systems to EIDE disk interface, high speed
serial port, Enhanced Parallel Port ("EEP") and Enhanced Capability Parallel
Port ("ECP") for high performance modems, printers and other new peripherals.
The Company's sales also have changed from mainly OEM to VARs and system
integrators through distribution and retailers. The IDE I/O market has settled
and stabilized at a much lower level of approximately $50 million dollars.
2
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PHOTONICS CORPORATION
FORM 10-QSB
The Company re-entered the Small Computer System Interface ("SCSI") market.
This market, developed in the late 1970s, is a standard by which computers and
their peripherals could interface intelligently. DTC had been in the SCSI
market since 1990 and has developed several high performance (non-Adaptec
compatible) SCSI products. Having the image of high performance, higher
connectivity, and the ability of connecting external peripherals, SCSI
controllers have become the controller of preference for high-end personal
computers, workstations, and file servers.
The SCSI host adapter (controller) market has been growing about 40% to 50% per
year for the past 5 years to over $1 billion in 1996. The SCSI controller
market is dominated by Adaptec with over 70% of the market, and many other small
SCSI vendors (less than $50 million in SCSI controller sales). All SCSI
controllers, though all conforming to an IEEE standard, are vendor unique and
are not compatible with one another and with the de facto standard of Adaptec.
THE COMPETITION
Due to the decline of the market, most of the IDE controller vendors have
dropped out of that business segment. Promise and SIIG remain in the upgrade
and I/O add-on markets that competes with the Company's newly introduced Ultima
and planned I/O family of products. The Company has broader sales channels,
stronger name recognition, and access to low cost manufacturing compared with
either of these companies.
In the SCSI market, the current other suppliers of SCSI products are: Always,
DPT, AdvanSys, CMD, Forex, Initio, LDP, Mylex, Promise, Q Logic, SIIG, and
Symbios (Other Competitors). While Adaptec has been growing at 40% or more per
year, none of the Other Competitors are prospering financially. All of them
market purportedly technically superior but non-Adaptec compatible products at a
lower price than Adaptec without achieving significant success.
THE STRATEGY
The Company's strategy is to develop a complete family of Adaptec compatible
SCSI controller cards with a superior value to the market's current offerings.
While there can be no assurances that general market acceptance can be attained
with DTC's current and proposed Adaptec compatible products, but the Company
feels strongly that there is a significant market segment for a cost-effective
compatible product.
In May of 1997 the Company introduced its first two Adaptec compatible low-end
SCSI products. These products appear to be well received in the market place.
The Company has broadened and plans to further broaden its product offering in
the IDE I/O market segment to reverse the decline in sales and restore the
Company to profitability. ISA-IDE and VL-IDE I/O products still represent the
major portion of the Company's sales. Recently the Company introduced the ISA
BUS EIDE Ultima family of controller products and did during the month of
September introduce a new serial, parallel port I/O product for the upgrade
market. The Company plans to introduce several additional new products in the
I/O area during the fourth quarter of 1997.
The Company is committed to continuous product improvement and innovation, which
the Company believes is necessary for greater market penetration and
profitability.
INTELLECTUAL PROPERTY
Software is an important ingredient for success in the controller market. DTC
has a large library of copyrighted IDE and SCSI software drivers and utilities
for various operating systems including DOS, OS/2, UNIX, Novell, Windows 3.1,
and Windows 95. DTC, having designed several SCSI
3
<PAGE>
PHOTONICS CORPORATION
FORM 10-QSB
and IDE ASIC's, recently acquired the design right to the ASIC used in its low
end 3500 family of ISA-SCSI products, and is in the process of designing a PCI-
SCSI ASIC.
The Company has studied the intellectual property issues and performed patent
searches related to the IDE, I/O and SCSI products which it is marketing, and
intends to market, and is unaware of any patents or intellectual property owned
by any other party which would impede the development or sale of its IDE, I/O or
SCSI products. While there have been no legal challenges in the past, there
can be absolute assurances that there will be none in the future.
EMPLOYEES
As of September 30, 1997 DTC employed 28 individuals (24 on a full time basis
and 4 on a part time basis), 27 of which were located in the United States and 1
in Hong Kong. Of such employees 8 were engaged in manufacturing and related
operations, 4 in development and engineering, 9 in sales and marketing, and 7 in
general management and administration. This work force was augmented
periodically by the employment of consultants. None of DTC's employees are
represented by a labor union and DTC considers its employee relations to be
good.
