FORM 10-Q
AMENDMENT NUMBER 1
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 September 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 Company 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 September 30, 1999 was 4,336,186 shares.
<PAGE>
PHOTONICS CORPORATION
dba
DTC DATA TECHNOLOGY
For the quarter ended September 30, 1999
INDEX
Page Number
INTRODUCTION PHOTONICS CORPORATION
Introduction 2
The Market 2
Products 2
Intellectual Property 2
Current Developments 3
PART I FINANCIAL INFORMATION 4
ITEM I Interim Financial Statements
Consolidated Balance Sheet as of
September 30, 1999 and June 30, 1999 5
Consolidated Statements of Operation
For the Three months and Six months
ending September 30, 1999 an September 30, 1998 6
Consolidated Statement of Cash Flows
For the Six months ending September 30, 1999 and September 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
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<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.
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.
In this report, the terms "DTC" or the "Company" refer to Photonics
Corporation D/b/a DTC Data Technology Corporation.
The Market
The Company sales IDE I/O products to VARs and system integrators through
distribution and retailers for the "upgrade" after market. The IDE I/O
market has declined to less than $50 million dollars per year.
The Company is in the BIOS "upgrade" and "add on card" market. The BIOS
upgrade allows older machines to access large disks and to be Y2K compliant.
The Company has introduced a family BIOS upgrade products to address the Y2K
issue in the first quarter of 1999.
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 currently has no plans to introduce more new products this year.
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 products of the Company and is unaware of any
patents or intellectual property owned by any other party which would impede
the sale of its current products. However, there can be no absolute
assurances that such legal challenges will not happen.
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<PAGE>
Current Developments
On June 21, 1999, the Company's board of directors voted to lay off all
employees except those essential to an orderly shutdown of the business. The
Board also hired James T. Koo, formerly Company's CEO and President, to serve
as a consultant at no pay, to attempt to find a buyer for the Company,
to sell all possible assets and then to shut down the business.
Effective June 23, 1999, Company's board of directors and officers resigned.
The Company has been following the procedure outlined above rather than filing
for protection under bankruptcy in order to maximize the return of money to
creditors. Should creditors not consent to the procedure and individually
attempt to seize assets through writs of attachments or like devices, the
Company will seek protection under bankruptcy, which, the Company believes,
will cause all creditors to receive less. Initially, most creditors agreed
to suspend any legal actions against the company.
In July, a potential buyer of the Company was identified conditioned on all
creditors accepting $0.15 for every dollar owed. However, the Company failed
to obtain an affirmative answer from a major creditor, CompUSA. After three
months of delays and waiting for a response from CompUSA, two creditors have
recommenced legal claims against the Company.
The Company has decided to seek a buyer for the Company as part of a Chapter
11 Bankruptcy reorganization. Currently, an offshore potential buyer has
been identified who has offered $200,000 for the Company, including the
legal expenses needed for reorganization, Mr. Koo to stay on for an
unspecified time and an investing of no less than $50,000. However, no
assurance can be given that the buyer will consummate the offer.
With the proceeds collected from Accounts Receivable and sale of the Company,
after deducting necessary legal expenses, the Company expects to pay off
its secured lender, the priority employee payroll and vacation debt and then
to pay unsecured debt holders approximately two cents ($0.02) for every
dollar of debt. No assurance can be given that there will be funds
available to pay any person. The Company does not expect its shareholders
to obtain any monies.
Since July, Coast Business Credit, the secured lender, has requested all
customers of Company to send payments directly to the bank. It, then,
advances needed operating expenses to the Company. The Company has
approximately $333,000.00 of Accounts Receivable, approximately $52,300.00
of secured bank debt at the end of September. However, Coast determined
the Accounts Receivable of the Company will not be able to pay back the
bank debt, and has decided to stop advance to the Company unless a personal
guarantee is in place. Since then, consultant James T. Koo has provided
needed personal guarantee for the funds advanced.
On Aug. 1, to reduce operating the expenses, the Company moved to small
quarters at 1222 Alderwood Av., Sunnyvale, Ca. 94089.
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<PAGE>
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 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.
