UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[X_] Preliminary Proxy Statement [_] CONFIDENTIAL, FOR
USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c)/ Section
240.14a-12
Photonics Corporation
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the
Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required [_] Fee computed on table below
per Exchange Act Rules 14a-6(i)(4)
and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (Set forth the
amount on which the filing fee is calculated and state how it was
determined):
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(5) Total fee paid:
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by
Exchange
Act Rule 0-11(a)(2) and identify the filing for which the
offsetting fee was paid previously.
Identify the previous filing by registration statement number, or
the Form or Schedule and
the date of its filing.
(1) Amount Previously Paid:
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(4) Date Filed:
Notes:
PHOTONICS CORPORATION
1222 ALDERWOOD
SUNNYVALE, CALIFORNIA 94089
PROXY STATEMENT
FOR ANNUAL MEETING OF SHAREHOLDERS
September 27, 2000
INFORMATION CONCERNING SOLICITATION AND VOTING
Dear Shareholder:
The enclosed proxy is solicited on behalf of shareholders
representing over 10% of the current
outstanding shares of Photonics Corporation, a California
corporation (the "Company"), for use at
the Annual Meeting of Shareholders to be held on Wednesday,
September 27, 2000, at 10:00 a.m.
local time (the "Annual Meeting"), or at any adjournment or
postponement thereof, for the
purposes set forth herein and in the accompanying Notice of Annual
Meeting. The Annual Meeting
will be held at the Company's principal executive office located at
1222 Alderwood, Sunnyvale,
California 94089. A majority of the shareholders intends to mail
this proxy statement and
accompanying proxy card on or about September 13, 2000, to all
shareholders entitled to vote at
the Annual Meeting.
SOLICITATION
The Company will bear the entire cost of solicitation of proxies
including preparation, assembly,
printing and mailing of this proxy statement, the proxy and any
additional information furnished to
shareholders. Copies of solicitation materials will be furnished to
banks, brokerage houses,
fiduciaries and custodians holding in their names shares of Common
Stock beneficially owned by
others to forward to such beneficial owners. The Company may
reimburse persons representing
beneficial owners of Common Stock for their costs of forwarding
solicitation materials to such
beneficial owners. Original solicitation of proxies by mail may be
supplemented by telephone,
telegram or personal solicitation by directors, officers or other
regular employees of the Company,
or, at the Company's request, Proxy Services. No additional
compensation will be paid to directors,
officers or other regular employees for such services, but Proxy
Services will be paid its customary
fee, estimated to be about $600, if it renders solicitation
services.
VOTING RIGHTS AND OUTSTANDING SHARES
Only holders of record of Common Stock at the close of business on
July 31, 2000 (the "Record
Date") will be entitled to notice of and to vote at the Annual
meeting. At the Record Date, the
Company had outstanding and entitled to vote 6,765,496 shares of
Common Stock. Each holder of
record of Common Stock on such date will be entitled to one vote
for each share held on all matters
to be voted upon at the Annual Meeting. With respect to the
election of directors, shareholders may
exercise cumulative voting rights. Under cumulative voting, each
holder of Common Stock will be
entitled to four votes for each share held. Each shareholder may
give one candidate all the votes
such shareholder is entitled to cast or may distribute such votes
among as many candidates as such
shareholder chooses. However, no shareholder will be entitled to
cumulative votes unless the
candidate's name has been placed in nomination prior to the voting
and at least one shareholder has
given notice at the meeting, prior to the voting, of his or her
intention to cumulate votes. Unless the
proxy holders are otherwise instructed, shareholders, by means of
the accompanying proxy, will
grant the proxy holders' discretionary authority to cumulative
votes.
All votes will be tabulated by the inspector(s) of election
appointed for the meeting, who will
separately tabulate affirmative and negative votes, abstentions and
broker non-votes.
REVOCABILITY OF PROXIES
Any person giving a proxy pursuant to this solicitation has the
power to revoke it at any time
before it is voted. It may be revoked by filing with the Secretary
of the Company at the Company's
principal executive office located at 1222 Alderwood, Sunnyvale, CA
94089, a written notice of
revocation or a duly executed proxy bearing a later date, or it may
be revoked by attending the
meeting and voting in person. Attendance at the meeting will not,
by itself, revoke a proxy.
SHAREHOLDER PROPOSALS
Proposals of shareholders that are intended to be presented at the
Company's 2000 Annual Meeting
of Shareholders must be received by the Company not later than
September 22, 2000 in order to be
included in the proxy statement and proxy relating to that Annual
Meeting. Such requests may be
made by facsimile at 408-745-9316.
Sincerely,
James T. Koo
Managing Consultant for
Photonics Corporation
PHOTONICS CORPORATION
1222 Alderwood
SUNNYVALE, CALIFORNIA 94089
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of
Photonics
Corporation, a California corporation (the "Company"), will be held
on Wednesday,
September 27, 2000 at 10:00 a.m. local time at the Company's
offices at 1222 Alderwood,
Sunnyvale, California, 94089 for the following purposes:
Proposal #1: To consider and vote upon a proposal to
authorize an increase in the
number of authorized common shares of the Company to
200,000,000 shares, and Preferred Shares to 50,000,000 shares for
the purpose of facilitating the acquisition of REP-T, Inc., a Texas
corporation, corporate financing and for future acquisitions.
Proposal #2: To consider and vote upon a proposal to
amend the Bylaws of
Photonics Corporation to provide for a minimum four and maximum
of seven members of the Board of Directors.
Proposal #3: To consider, vote upon and elect four Board
of Directors to serve
until the next annual meeting of the shareholders. Nominees: T.
James Vaughn, G. Thomas Bailey, Joseph F. Langston, Jr. and
James T. Koo.