SALES, DISTRIBUTION AND CUSTOMER SERVICE
The Company currently sells its products through domestic and international
independent distributors, computer retailers and OEMs. In the United States and
Canada, the Company sells to most of the top national distributors in the
computer industry including Ingram Micro, Merisel, Tech Data, Southern
Electronics Corporation and D & H Distributing who in turn distribute the
Company's products to retailers, OEMs and VARs. The Company's current sales
strategy is to increase its sales to OEM's, VARs and retailers.
The Company's customer service and technical support organization is located in
Milpitas, California and provides customers with software driver updates,
upgrade programs and warranty service. The technical support personnel assist
end users and distributors via telephone, fax-back facsimile services, a 24-hour
bulletin board service and an Internet Web site (www.datatechnology.com).
As is common practice in the personal computer industry, the Company frequently
grants distributors limited rights to return unsold inventories of the Company's
products in exchange for new purchases, as well as price protection and
marketing development funds. While the Company reserves what it deems to be
adequate funds each month to cover these programs, there can be no absolute
assurances that the Company's current allowances will be sufficient to not have
a material adverse effect on future operating results.
RESEARCH AND DEVELOPMENT
The Company believes that continued investment in research and development is
critical to successful new product introductions, which address market needs, on
a timely and cost effective basis. DTC's knowledge and expertise in SCSI
predates the founding of Adaptec and the Company has completed similar SCSI
projects in the past.
The Company has completed the development of its low end Adaptec compatible ISA-
SCSI line of products and the official product launch has taken place. For the
high end PCI-SCSI product family, the Company has contracted with an outside
engineering firm for the design of the ASIC under the supervision of the
Company's engineers. This will allow the Company to focus on its own SCSI
expertise and leverage the ASIC knowledge of the contracted design firm thereby
reducing the cost and time to market.
4
<PAGE>
PHOTONICS CORPORATION
FORM 10-QSB
MANUFACTURING
Over the years the Company has developed business relationships with various
contract board manufacturers in the Far East, which currently supply DTC with
highly cost competitive finished product. It is the Company's intention to
continue utilizing these sources of production. Not having to invest in capital
equipment and/or purchase sizable raw material inventories and being able to
take advantage of the lower cost of labor and overhead utilized by such contract
manufacturers, the Company believes that it will be able to conserve its cash
position, allow the Company greater operational flexibility and keep the Company
focused on its areas of expertise. There can, however, be no absolute assurance
that these manufacturing sources will remain available to DTC.
At the present time manufacturing facilities operated by Broadsino Computer
Development, Ltd. of Hong Kong provides approximately 80% of the Company's
storage controller requirements. Broadsino is the beneficial owner of 591,412
shares of the Company's common stock and 300,000 shares of the Company's
Preferred A stock.
CURRENT DEVELOPMENTS
The Company has started volume production and sales of the Adaptec compatible
ISA-SCSI products and new I/O products. The Company has regained several past
customers along with several new customers. New products and new customers have
allowed the Company to increase the sales, profit margins and thereby improve
its financial position.
5
<PAGE>
PHOTONICS CORPORATION
FORM 10-QSB
PART 1 FINANCIAL INFORMATION
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 statement and the notes thereto included in the
Company's Annual Report on Form 10-KSB for the year ended December 31, 1996.
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.