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<PAGE>
PHOTONICS CORPORATION
Consolidated Balance Sheet
(Amounts in thousands)
<TABLE>
<CAPTION>
Sept. 30, Sept. 30,
1999 1998
(Unaudited) (Unaudited)
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents 4 55
Accounts Receivable less reserves 333 485
Other Receivables 0 0
Inventories, net 247 968
Prepaid expenses and other current assets 11 125
Total current assets 595 1633
Furniture and equipment, net 8 301
Other Assets 15 15
Total Assets 618 1949
Liabilities and shareholders equity (deficiency)
Current Liabilities:
Note Payable - AR Credit Line 52 148
Due to Related Parties 2093 1361
Accounts payable 1457 2120
Accrued liabilities 383 610
Total current liabilities 3985 4239
Deferred Taxes 0 0
Total Liabilities 3985 4239
Minority interest in subsidiaries 125 125
Shareholders' equity (deficiency):
Common stock 44085 44096
Treasury stock 0 0
Capital subscription 2519 2176
Accumulated deficit (50250) (48838)
Cumulative translation adjustment 154 154
Total shareholders' equity (deficiency) (3493) (2415)
Total liabilities and shareholders' equity $ 618 $ 1949
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
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<PAGE>
PHOTONICS CORPORATION
Consolidated Statements of Operations
(Amounts in thousands, except per share data)
<TABLE>
<CAPTION>
Three months ended Sept. 30, Six months ended Sept. 30,
1999 1998 1999 1998
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
REVENUES:
Net Product Sales $ 130 $ 562 $ 821 $ 3104
Cost of Revenues 54 705 206 2189
---------- ---------- ---------- ----------
Gross Profit 76 (143) 615 915
OPERATING EXPENSES:
Research and development 2 87 118 283
Selling, general and
administration 24 554 448 2076
---------- ---------- ---------- ----------
Total operating
expense 26 641 566 2359
Income (loss) from
operations ( 50) (784) 49 (1444)
OTHER INCOME (EXPENSE):
Interest income 0 0 0 1
Interest expense (102) (111) (232) (192)
Other Income 10 0 58 53
Other expense (55) (73) (258) (92)
---------- ---------- ---------- ----------
Total other
income (expense) (147) (184) (432) (230)
Provision for taxes 0 0 0 1
Net income (loss) $ (97) $ (968) $ (382) $ (1675)
Net income (loss) per
share (.02) (.22) (.09) (.38)
========== ========== ========== ==========
Shares used in
per share calculation 4,336,186 4,336,186 4,336,186 4,336,186
========== ========== ========== ==========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
-6-
<PAGE>
PHOTONICS CORPORATION
FORM 10-QSB
PHOTONICS CORPORATION
Consolidated Statement of Cash Flows
(Amounts in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended September 30,
1999 1998
(Unaudited) (Unaudited)
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (382) $ (1675)
Adjustments to reconcile net cash
used in operating activities:
Depreciation 13 11
Changes in operating assets and liabilities:
Accounts Receivable (20) 318
Inventories 103 75
Deposits and prepaid expenses 48 521
Accounts payable 7 31
Due to Related Parties 96 464
Accrued Liabilities (11) 169
Net Cash Provided by (used for) Operations $ (123) $ ( 236)
===== =========
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 180 67
Proceeds resulting from the DTC acquisition 0 0
Net Borrowings (Repayments) under
Bank Lines 95 148
Borrowing (repayments of other debt ), net 0 0
Other Equity Transactions, net 0 6
Net Cash provided by (used for) Financing 86 $ 221
===== =========
Net increase (decr.) in Cash and Cash
Equivalents ( 38) ( 75)
Cash and Cash Equivalents Beginning of
Period 42 130
Cash and Cash Equivalents at end of
Period $ 4 $ 55
===== =========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS
-7-
<PAGE>
PHOTONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 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 Company has realized a revenue of $130,000 in this quarter selling off
finished goods inventory, far exceeded the $16,000 liquidation value
estimated by salvagers at end of July. However, most salable inventories
have been sold. Unless additional inventory is obtained, revenue will
decline, and the Company will loose it customers, thus the selling value of
the Company.
The revenue, after deducting operating expenses, has been used to pay down
the secured debt. While the Accounts Receivable is still at $333,000,
Coast Business Credit, the secured lender of the Company has determined it
will not be sufficient to pay back the current debt of $52,300. Then the
Company quickly sought buyers for the Company who will advance Company
needed legal fees for Chapter 11 filing. The offer of $200,000 including
legal fees, from a potential buyer of the Company will allow some return to
the creditors of the Company. The Company plans to accept the offer, file
Chapter 11 and to be sold in the near future. However there can be no
assurance the buyer will consummate the offer.
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
<PAGE>
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
quarter. Coast, the secured creditor of the Company, has demanded pay back of
all the money loaned to the company, requested all customers of the Company to
pay directly to Coast, decided to stop advancing Company any money after end
of October unless a secured guarantee can be put in place. The Company has
obtained personal guarantee from Mr. Koo at the present. There is no
assurance that the Company can obtain a secured guarantee for this purpose
in the future.
PART II OTHER INFORMATION
ITEM 1 Legal Proceedings
During the quarter, Insight Electronics, a former vendor, and Innovative
Vanguard, a former sales representative of the Company has filed legal
Proceedings against the Company for the past due payments and commission
earned. The Company has no financial resources for legal defense at this
time.
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. The Company has paid the wages due in full but not 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 in last quarter and has not
heard from the employee since.
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, Company's board of directors and officers resigned.
ITEM 5 Other Information
Not applicable
SIGNATURE
Pursuant to the requirements of Section 3 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
PHOTONICS CORPORATION dba
DTC DATA TECHNOLOGY
DATE: November 29, 1999
BY: /s/ James T. Koo
Acting Chief Financial Officer
10
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30, 1999 AND THE CONSOLIDATED
STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 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> JUL-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 4
<SECURITIES> 0
<RECEIVABLES> 333
<ALLOWANCES> 0
<INVENTORY> 247
<CURRENT-ASSETS> 595
<PP&E> 8
<DEPRECIATION> 13
<TOTAL-ASSETS> 618
<CURRENT-LIABILITIES> 3,985
<BONDS> 0
0
0
<COMMON> 44,085
<OTHER-SE> (50,251)
<TOTAL-LIABILITY-AND-EQUITY> 618
<SALES> 138
<TOTAL-REVENUES> 138
<CGS> 54
<TOTAL-COSTS> 26
<OTHER-EXPENSES> 147
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 102
<INCOME-PRETAX> ( 97)
<INCOME-TAX> 0
<INCOME-CONTINUING> ( 97)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (97)
<EPS-BASIC> (.02)
<EPS-DILUTED> (.02)
</TABLE>