Proposal #4: To consider and vote upon a proposal to
ratify the Conversion of
approximately $ 3.5 million of corporate indebtedness into common
stock of Photonics.
Proposal #5: To consider and vote upon a proposal as set
out in the Stock
Purchase Agreement dated as of June 30, 2000 between Photonics
Corporation (the "Company"), REpipeline.com, Inc., a Delaware
corporation and a wholly owned subsidiary of the Company ("REP-
D"}, REpipeline.com, Inc., a Texas corporation ("REP-T") and the
selling shareholders of REP-T (the "Agreement") and to authorize
the acquisition of REP-T, Inc. by REP-D of Photonics, through the
issuance of a majority of the shares of Common Stock of Photonics.
Proposal #6: To consider and vote upon the ratification
of the actions of James T.
Koo and indemnification of James T. Koo relating to the actions
that
he has taken in preparing and consummating the transactions set out
in the Agreement.
Proposal #7: To consider and vote upon a proposal to
ratify the incorporation of
Sunnyvale Technology Corporation as a subsidiary of Photonics
Corporation, Inc., the transfer of the assets and business of DTC
Data Technology, a division of Photonics, to Sunnyvale Technology
Corporation and the sale of 90% of the shares of Sunnyvale
Technology Corporation to James T. Koo.
Proposal #8 To consider and vote upon a proposal to approve a
stock dividend,
consisting of the remaining 10% shares of Sunnyvale Technology
Corporation, to all Record Date holders of shares of the Company.
Proposal #9: To consider and vote upon a proposal to
approve a Qualified Stock
Option Plan for the officers of the Corporation.
Proposal #10: To consider and vote upon a proposal to
approve a Stock Option Plan
for the outside directors of the Corporation.
Proposal #11: To consider and vote upon a proposal to
ratify the employment of
new Auditors, Turner Stone & Company of Dallas, Texas.
Proposal #12: To transact such other business as may
properly come before the
meeting.
The foregoing items of business are more fully described in the
Proxy Statement
accompanying this Notice.
Only shareholders of record of Photonics at the close of business
on July 31, 2000 (the
"Record Date") are entitled to notice of, and will be entitled to
vote at, the Annual Meeting
or any adjournment thereof. Approval of the Agreement and the
transactions contemplated
thereby along with the other proposals set out above will require
the affirmative vote of the
holders of a majority of the issued and outstanding shares of
Photonics Common Stock as
of the Record Date.
Due to a lack of any Directors, I, James T. Koo, the Managing
Consultant of the Company
have set the close of business on July 31, 2000, as the Record Date
for the determination of
shareholders entitled to notice of and to vote at this Annual
Meeting and at any
adjournment or postponement thereof.
/s/James T. Koo
_________________________
James T. Koo
Managing Consultant for
Photonics, Inc.
PHOTONICS CORPORATION
PROXY STATEMENT/PROSPECTUS
This Proxy statement/Prospectus is being furnished to the
shareholders of Photonics
Corporation, a California corporation (the "Company", "PHOX" or
"Photonics"), in
connection with the solicitation of proxies by James T. Koo, former
Director of the
Company, acting as representative of the Board of Directors
pursuant to a consulting
contract dated June 21, 1999, for use at the Annual Meeting of
Photonics stockholders (the
"Annual Meeting") to be held at 10:00 A.M. on Wednesday, September
27, 2000 at the
offices of the Company, 1222 Alderwood, Sunnyvale, California 94089
and at any
adjournments or postponements of the Annual Meeting.
This Proxy Statement/Prospectus constitutes the Prospectus of
Photonics for use in
connection with the offer and issuance of shares of Common Stock of
Photonics, $.001 par
value per share ("PHOX Common Stock") pursuant to a Stock Purchase
Agreement (the
"Agreement") dated as of June 30, 2000 by and between Photonics and
REpipeline.com,
Inc. ("REP-T"), a Texas corporation. In accordance with the terms
of the Agreement,
REpipeline.com, Inc., a Delaware corporation and a subsidiary of
PHOX, will acquire all
of the outstanding shares of stock of REP-T in exchange for the
issuance of new shares of
PHOX which will result in the shareholders of REP-T owning
approximately 85% of all of
the shares of common stock of PHOX.
On July 30, 2000, the last trading day prior to the record date for
the annual meeting of the
shareholders, Inc., the high and low closing bid for the Company's
stock was listed as $
1/16 ($.0625) as reported in the over-the-counter market.
This Proxy Statement/Prospectus and the accompanying Appendices
along with the forms
of proxy are being mailed to shareholders of Photonics on or about
September 13, 2000.
THE ABOVE MATTERS ARE DISCUSSED IN DETAIL IN THIS PROXY
STATEMENT/PROSPECTUS. THE TRANSACTIONS CONTEMPLATED BY
THE AGREEMENT ARE COMPLEX. SHAREHOLDERS ARE STRONGLY
URGED TO READ AND CONSIDER CAREFULLY THIS PROXY
STATEMENT/PROSPECTUS IN IT'S ENTIRETY INCLUDING THE ITEMS SET
OUT UNDER THE HEADING "RISK FACTORS".
THE SECURITIES T BE ISSUED PURSUANT TO THE AGREEMENT HAVE
NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Proxy Statement/Prospectus is September 6, 2000.
NO PERSON HAS BEEN AUTHORIZED BY PHOTONICS TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS
PROXY STATEMENT/PROSPECTUS IN CONNECTION WITH THE SOLICITATION
OF PROXIES OR THE OFFERING OF SECURITIES MADE HEREBY AND IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY PHOTONICS. THIS PROXY
STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY THE SECURITIES OFFERED BY THIS
PROXY STATEMENT/PROSPECTUS OR A SOLICITATION OF A PROXY IN ANY
JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT WOULD BE
UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION.