6
<PAGE>
PHOTONICS CORPORATION
FORM 10-QSB
PHOTONICS CORPORATION
Consolidated Balance Sheet
(amounts in thousands)
<TABLE>
<CAPTION>
Sept. 30, December 31,
1997 1996
(unaudited) (audited)
----------- -------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 203 $ 104
Accounts Receivable, net 1,055 849
Inventories, net 745 950
Prepaid expenses and other current assets 464 84
-------- --------
Total current assets 2,434 1,987
Furniture and equipment, net 116 112
Other Assets 14 14
-------- --------
Total Assets $ 2,597 $ 2,113
======== ========
LIABILITIES AND SHAREHOLDERS EQUITY (DEFICIENCY)
CURRENT LIABILITIES:
Due to Related Parties 1,386 2,130
Accounts payable 1,371 1,309
Accrued liabilities 745 998
-------- --------
Total current liabilities 3,502 4,437
Long term liabilities 0 0
Deferred Taxes 0 0
-------- --------
Total Liabilities 3,502 4,437
SHAREHOLDERS' EQUITY (DEFICIENCY):
Minority interest in subsidiaries 125 125
Common stock 44,113 44,075
Treasury stock 0 0
Capital subscription 2,092 26
Accumulated deficit (46,858) (46,704)
Cumulative translation adjustment 154 154
-------- --------
Total shareholders' equity (deficiency) (905) (2,324)
======== ========
Total liabilities and shareholders' equity $ 2,597 $ 2,113
======== ========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS
7
<PAGE>
PHOTONICS CORPORATION
FORM 10-QSB
PHOTONICS CORPORATION
Consolidated Statements of Operations
(amounts in thousands, except per share data)
<TABLE>
<CAPTION>
Three months ended Sept. 30 Nine months ended Sept. 30
1997 1996 1997 1996
(unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
REVENUES:
Net Product Sales $ 1,455 $ 1,135 $ 3,925 $ 5,355
Cost of Revenues 774 858 2,520 4,047
---------- ---------- ---------- ----------
Gross Profit 681 277 1,405 1,308
OPERATING EXPENSES:
Research and development 108 184 341 528
Selling, general and admin. 626 650 1,894 2,202
---------- ---------- ---------- ----------
Total operating expense 734 834 2,235 2.730
Income (loss) from operations (53) (557) (830) (1,422)
OTHER INCOME (EXPENSE):
Interest income 0 0 0
Interest expense (13) (35)
Other Income 76 2,885 241 2,885
Other expense 0 0 0 21
---------- ---------- ---------- ----------
Total other income (expense) 63 2,885 206 2,864
Provision for taxes 0 0 61 1
Net income (loss) $ 10 $ 2,328 $ (685) $ 1,441
Net income (loss) per share .006 0.54 (.107) 0.36
========== ========== ========== ==========
Shares used in per share calculation
6,426,488 4,332,239 6,426,488 4.044,015
========== ========== ========== ==========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS
FOOTNOTE TO Q3 1996 INCOME STATEMENT:
In the third quarter of 1996, the Company resolved three claims that resulted in
$2.9 million in Other Income.
They were:
1) The elimination of $1.8 million reserve for a Taiwan tax claim. On May 13,
1996 notice was given to all creditors of the Company of the dissolution of
DTC Data Technology Corporation. In the Photonics acquisition of DTC,
Photonics assumed all liabilities of DTC, except certain liabilities of DTC
arising from claims made by the taxing authority of the Republic of Taiwan.
All creditors who had legitimate claims on DTC were required, in the notice,
to present their claims by July 12, 1996
2) The elimination of the balance of $730,000 due the liquidation of Qume LTD.
A settlement was reached on December 13, 1995 to pay $80,000 of an $810,000
claim. The last installment was made in August 1996. The Company has
accounted for the elimination of the balance as Other Income.
3) The elimination of a $371,000 reserve for potential claim by the IRS dating
to 1991. According to Section 6532 of the Internal Revenue Code claims for
erroneous refunds must be presented within two years. The two years has more
than lapsed.
8
<PAGE>
PHOTONICS CORPORATION
FORM 10-QSB
PHOTONICS CORPORATION
Consolidated Statement of Cash Flows
(amounts in thousands)
(unaudited)
<TABLE>
<CAPTION>
Nine months ended Sept. 30,
1997 1996
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (685) $ 1,441
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 77 66
Changes in operating assets and liabilities:
Accounts Receivable (206) 444
Inventories 205 (331)
Deposits and prepaid expenses (380) (63)
Accounts payable 62 (97)
Notes Payable current portion 0 603
Due to Related Parties (744) 0
Accrued Liabilities (179) (1,405)
Net Cash Provided by (used for) Operations (1,850) $ 658
======= =======
Cash flows from Investing Activities:
Sale (Purchase) of Property and Equipment (81) (171)
Net Cash used in Investing Activities $ (81) $ (171)
======= =======
Cash Flows from Financing Activities:
Proceeds from Capital Stock Subscription 2,066 109
Proceeds resulting from the DTC acquisition 0 1,347
Net Borrowings (Repayments) under Bank Lines (44) (29)
Borrowing (repayments of other debt), net (30) 0
Reduction of deferred foreign taxes 0 (1,800)
Other Equity Transactions, net 38 0
Net Cash provided by (used for) Financing $ 2,030 $ (373)
======= =======
Net increase (decr.) in Cash and Cash Equivalents 99 114
Cash and Cash Equivalents Beginning of Period 104 31
------- -------
Cash and Cash Equivalents at end of period $ 203 $ 145
======= =======
</TABLE>
9
<PAGE>
PHOTONICS CORPORATION
FORM 10-QSB
PHOTONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1997
(unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
---------------------------
The accompanying consolidated financial statements include the accounts of
the Company and its majority-owned subsidiaries after elimination of the
intercompany accounts and trans-actions. The minority interest represents
the minority stockholders' proportionate share of the subsidiaries, Qume
Taiwan and Data Technology Hong Kong, Ltd., which was 0.6% and 1%
respectively.
