FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 For the Three Month period ended June 30, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____. Commission file number ____
PHOTONICS CORPORATION
D/B/A DTC Data Technology
(Exact name of Small Business Issuer as specified in its charter)
California 77-0102343
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1222 Alderwood Avenue (408) 745-9320
Sunnyvale, California 94089
(Address of Principal Executive Offices) (Issuer's telephone number)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 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 the issuer's Common Stock, $.001 par
value, as of June 30, 1999 was 4,396,272 shares.
<PAGE>
PHOTONICS CORPORATION
dba
DTC DATA TECHNOLOGY
For the quarter ended June 30, 1999
INDEX
Page Number
INTRODUCTION PHOTONICS CORPORATION
Introduction 2
The Market 2
Products 2
Intellectual Property 3
Current Developments 3
PART I FINANCIAL INFORMATION 3
ITEM I Interim Financial Statements
Consolidated Balance Sheet as of
June 30, 1999 and March 31, 1999 5
Consolidated Statements of Operation
For the Three months and Six months
ending June 30, 1999 an June 30, 1998 6
Consolidated Statement of Cash Flows
For the Six months ending June 30, 1999 an June 30, 1998 7
Notes to Consolidated Financial Statements 8
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 Reports on Form 8-K 10
SIGNATURE 10
-1-
<PAGE>
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 it's 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 dba Data Technology resulted from the merger of Photonics
Corporation and DTC Data Technology Corporation in 1996. The Company's
focus is on the IDE, Small System Interface (SCSI), Input Output
(I/O) and Basic Input and Output Systems (BIOS) upgrades.
For brevity sake, the company is herein after referred to as
DTC or the Company.
The Market
Today, most new PCs have the IDE function built-in on the motherboard.
Sales have changed from mainly OEM to VARs and system integrators through
distribution and retailers for the upgrade after market. The IDE I/O
market has declined and stabilized at a level of approximately
$50 million dollars per year.
The Company is in the BIOS upgrade add on card market. The BIOS upgrade
allows older machines to access large disks and to be Y2K compliant. The
rapid increase in the size of Hard Disks opened up the BIOS upgrade market.
About 10% of new PCs and more than 90% two or more years old PCs are not Y2K
compliant due to non-compliant BIOS. The approaching of year 2000, creates
a large Y2K BIOS upgrade market. The Company has introduced a family BIOS
upgrade products to address the Y2K issue in the previous quarter.
The Company is also in the Small Computer System Interface (SCSI) controller
market. SCSI is the controller of choice for high-end personal computers,
engineering workstations, Internet and enterprise file servers. The market
is about $1 billion and is dominated by Adaptec with over 70% of the market.
Products
The Company has introduced a family of PCI parallel port add on cards, and a
family of Y2K upgrade BIOS, and EIDE products in the first quarter of 1999.
The Company plans to continue to introduce new products in these areas in
the coming quarters.
2
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Intellectual Property
The Company has registered the trademark/logo "DTC" in the United States and
several foreign countries and has protected the use of this name by others
in the market place.
The Company has studied the intellectual property issues (and performed
patent searches) related to the SCSI, IDE, and I/O products that it 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 current or
proposed line of Adaptec compatible SCSI products. However, there can be no
absolute assurances that such legal challenges will not happen.
Software is an important ingredient for success in the controller market.
DTC has a large library of copyrighted IDE, SCSI and BIOS software drivers
and utilities for various operating systems including DOS, OS/2, UNIX,
Novell, Windows 3.1, and Windows 95.
Current Developments
On June 21, 1999, the Registrant's board of directors determined to
lay off all employees except those essential to an orderly shutdown of the
business unless the Registrant should unexpectedly receive a large order for
product it could ship from inventory. Effective June 23, 1999, Registrant's
board of directors and officers resigned. Prior to such resignation,
Registrant's board of directors hired James T. Koo, formerly Registrant's
President, to serve as a consultant at no pay to attempt to find
a buyer for the Registrant and otherwise to sell such assets as he
is able and then to shut down the business
The Registrant is following this procedure rather than filing for Chapter 7
in order to maximize return to creditors. Should creditors not go along
with the procedure and individually attempt to seize assets through writs of
attachments or like devices the Registrant would intend to file for Chapter
7, which Registrant believes, would cause all creditors to receive less.
Absent a sale of the business generating significant cash, which the
Registrant believes is remote, the Registrant would expect to pay off its
secured lender, fund June and July operating expenses of $50,000 and the
priority employee payroll and vacation debt of about $35,000 and then to
pay unsecured debt holders approximately five cents ($0.05) for every
dollar of debt, although no assurance can be given that there will be
funds generated to pay any person. Should creditors force a Chapter
7 filing, Registrant believes that they would receive less proceeds.
Registrant does not expect its shareholders to obtain any monies.