NEITHER THE DELIVERY OF THIS PROXY STATEMENT/PROSPECTUS NOR ANY
DISTRIBUTION OF THE SECURITIES TO WHICH THIS PROXY
STATEMENT/PROSPECTUS RELATES SHALL, UNDER ANDY CIRCUMSTANCES,
CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
INFORMATION CONTAINED HEREIN SINCE THE DATE HEREOF.
AVAILABLE INFORMATION
Photonics Corporation is subject to the informational requirements
of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), and in accordance
therewith file reports, proxy
statements and other information with the Securities and Exchange
Commission (the
"Commission"). These materials can be inspected and copied at the
public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549
and at the Commission's regional offices at Northwest Atrium
Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center, New
York. New York 10048.
Copies of these materials can also be obtained from the Commission
at prescribed rates by writing
to the Public Reference Section of the Commission, 450 Fifth
Street, N.W., Washington, D.C.
20459.
Under the rules and regulations of the Commission, the solicitation
of proxies from the
shareholders of Photonics to approve and adopt the Agreement and
transactions contemplated
thereby constitutes an offering of the Photonics Common Stock to be
issued in connection with the
Agreement and transactions contemplated thereby. This Proxy
Statement/ Prospectus constitutes
the prospectus of Photonics. Statements made in this Proxy
Statement/ Prospectus concerning the
contents of any contract or other document are not necessarily
complete. With respect to each
contract or other document filed as an Appendix, reference is
hereby made to that Appendix for a
more complete description of the matter involved, and each such
statement is hereby qualified in its
entirety by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
Photonics incorporates herein by reference Photonics Annual Report
on Form 10-K for the fiscal
year ended December 31, 1998 (Appendix D), the Annual Report on
Form 10-K/A for fiscal year
ended December 31, 1999 (Appendix C), the Quarterly Reports on Form
10-Q for the quarter
ended March 31, 2000 (Appendix B) and the Quarterly Reports on Form
10-Q for the quarter
ended June 30, 2000 (Appendix A). This Proxy Statement/ Prospectus
incorporates documents by
reference all of which are presented herein and delivered herewith.
Additional copies of any or all
documents incorporated by reference herein will be provided without
charge to each person,
including any beneficial owner, to whom a Proxy
Statement/Prospectus is delivered, upon oral or
written request of any such person. Requests should be directed to
Corporate Secretary, Photonics
Corporation, 1222 Alderwood, Sunnyvale, California 94089. In order
to ensure timely delivery of
the documents in advance of the Annual Meeting to which this Proxy
Statement/ Prospectus
relates, any such request should be made by July 22, 2000.
Any statement contained in a document incorporated or deemed to be
incorporated herein shall be
deemed to be modified or superseded for purposes of this Proxy
Statement/ Prospectus to the extent
that a statement contained herein or in any other subsequently
filed document which also is or is
deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as
so modified or superseded, to
constitute a part of this Proxy Statement/ Prospectus.
Note: Statements in this offering that are not historical in
nature may be deemed to be forward-
looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995.
Although we believe the expectations reflected in any forward-
looking statements are based on
reasonable assumptions, Photonics can give no assurance that its
expectations will be attained.
Factors that could cause actual results to differ materially from
our expectations include completion
of pending acquisitions, continued availability of acquisitions,
continued availability of debt and
equity on favorable terms, foreign exchange fluctuations,
performance of operations, financial
performance, real estate conditions, market valuations of its
stock, changes in local or national
economic conditions and other risks detailed from time to time in
the Company's SEC reports,
including quarterly reports on Form 10-Q, reports on Form 8-K and
annual reports on Form 10-K.
MATERIALS DELIVERED WITH PROXY STATEMENT/PROSPECTUS
This Proxy Statement/ Prospectus is accompanied by a copy of the
following documents:
1. Attachment A: Proxy Form.
2. Attachment B: Notice to Shareholders of Right to Dissent.
3. Appendix A: 10Q filed by the Company for the quarter ended
June 30, 2000;
4. Appendix B: 10Q filed by the Company for the quarter ended
March 31, 2000;
5. Appendix C: 10K/A filed by the Company on June 16, 2000, for
the year end December
31, 1999;
6. Appendix D: 10K filed by the Company for the year ended
December 31, 1998;
7. Appendix E: The Stock Purchase agreement between PHOX and
REP-T.
8. Appendix F: Sections 1300-1312 of the California
Corporations Code
9. Appendix G: Creditor Agreement to Convert Debt to Common
Shares
10. Appendix G, Attachment 1: List of Creditors who have agreed
to convert to Common
Shares
11. Appendix H: Table of the Use of the newly authorized shares;
12. Appendix I: Audited Financial Statements for REpipeline.com,
Inc., a Texas
corporation.
13. Appendix J: List of Assets for Sunnyvale Technology as of
12-31-99.