Foreign Currency Translation
----------------------------
Certain entities located outside the United States use the local currency as
their functional currency. Assets and liabilities are translated at exchange
rates in effect at the balance sheet date, while revenues and costs are
translated at monthly average exchange rates. Translation gains and losses
are accumulated as a separate component of stockholders' equity.
Cash Equivalents
----------------
The Company considers all highly liquid investments with original maturities
of three months or less to be cash equivalents.
2. EARNINGS (LOSS) PER SHARE
Net income (loss) per common share is computed using the weighted average
number of common and dilutive common equivalent shares outstanding for each
accounting period. Common equivalent shares, principally stock options, are
included in the per share calculation when the effect of their inclusion
would be dilutive. For all periods in Fiscal 1997, the dilutive value of The
Company's Series A Convertible Preferred Stock ("Preferred Stock") was
included in the gain or loss per share calculation. The value of the
Preferred Stock is represented in the equity section under Capital
Subscription.
3. INVENTORIES
Inventories are stated at the lower of cost (on a first-in, first-out basis)
or market value (net realizable value), and include material, labor and
attributable overhead less reserves.
<TABLE>
<CAPTION>
Inventories consist of the following:
Sept. 30, 1997 December 31, 1996
(unaudited) (audited)
------------------------------------- ------------------
<S> <C> <C>
Raw Materials and Purchased Parts $157 $118
Work-in-process 218 357
Finished Goods 370 475
---- ----
$745 $950
==== ====
</TABLE>
10
<PAGE>
4. PROPERTY, PLANT, AND EQUIPMENT
Property and equipment are stated at cost and, other than leasehold
improvements, are depreciated on a straight-line basis over their 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>
Sept. 30, 1997 December 31, 1996
(unaudited) (audited)
--------------- ------------------
<S> <C> <C>
Machinery and Equipment $1,899 $2,312
Furniture and Fixtures 281 277
Leasehold Improvements 94 94
------ ------
$ 2,274 $2,683
Less Accumulated depreciation and amortization $2,158 $2,571
------ ------
$ 116 $ 112
</TABLE>
5. EXPENSE RECLASSIFICATION
The year-to-date September 1997 operating expenses and certain items
reported under Other Expense reflect some minor and non-material
reclassification of categories. These reclassifications have zero effect on
net income or (loss).
11
<PAGE>
PHOTONICS CORPORATION
FORM 10-QSB
ITEM 2 MANAGEMENTS'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The statements made concerning expected company performance and product
commercialization are forward-looking statements and as such are made pursuant
to the Safe Harbor Provisions of the Private Securities Litigation Reform Act of
1995. The Company's 1995 10-K and 1996 10-KSB contain detailed risk factors
that may contribute to the actual results in future periods which could
materially differ from forward-looking statements made by the Company.
The following Management's Discussion and Analysis of Financial Condition and
Results of Operations should be read in conjunction with the Financial
Statements and the related notes thereto included in this report. The following
discussion contains forward-looking statements and the Company's actual results
could differ materially from those anticipated in these forward-looking
statements as a result of numerous factors, including those set forth in the
following discussion and elsewhere in this report.
Net revenues for the current quarter total $1.455 million, an increase of 28%
from the $1.135 million reported during the third quarter of 1996. The increase
in revenues can be attributed primarily to the introduction of new products, the
Company's increased marketing efforts and improved sales strategy.
The gross margin in the first quarter of fiscal 1997 was approximately 23%,
which was not a significant change from the first quarter of fiscal 1996. The
gross margin for the second quarter of 1997 improved to 35% as compared to 24%
for the second quarter 1996. Now in the third quarter the Company has reached
its current goal of 47%. At no time in 1996 was the Company able to exceed 25%
gross margin. The current success reflects the fact that the DTC products being
offered to the current market are a newer enhanced generation of products that
while still being competitively priced are better engineered and do not have to
be sold at a loss.