Unless the situation changes dramatically, Registrant does not intend to
file further reports with the SEC and expects to go out of business prior
to the end of the third calendar quarter of 1999.
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
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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 Annual Report on Form 10-K for the year ended December 31, 1998.
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.
4
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PHOTONICS CORPORATION
Consolidated Balance Sheet
(Amounts in thousands)
<TABLE>
<CAPTION>
June 30, March 31,
1999 1999
(Unaudited) (Unaudited)
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents 7 $ 6
Accounts Receivable less reserves 319 427
Other Receivables (49) 0
Inventories, net 280 327
Prepaid expenses and other current assets 25 47
Total current assets 582 807
Furniture and equipment, net 18 18
Other Assets 15 15
Total Assets 615 840
Liabilities and shareholders equity (deficiency)
Current Liabilities:
Note Payable - AR Credit Line 98 125
Due to Related Parties 1,510 2,075
Accounts payable 1,987 1,669
Accrued liabilities 394 328
Total current liabilities 3,989 4,197
Deferred Taxes 0 0
Total Liabilities 3,989 4,197
Minority interest in subsidiaries 125 125
Shareholders' equity (deficiency):
Common stock 44,096 44,096
Treasury stock
Capital subscription 2,404 2,339
Accumulated deficit (49,869) (50,070)
Cumulative translation adjustment 154 154
Total shareholders' equity (deficiency) (3,374) (3,481)
Total liabilities and shareholders' equity $ 615 $ 840
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
5
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PHOTONICS CORPORATION
Consolidated Statements of Operations
(Amounts in thousands, except per share data)
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
1999 1998 1999 1998
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
REVENUES:
Net Product Sales $ 429 $ 809 $ 691 $ 2,542
Cost of Revenues 18 575 152 1,484
---------- ---------- ---------- ----------
Gross Profit 411 234 539 1,058
OPERATING EXPENSES:
Research and development 104 96 116 196
Selling, general and
administration 396 845 424 1,522
---------- ---------- ---------- ----------
Total operating
expense 500 939 540 1,718
Income (loss) from
operations ( 89) (705) ( 1) (660)
OTHER INCOME (EXPENSE):
Interest income 0 1 0 1
Interest expense (106) (60) (130) (81)
Other Income 54 0 48 53
Other expense (197) (18) (203) (19)
---------- ---------- ---------- ----------
Total other
income (expense) (338) (77) (285) (46)
Provision for taxes 0 1 0 1
Net income (loss) $ (338) $ (783) $ (285) $ (707)
Net income (loss) per
share (.05) (.11) (.04) (.11)
========== ========== ========== ==========
Shares used in
per share calculation 6,800,272 6,955,672 6,800,272 6,955,281
========== ========== ========== ==========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
6
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PHOTONICS CORPORATION
FORM 10-QSB
PHOTONICS CORPORATION
Consolidated Statement of Cash Flows
(Amounts in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six months ended June 30, 1999 1998
(Unaudited) (Unaudited)
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $(285) $ (707)
Adjustments to reconcile net cash
used in operating activities:
Depreciation 6 8
Changes in operating assets and liabilities:
Accounts Receivable 92 101
Inventories 70 (484)
Deposits and prepaid expenses 34 302
Accounts payable ( 74) (141)
Due to Related Parties 72 275
Accrued Liabilities (22) 152
Net Cash Provided by (used for) Operations $( 63) $ ( 494)
===== =========
Cash flows from Investing Activities:
Sale (Purchase) of Property
and Equipment ( 0) (60)
Net Cash used in Investing Activities $ ( 0) $ (60)
===== =========
Cash Flows from Financing Activities:
Proceeds from Capital Stock Subscription 10 21
Proceeds resulting from the DTC acquisition 0 0
Net Borrowings (Repayments) under
Bank Lines 49 403
Borrowing (repayments of other debt), net 0 0
Other Equity Transactions, net 0 6
Net Cash provided by (used for) Financing 16 $ 430
===== =========
Net increase (decr.) in Cash and Cash
Equivalents ( 47) (124)
Cash and Cash Equivalents Beginning of
Period 82 130
Cash and Cash Equivalents at end of
Period $ 11 $ 6
===== =========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS
7
<PAGE>
PHOTONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Mar 31, 1999
(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
intercompany accounts and transactions. The minority interest represents
the minority stockholders' proportionate share of the subsidiaries, Qume
Taiwan and Data Technology Hong Kong Ltd., which is 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
stockholder 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
Conforming to SFAS No. 128, the Company has changed its method of computing
earnings per share and restated all prior periods. Under the new
requirements for calculating earnings per share, the dilutive effect of
stock options has been excluded.
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.
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.
ITEM 2 MANAGEMENTS'S DISCUSSION AND ANALYSIS OF FINANCIAL CONIDTION 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
8
<PAGE>
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.