14. Appendix K: Certificate of a Board Resolution Appointing
James T. Koo as Managing
Consultant
15. Appendix L: Indemnity Agreement for James T. Koo
TABLE OF CONTENTS
AVAILABLE INFORMATION 8
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE 8
MATERIALS DELIVERED WITH PROXY STATEMENT/PROSPECTUS 9
SUMMARY 14
The Company 14
REP-T 14
REP-D 14
Business 14
Meeting of the Shareholders 14
Agenda of the Meeting 14
Shares Outstanding 15
Record Date, Shares Entitled to Vote 16
Quorum; Broker Non-Votes 16
Votes Required 16
Risk Factors 16
Stock Purchase Agreement 16
Board of Directors and Management of Photonics 17
Representations and Warranties 17
Conditions Precedent to Closing 17
Termination or Amendment 17
Federal Income Tax Matters 17
Accounting Treatment 17
Dissenters' Rights 18
Regulatory Matters 18
Change in Shareholder Rights 18
Reason for the Acquisition 18
SUMMARY FINANCIAL INFORMATION 19
Market Price Data 19
Selected Historical Financial Data and Comparative Per Share Data
for Photonics 19
Selected Historical Financial Data for REP-T 20
Selected Historical Financial Data for Sunnyvale Technology
Corporation 21
RISK FACTORS 22
Future Operating Results Subject to Fluctuation. 22
Certain Risks Associated With Mergers and Acquisitions. 22
Dependence on Key Personnel. 23
Intellectual Property Protection and Disputes. 23
Natural Disasters. 23
Volatility of Stock Price. 23
Funding of the Company 24
Systems Collapse 24
Competition 24
Various Government Regulations 24
Legal Proceedings 24
Dilution and Possible Future Dilution 25
Unidentified Risks 25
PHOTONICS ANNUAL MEETING 25
Date Time and Place of Meeting 25
Record Date and Outstanding Shares 25
Voting of Proxies 26
Vote Required 26
Quorum; Broker Non-votes 26
Solicitation of Proxies and Expenses 26
PROPOSAL 1 27
Effective Date of Amendment 28
Vote Required 28
Anti-takeover Implications 28
Recommendation of the Company 29
PROPOSAL 2 29
Background 29
Reasons in Support of the Resolution 29
Reasons Against the Resolution 30
Effective Date of Amendment 30
Vote Required 30
Recommendation of the Company 30
PROPOSAL 3 30
Vote Required 30
Nominees 31
Board Committees and Meetings 32
Recommendation of the Company 32
PROPOSAL 4 32
Recommendation of the Company 33
PROPOSAL 5 33
Background of the Transaction 33
Historical Activities of the Company: 33
Recent Events 34
Proposed Acquisition of RealEstate4Sale.com / REP-T 34
Management's Discussion and Analysis of Financial Condition and
Results of Operations of
REP-T 36
The Internet 37
Business Strategies 38
Marketing Strategies 39
Technology Strategies 39
An In-depth Approach 39
Competing Commercial Real Estate Internet Sites 40
ASP Industry 40
Vertical Trade Communities 40
Commercial Real Estate Internet based property listing bulletin
boards 40
LoopNet 40
Small Commercial Property Listing Sites 41
Market Information Companies 41
CoStar 41
Recent Events for REP-T 41
Technology 41
Acquisitions 42
Strategic Partnerships 42
Management of REP-T that will become the Management of Photonics
after the Acquisition 42
Executive Compensation of Officers and Directors of REP-T that will
be assumed by Photonics 43
Remuneration of Officers; Employment Agreements 43
Compensation of the Executive Officers 45
Compensation Philosophy 46
Remuneration of Officers and the approval of a Stock Option Plan
47
Outside Director Stock Option Plan 47
Employment Agreements 47
Securities Ownership of Principal Stockholders and Management of
REP-T 47
Securities Ownership of Principal Stockholders and Management of
REP-T after the Acquisition 48
Comparison of Rights of Shareholders of Photonics and REP-T 49
Representations and Covenants 54
Conditions to the Closing 54
Termination or Amendment 54
Indemnification 54
Regulatory Matters 54
Expenses and Fees 54
Reasons for the Acquisition 55
Disadvantages of the Acquisition of REP-T 56
Recommendation of the Company 56
PHOTONICS FINANCIAL STATEMENT PRESENTATION 57
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS 57
PROPOSAL 6 62
Recommendation of the Company 62
PROPOSAL 7 62
History of DTC and Sunnyvale Technology 62
Assets of Sunnyvale Technology 63
The DTC/Sunnyvale Technology Transaction as it relates to the
Acquisition 63
Selected Financial Data for Sunnyvale Technology Corporation
63
Reasons in Support of the DTC/Sunnyvale Technology Transaction
64
Vote Required 64
Recommendation of the Company 64
PROPOSAL 8 65
History of DTC and Sunnyvale Technology 65
Photonic's Intellectual Property Arrangements with STC 66
Benefits to Photonics of the Spin-off. 66
Restricted Securities 67
Financial Information on STC 67
Vote Required 67
Recommendation of the Company 67
PROPOSAL 9 67
Employee Stock Option Plan 67
Compensation Philosophy 68
General 68
Purpose 68
Administration 69
Eligibility 69
Terms of Options 69
Restricted Stock Purchase Rights 70
Adjustments upon Changes in Capitalization 71
Amendment and Termination 71
Plan Benefits 71
Federal Income Tax Aspects of the Stock Plan 71
Vote Required 72
Recommendation of the Company 72
PROPOSAL 10 72
Outside Director Stock Option Plan 72
Vote Required 72
Recommendation of the Company 72
PROPOSAL 11 73
History of Auditors 73
Vote Required 73
PROPOSAL 12 73
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE 73
SECURITY OWNERSHIP BY CERTAIN OWNERS AND MANAGEMENT OF PHOTONICS
74
DISSENTER'S RIGHTS 75
EXPERTS 76
LEGAL MATTERS 76
APPENDICES AND ATTACHMENTS 77
APPENDIX A 87
APPENDIX B 97
APPENDIX C 108
APPENDIX D 146
APPENDIX E 179
APPENDIX F 208
APPENDIX G 213
APPENDIX H 219
APPENDIX I 220
APPENDIX J 231
APPENDIX K 232
APPENDIX L 233
You should rely only on the information contained in this offering
memorandum. We have not
authorized anyone to provide you with information or to make any
representation to you that is not
contained in this offering memorandum. This offering memorandum is
not an offer to sell these
securities in any jurisdiction where the offer or sale is not
permitted. You should not under any
circumstances assume that the information in this offering
memorandum is correct on any date
after the date of this offering memorandum.