Product development expenses were approximately $108 thousand or 7% of net
revenues during the current quarter compared to approximately $184 thousand or
16% of net revenues during the third quarter of 1996. The decrease is
attributable to the Company's completion of the development of its low-end
Adaptec compatible SCSI line. The Company does expect to make some significant
expenditures to develop its high-end SCSI line and other new products, however
expenditures as a percent of revenue are not expected to increase.
Selling, general and administrative expenses were approximately $626 thousand or
43% of revenues during the third quarter of 1997 compared to $650 thousand or
57% of net revenues reported in the third quarter of 1996. Selling costs were
generally higher than prior quarters. This is due to the Company's refocus on
the market place and implementation of sounder sales strategies. The Company
expects these costs to remain at their current level while expecting revenues to
rise. However, while selling costs are higher the Company has taken steps to
contain and lower the on going general and administrative costs. These were
significantly lower in the third quarter 1997 than in previous quarters. The
Company's success in lowering its general and administrative expense has made it
possible to finance its enhanced sales strategies.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents increased to $203 thousand at September 30, 1997 from
$145 thousand at September 30, 1996. This increase was due primarily from
invested capital and some cash advances from related parties.
12
<PAGE>
PHOTONICS CORPORATION
FORM 10-QSB
Management of the Company felt that with the increased capitalization and the
redirection of the Sales Efforts, the financial condition of the company should
significantly improve starting in mid third quarter. The Company has always
realized a summer slow period in sales. This slow period has traditionally
started in June extending well into August. 1997 has not differed from the
historical norm. Sales did show a significant increase in September and the
Company was therefore able to return to profitability for the third quarter.
There are no letters of credit, financing arrangements, indentures or other such
credit agreements with restrictive covenants that will effect the Company.
Inflation did not have any significant impact upon the results of operations of
the Company during the reporting period.
PART II OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
In January 1994 Ms. Phyllis Azah, a former employee of DTC, filed a complaint in
the County of Santa Clara Superior Court, California alleging harassment and
discrimination of DTC and certain of its employees and claiming damages in the
amount of $100 million. The suit was settled out of court in March 1997 for
$13,500. The first quarterly installment of $4,300 was paid in April 1997. The
next installment of $4,350 was paid in June 1997 and the final installment was
paid in September of 1997.
The Company believes it is diligent in protecting its employees and fair in its
treatment of them. The Company consistently denied the accusation made but
settled out of court to bring an end to the process.
From time-to-time DTC could be involved in routine litigation as part of its
normal course of business. Management believes the Company carries adequate
product liability insurance and these matters can be resolved without material
adverse effect on DTC's overall financial position, results of operations and
cash flows.
ITEM 2 CHANGES IN SECURITIES
There were no appreciable changes during the third quarter
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
Not Applicable
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDER
There were not any matters requiring a vote of security holder brought forward
during the third quarter.
ITEM 5 OTHER INFORMATION
There were no other significant occurrences to report during the third quarter.
ITEM 6 EXHIBITS AND REPORTS ON FORM 8K
Exhibit 27 Financial Data Schedule
13
<PAGE>
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
PHOTONICS CORPORATION DBA DTC DATA TECHNOLOGY
DATE: October 24, 1997 BY: /s/ JoAn E. Hughes
- ------------------------------- ----------------------------
JoAn E. Hughes
Chief Financial Officer
14
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 203,000
<SECURITIES> 0
<RECEIVABLES> 1,292,000
<ALLOWANCES> 237,000
<INVENTORY> 2,177,000
<CURRENT-ASSETS> 2,467,000
<PP&E> 2,274,000
<DEPRECIATION> 2,158,000
<TOTAL-ASSETS> 2,597,000
<CURRENT-LIABILITIES> 3,502,000
<BONDS> 0
2,092,000
0
<COMMON> 44,113,000
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 2,597,000
<SALES> 3,925,000
<TOTAL-REVENUES> 3,925,000
<CGS> 2,520,000
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,235,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 35,000
<INCOME-PRETAX> (624,000)
<INCOME-TAX> (61,000)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (685,000)
<EPS-PRIMARY> 0
<EPS-DILUTED> (.107)
</TABLE>