The Registrant has approximately $420,000 of accounts receivable which it
believes, although no assurance can be given, have a reasonable chance of
collection, approximately $110,000 of secured bank debt, approximately
$180,000 of back payroll and accrued vacation pay, and approximately $3.6
million of accounts payable and other unsecured debt, including
approximately $2.0 million owed to Registrant's former officers, board
members, and their affiliated companies. The Registrant intends to use the
proceeds from its accounts receivables and any inventory or assets it sells
to first pay off the secured bank loan. Additional funds would be used to
fund June and July wind-down expenses estimated at $50,000 and employee wage
the portion of employee wage claims which would be entitled to statutory
priority under Section 507(a)(3) of the US Bankruptcy Code were the
Registrant to initiate a Chapter 7 filing.) Any subsequent excess would be
divided 10% to meet the remaining unsatisfied payroll and vacation pay and
90% to pay other creditors until the payroll and vacation pay was paid off.
Thereafter, all proceeds would go to the creditors of Registrant.
Year 2000
Many computer systems experience problems handling dates in and beyond the
year 2000. Therefore, some computer hardware and software will need to be
modified prior to the year 2000 in order to remain functional. To the
Company's best knowledge, the Company has conducted tests, and therefore
does not anticipate any internal Year 2000 issues from its own information
system, databases or programs. Additionally, it is our belief that the
Company's hardware and software are also Year 2000 compliant. There can be
no assurance, however, that there will not be a delay in, or increased costs
associated with, the implementation of any changes, and the Company's
inability to implement such changes could have an adverse effect on future
results of operations or financial condition.
It is unknown how customers' spending patterns may be impacted by year 2000
programs. As customers focus on preparing their business for the year 2000
in the near term, capital budgets may be spent on efforts of remedy,
potentially delaying the purchase and implementation of new systems, thereby
creating less demand for the Company's products and services. This could
adversely affect the Company's future revenues, thought the impact is not
known at this time.
The Company is also assessing and addressing the possible effects on the
Company's operations of the year 2000 readiness of key distributors,
suppliers, customers, vendors and financial services organizations. The
Company's reliance on suppliers and distributors means that their failure to
address year 2000 issues could have a material impact on the Company's
9
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operations and financial results. However, the potential impact and related
costs are not known at this time.
Liquidity and Capital Resources
Liquidity and capital resources of the Company continue to worsen during the
first quarter of 1999. The Company defaulted on its minimum Tangible Net
Worth requirement under the line of credit during the third quarter of 1998.
Coast has formally waived this breach through Mar. 31, 1999. There can be
no assurance the Company will be successful in obtaining an alternative
source of financing to replace Coast.
PART II OTHER INFORMATION
ITEM 1 Legal Proceedings
During the quarter, Dynasales, a former sales representative of the Company
filed legal proceedings against the Company for the past due commission
earned. The case has been settled with the Company paying the past
commission due.
Two ex-employees of the Company have filed complaints with State of
California, department of Labor for not receiving the full wage due when
terminated. Since then the Company has paid the wages due in full and will
pay the penalty of salaries up to 28 days to each of the two employees.
An ex-employee of the Company has filed complaints with State of California
for sexual bias and sexual harassment. The Company (considers the case
without merit and) has responded the complaints and will defend itself
vigorously.
ITEM 2 Changes in Securities
None
ITEM 3 Defaults Upon Senior Securities
None
ITEM 4 Submission of Matters to a Vote of Security Holders
Effective June 23, 1999, Registrant's board of directors and officers resigned.
ITEM 5 Other Information
Not applicable
ITEM 6 Exhibits and Reports on Form 8k
Exhibit 27.1 Financial Data Schedule
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: August 23, 1999
BY: /s/ James T. Koo
Acting Chief Financial Officer
10
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<TABLE> <S> <C>
<S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 1999 AND THE CONSOLIDATED
STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 1999 OF
PHOTONICS CORPORATION, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> MAR-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 7
<SECURITIES> 0
<RECEIVABLES> 319
<ALLOWANCES> 0
<INVENTORY> 280
<CURRENT-ASSETS> 562
<PP&E> 18
<DEPRECIATION> 3
<TOTAL-ASSETS> 615
<CURRENT-LIABILITIES> 3,989
<BONDS> 0
0
2,404
<COMMON> 44,096
<OTHER-SE> (49,869)
<TOTAL-LIABILITY-AND-EQUITY> 615
<SALES> 429
<TOTAL-REVENUES> 429
<CGS> 18
<TOTAL-COSTS> 197
<OTHER-EXPENSES> 500
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 106
<INCOME-PRETAX> (219)
<INCOME-TAX> 0
<INCOME-CONTINUING> (219)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (219)
<EPS-BASIC> (.05)
<EPS-DILUTED> (.03)
<PAGE>
</TABLE>