SUMMARY
THE FOLLOWING SUMMARY OF THIS OFFERING IS QUALIFIED IN ITS ENTIRETY
BY
THE DETAILED INFORMATION APPEARING IN THE FILINGS WHICH THE COMPANY
HAS MADE WITH THE SECURITIES AND EXCHANGE COMMISSION.
The Company
PHOTONICS CORPORATION, 1222 Alderwood, Sunnyvale, California
94089; Telephone 408-745-9320.
REP-T
REpipeline.com, Inc., a Texas corporation,, 12377 Merit Drive,
Dallas, Texas
75251; Telephone 972-726-7473
REP-D
REpipeline.com, Inc., a Delaware corporation and a wholly owned
subsidiary
of the Company. It's address is care of the Company.
Business
Upon completion of the acquisition, the Company will change its
focus from
the manufacturing and sale of computer components and software to
the
development and marketing of an Applications Service Provider (ASP)
for the
commercial real estate industry. This site, REpipeline.com, will
provide
brokers and their clients in a real estate transaction information,
content and
marketing services. There are competitors in certain niche markets
such as
listings or market intelligence, however there is no site that
provides a "one
stop shop" for all the needs of a commercial real estate broker,
investor or
manager. The Company intends to pursue the acquisition of products
or
companies that provide these services for their clients.
Meeting of the Shareholders
The Annual Meeting of the shareholders of the Company will be held
on
Wednesday, September 27, 2000 at 100:00 A.M., Pacific Time, at the
headquarters of the Company as listed above.
Agenda of the Meeting
Proposal #1: To consider and vote upon a proposal to authorize
an
increase in the number of authorized common shares of the Company
to
200,000,000 shares, and Preferred Shares to 50,000,000 shares for
the purpose
of facilitating the acquisition of REP-T, Inc., a Texas
corporation, and for
future acquisitions.
Proposal #2: To consider and vote upon a proposal to amend
the
Bylaws of Photonics Corporation to provide for a minimum four and
maximum of seven members of the Board of Directors.
Proposal #3: . To consider, vote upon and elect four Board of
Directors
to serve until the next annual meeting of the shareholders.
Nominees: T.
James Vaughn, G. Thomas Bailey, Joseph F. Langston and James T.
Koo.
Proposal #4: To consider and vote upon a proposal to ratify the
Conversion
of approximately $ 3.5 million of corporate indebtedness into
common stock
of Photonics.
Proposal #5: To consider and vote upon a proposal as set out in
the Stock
Purchase Agreement dated as of June 30, 2000 between Photonics
Corporation (the "Company"), REpipeline.com, Inc., a Delaware
corporation
and a wholly owned subsidiary of the Company ("REP-D"},
REpipeline.com,
Inc., a Texas corporation ("REP-T") and the selling shareholders of
REP-T
(the "Agreement") and to authorize the acquisition of REP-T, Inc.
by REP-D
of Photonics, through the issuance of a majority of the shares of
Common
Stock of Photonics.
Proposal #6: To consider and vote upon the ratification of the
actions of
James T. Koo and indemnification of James T. Koo relating to the
actions that
he has taken in preparing and consummating the transactions set out
in the
Agreement.
Proposal #7: To consider and vote upon a proposal to ratify
the
incorporation of Sunnyvale Technology Corporation as a subsidiary
of
Photonics Corporation, Inc., the transfer of the assets and
business of DTC
Data Technology, a division of Photonics, to Sunnyvale Technology
Corporation and the sale of 90% of the shares of Sunnyvale
Technology
Corporation to James T. Koo.
Proposal #8 To consider and vote upon a proposal to approve a stock
dividend, consisting of the remaining 10% shares of Sunnyvale
Technology
Corporation, to all Record Date holders of shares of the Company
Proposal #9: To consider and vote upon a proposal to approve a
Stock
Option Plan for the officers of the Corporation.
Proposal #10: To consider and vote upon a proposal to approve a
Stock
Option Plan for the outside directors of the Corporation.
Proposal #11: To consider and vote upon a proposal to ratify
the
employment of new Auditors, Turner Stone & Company of Dallas,
Texas.
Proposal #12: To transact such other business as may properly
come
before the meeting.
Shares Outstanding
Currently, the Company has no shares of Preferred Series A and
6,765,496
shares of Common Stock issued and outstanding on a fully diluted
basis. The
Company anticipates issuing approximately 4,265,818 shares of
Common
Stock that will be either be exchanged with creditors of the
Company for the
forgiveness of debt or set aside for settlement of litigation and
disputed
accounts. Once the creditors exchange their debt for shares of
Common
Stock, the approximate total outstanding number of Common Shares
will be
11,031,314. Based on this number of existing shares, the Company
anticipates issuing approximately 62,509,334 shares of Common stock
to the
shareholders of REP-T and the REP-T Acquisition and Finance
subsidiary in
order to complete the acquisition..
Present
After Acquisition
Common (fully
diluted) 6,765,496
73,540,648
Preferred A 0
0
Total (1)
6,765,496
73,540,648 (2)
1. REP-T shareholders will own approximately 85% of the Common
Shares issued.
2. There will be 29,159,021 shares issued and outstanding.
The
Acquisition and Finance subsidiary of REP-T will hold 44,381,627
shares that
are issued but not outstanding.
Record Date, Shares Entitled to Vote
Shareholders of record of Photonics Common Stock on July 31, 2000
(the
"Record Date") are entitled to notice of and to vote at the
Photonics Annual
Meeting. Each share will be entitled to one vote on each matter to
be acted
upon except that as to election of members to the Board of
Directors,
cumulative voting is permitted. On the Record Date, the number of
shares of
PHOX Common Stock held by recent former directors, officers and
their
affiliates as a group was approximately 40.1% of the outstanding
shares. This
group of shareholders has agreed to vote their shares
affirmatively for each of
the proxy items.
Quorum; Broker Non-Votes
The required quorum for the transaction of business at the Annual
Meeting is
a majority of the shares of Common Stock issued and outstanding on
the
Record Date. With respect to the proposals presented at the Annual
Meeting,
shares that are voted "FOR", "AGAINST", "WITHHELD" or "ABSTAIN"
relating to a matter are treated as being present for the purposes
of
establishing a quorum and are treated as votes eligible to be cast
by the
Common Stock present or represented by proxy at the Annual meeting
and
treated as "entitled to vote on the subject matter" with respect to
such matter.
Broker non-votes will be counted for purposes of determining a
quorum but
will not be considered as votes cast and will not affect the
determination as to
whether the requisite majority of votes cast has been
obtained with
respect to a particular matter. On all other matters to be
acted upon at
the Annual Meeting, abstentions and broker non-votes will be
counted as
votes against each of the proposals.
Votes Required
In accordance with Article 2.6 of the Bylaws of Photonics
Corporation and
except as noted after each proposal, approval and adoption or
ratification, as
appropriate, of each of the proposals set forth at the Annual
Meeting will
require an affirmative vote of a majority of the shares required to
constitute a
quorum.
Risk Factors
This Offering involves substantial risks associated with the
illiquidity of the
investment and various other business factors. This Prospectus
should be read
completely and thoroughly.
Stock Purchase Agreement
The Agreement provides for the acquisition by REpipeline.com, a
Delaware
corporation (a wholly owned subsidiary of Photonics, "REP-D") of
all of the
outstanding stock of REpipeline.com, Inc., a Texas corporation
("REP-T")
including all of it's assets and liabilities in exchange for
approximately 85%
of all of the issued and outstanding shares of PHOX, as adjusted at
the closing
of the acquisition. REP-D will assume all liabilities of REP-T,
except certain
contingent liabilities of REP-T, if any, arising from claims that
may be made
as a result of the purchase of certain assets and liabilities by
REP-T from
RealEstate4Sale.com, Inc., a Texas corporation prior to the
purchase of REP-
T by REP-D. (the "Excluded Liabilities"). This type of an
acquisition is
known in the industry as a triangular transaction. Photonics will
issue to the
shareholders of REP-T (the "Selling Shareholders") a sufficient
number of
shares of Photonics Common Stock (the "Shares") such that,
following the
consummation of the Acquisition, the number of Shares issued to the
Selling
Shareholders will equal approximately 85% of all outstanding shares
of
Photonics Common Stock. The transactions contemplated by the
Agreement
will be consummated promptly after shareholder approval of
Photonics and
REP-T and the satisfaction or waiver of the other conditions to
consummation.
Board of Directors and Management of Photonics
Upon consummation of the Acquisition, the minimum authorized number
of
members of Photonics Board of Directors will be reduced from seven
to four,
a new slate of Board of Directors of Photonics will be proposed and
elected at
the Annual Meeting. Currently, there are no members of the Board of
directors of Photonics, all members having resigned. The newly
constituted
Board of Directors will appoint new officers of the Company.
Representations and Warranties
In the Agreement, Photonics and REP-T have each made a number of
representations regarding their respective capital structures,
operations,
financial condition and other matters, including their authority to
enter into
the Agreement. Each party has agreed that, until the consummation
of the
Agreement and the transactions contemplated thereby or the
termination of
the Agreement, it will maintain its business, not take certain
actions outside
the ordinary course without the other's consent and use its best
efforts to
consummate the Agreement and the transactions contemplated.
Conditions Precedent to Closing
In addition to the requirement that the approval by the Photonics
and REP-T
shareholders be received, consummation of the Acquisition thereby
is subject
to a number of other conditions that, if not satisfied or waived,
may cause the
Agreement not to be consummated. Each party's obligation to
consummate
the Acquisition is conditioned on, among other things, the accuracy
of the
other party's representations and satisfaction of its warranties
and covenants,
the other party's performance of its covenants, the absence of a
material
adverse change with respect to the other party, favorable legal
opinions
(including an opinion to the effect that the Acquisition will be
treated for
federal income tax purposes as a tax-free reorganization), and the
absence of
any restraining order, injunction or other legally binding order,
statute, rule or
regulation preventing consummation of the Acquisition.
Termination or Amendment
The Agreement may be amended only with the mutual consent of
Photonics
and REP-T. At any time prior to the closing of the Acquisition, the
.Agreement may be terminated by mutual consent of the
representatives of
Photonics and REP-T or if any of the conditions to that party's
obligation to
consummate the Acquisition is not fulfilled by that date.
Federal Income Tax Matters
The transactions contemplated by the Agreement are intended to
qualify as a
tax-free reorganization for federal income tax purposes, so that no
gain or loss
will be recognized by either of the parties. It is a condition to
REP-T's and
Photonics' obligations to consummate the Acquisition that they
should each
have received opinions from their respective counsel that the
Acquisition will
qualify as a tax-free reorganization under Section 368 of the
Internal Revenue
Code. REP-T stockholders are urged to consult their own tax
advisors
regarding such tax consequences.
Accounting Treatment
The Acquisition is intended to be treated as a "purchase" by
Photonic's
subsidiary, REP-D, for accounting purposes. Since REP-T
stockholders will
own a majority of the shares of the parent company, Photonics, and
will also
gain management and board control of Photonics, the Acquisition
will be
accounted for as though REP-T were the acquirer. The assets and
liabilities of
REP-T will be recorded at fair value and the historical results of
operations of
the combined company will be those of REP-T.
Dissenters' Rights
If the Acquisition is approved by the required vote of Photonics
shareholders
and is not abandoned or terminated, holders of Photonics Common
Stock who
did not vote in favor of the Acquisition and who notify Photonics
in writing of
their intent to demand payment of their shares if the Acquisition
is
consummated, may, by complying with Sections 1300 through 1312 of
the
California Law, a copy of which is attached hereto as Appendix F,
be entitled
to dissenters' rights as described therein. Photonics shareholders
must notify
Photonics of their intent to dissent within 30 days of the date
that the notice of
approval of the Acquisition by Photonics shareholders is mailed
to all
Photonics shareholders who did not vote in favor of the
Acquisition.
Regulatory Matters
Photonics and REP-T are not aware of any governmental or regulatory
approvals required for consummation of the Acquisition other than
compliance with the federal securities laws and applicable
securities and "blue
sky" laws of the various States.
Change in Shareholder Rights
Since Photonics is a California corporation, REP-T stockholders, as
shareholders of a Texas corporation, have different rights,
privileges and
preferences following the completion of the Acquisition. The
following is a
brief summary of some of the important differences in rights
between holders
of Photonics and REP-T Common Stock. Photonics shareholders
enjoy
cumulative voting in the election of directors while REP-T
holders do
not. Photonics shareholders can authorize a dissolution of
Photonics on only a
50% vote without Board approval whereas Board approval of a
dissolution of
REP-T is required even if a majority of the voting power of REP-T
votes to
approve dissolution. Photonics shareholders can take action by
written
consent, while REP-T's charter documents have eliminated the
ability of
stockholders to take action; by written consent. Under California
law,
Photonics shareholders have a right to vote on any amendment to the
Articles
of Incorporation if the amendment would create a new class of
shares which
have prior rights to the outstanding shares. Additionally,
California and Texas
law differ slightly with respect to enforceability of transactions
involving
officers or directors, limitation of director liability and
indemnification.
Reason for the Acquisition
During late January and into the first few days of February 2000,
days before
the Company planed to file Chapter 11, the Company was contacted
by and
reached an initial, non-binding agreement to acquire
RealEstate4Sale.com(RE4S). Since this acquisition agreement is
superior to
the filing of a bankruptcy proceeding, the Company has deferred the
Chapter
11 filing; and has been actively pursuing the acquisition of RE4S
and,
following the termination of that transaction, the acquisition of
REP-T.
However, no assurance can be given that the acquisition will
complete.
Failure to consummate this acquisition, the only alternative for
the Company
will be filing Chapter 7 for liquidation. The Company estimates
after paying
off the priority employee payroll and vacation debt, the unsecured
debt holder
will receive less than two cents ($0.02) for every dollar of debt.
No assurance
can be given that there will be funds generated to pay any person.
Registrant
does not expect its shareholders to obtain any monies if it is
required to file
liquidation.
The initial, non-binding agreement to acquire RE4S was terminated
as of May
31, 2000. The Agreement, executed as of June 30, 2000, was
executed with a
majority of the same group of principals who represented RE4S but
with their
newly formed company REP-T.
SUMMARY FINANCIAL INFORMATION
The summary unaudited financial information set forth below has
been derived from the financial
statements of the Company. This information should be read in
conjunction with the 10K Annual
Report , 10Q Quarterly Reports and financial statements and notes
thereto set forth.
Market Price Data
The following table sets forth the range of high and low closing
sales prices for Photonics Common
Stock for the periods indicated:
High
Low
Fiscal- Year Ended December 31, 1997
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$0.312
$0.312
Fiscal Year Ended December 31, 1998
First Quarter . $0.50
$0.50
Second Quarter $0.625
$0.625
Third Quarter . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$0.343
$0.343
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$0.312
$0.312
Fiscal Year Ending December 31, 1999
First Quarter . . ...... . . . ... . . . . . . . . .
. . . . . . . . . . . . ....$0.218
$0.218
Second Quarter . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . ... . . . . . . . . . . . . . . . $0.187
$0.187
Third Quarter. . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . .
$0.20
$0.20
Fourth Quarter . . . . . . . . . . . . . . . . . . . .
. . . ....$0.25
$0.218
Fiscal Year Ending December 31, 2000
First Quarter ...............................$1.00
$0.75
Second Quarter . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . ... . . . . . . . . . . . . . . . $0.50
$0.50
Third Quarter (to date) ..........................$0.30
$0.062
Trading prices reflect prices quoted on the over-the-counter
market.
The following table sets forth the averages of bid and ask prices
per share of Photonics Common
Stock over-the-counter trading as of July 31, 2000, the last
trading day before announcement of the
preliminary agreement with RealEstate4Sale.com, Inc., the per share
price for Photonics Common
Stock was:
High Low
Photonics Common Stock
$0.0625 $0.0625
Selected Historical Financial Data and Comparative Per Share Data
for Photonics
The following selected historical financial information of
Photonics has been derived from it's
historical financial statements and should be read in conjunction
with such financial statements and
notes thereto incorporated by reference or included elsewhere in
this Proxy Statement/ Prospectus.
The Photonics historical financial statement data as of and for the
six months ended June 30, 2000
is unaudited but has been prepared on the same basis as the audited
financial statements and, in the
opinion of management, contain all adjustments, consisting only of
normal recurring accruals,
necessary for the fair presentation of the results of operations
for such period. The selected
unaudited pro forma condensed combined financial data give effect
to the transaction contemplated
by the Agreement and should be read in conjunction with the pro
forma condensed combining
financial statements and notes thereto that are included elsewhere
in this Proxy Statement/
Prospectus. The pro forma condensed combined statements of
operations combine Photonics'
results of operations for the year ended December 31, 2000 and the
six months ended June 30,
2000 with REP-T's, as a continuing business from the
combination with RealEstate4Sale.com,
Inc., results of operations for the year ended December 31,
2000 and the six months ended June
30, 2000, respectively, giving effect to the transaction
contemplated by the Agreement. The
unaudited pro forma condensed combined balance sheet data combines
Photonics' balance sheet as
of June 30, 2000 with REP-T's balance sheet as of June 30, 2000,
giving effect to the transaction
contemplated by the Agreement as if it had occurred on January 1,
2000.
Selected Historical Financial Information
(in thousands, except per share amounts)
Years
Ended December 31, Six Months Ended June 30,
1997 1998 1999 2000
(unaudited)
PHOTONICS
Historical Statement of
Operations Data:
Net revenues . . . . . . . . . . . . . . . . $5,662
$3,484 $ 724 $ 0
Loss from operations (399) (2,705) (964)
(59)
Net loss (459) (2,708) (1,416) (222)
Net loss per share $ ( .11) $ (0.62) $ (0.32)
$ (.03)
Weighted average shares
Outstanding .. . . . . . . . . . . . . . 4,173 4,336 4,336
4,765
Years
Ended December 31, Six Months Ended
June 30,
1997 1998 1999 2000
(unaudited)
PHOTONICS
Historical Balance Sheet Data:
Cash and cash equivalents . . . . . $ 5 $
42 $ 75 $ 16
Total assets . . . . . . . . .... . . . . . . . . 2,807
852 75 16
Current liabilities . . . . . . . . . 3,018
4,018 3,970 4,213
Total shareholders' equity
(deficiency) (813) (3,291)
(3,895) (4,197)
Selected Historical Financial Data for REP-T
The following selected historical financial information for REP-T
has been derived from it's
historical financial statements and including those of
RealEstate4Sale.com, Inc., who's assets and
certain liabilities the REP-T assumed as of June 30, 2000. The ten
months ended June 30, 2000,
are audited financial statements and, in the opinion of management,
contain all adjustments,
consisting only of normal recurring accruals, necessary for the
fair presentation of the results of
operations for such period. The selected data should be read in
conjunction with the notes thereto
that are included elsewhere in this Proxy Statement/ Prospectus.
The statements of operations for
the ten months ended June 30, 2000 are presented as a continuing
business giving effect to the sale
of the assets of RealEstate4Sale.com, Inc. to REP-T.
REP-T
Selected Historical Financial Information
(in thousands, except per share amounts)
Ten Months Ended
June 30, 2000
Audited
Historical Statement of
Operations Data:
Net revenues . . . . . . . . . . . . . . . .
$ 0
Loss from operations
(610)
Net loss (610)
Net loss per share $ ( .11)
Weighted average shares
Outstanding .. . . . . . . . . . . . . . 5,562
Historical Balance Sheet Data:
Cash and cash equivalents . . . . . $
60
Total assets . . . . . . . . .... . . . . . . . .
184
Current liabilities . . . . . . . . .
78
Total shareholders' equity
(deficiency) 106
Selected Historical Financial Data for Sunnyvale Technology
Corporation
The following selected historical financial information for
Sunnyvale Technology Corporation has
been derived from it's historical financial statements and those of
it's predecessor business, DTC
Data Technology, an operating division of Photonics Corporation.
The selected financial data from
the twelve months ended December 31, 1999 (the effective date of
the transfer, if approved by the
shareholders of Photonics Corporation) are audited financial
statements and, in the opinion of
management, contain all adjustments, consisting only of normal
recurring accruals, necessary for
the fair presentation of the results of operations for such period.
The selected data should be read in
conjunction with the notes thereto that are included elsewhere in
this Proxy Statement/ Prospectus.
The statements of operations for the six months ended June 30, 2000
are presented as a continuing
business from the prior business, DTC Data Technology, results
of operations for the year
ended December 31, 2000.
DTC Data Technology/Sunnyvale Technology Corporation
Selected Historical Financial Information
(in thousands, except per share amounts)
RISK FACTORS
The acquisition of a non-related company and issuance of stock for
such acquisition involves a
high degree of risk. You should carefully consider the following
factors as part of the acquisition
transaction. The risks described below are not the only ones that
we face. Additional risks that
generally apply to publicly traded companies, that are not yet
identified or that we currently think
are immaterial, may also adversely affect our company.
This prospectus contains forward-looking statements that involve
risks and uncertainties. We use
words such as "anticipates," "believes," "plans," "expects,"
future," "intends" and similar
expressions to identify forward- looking statements. Our actual
results could differ materially from
those anticipated in the forward-looking statements as a result of
certain factors, including the risks
described below and elsewhere in this offering memorandum. For
example, Management's
Discussion and Analysis of Results of Operations and Financial
Condition which is incorporated by
reference from the Company's Annual Report includes statements
relating to expected sales,
anticipated operating expenditures, anticipated capital
expenditures and anticipated results relating
to the REP-T acquisition. The statements contained in this document
that are not purely historical
are forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933
and Section 21E of the Securities Exchange Act of 1934, including
without limitation statements
regarding the Company's expectations, beliefs, intentions or
strategies regarding the future. All
forward-looking statements included in this document are based on
information available to the
Company on the date hereof, and the Company assumes no obligation
to update any such forward-
looking statements. In evaluating the Company's business,
prospective investors should consider
carefully the following factors in addition to the other
information set forth in this document.
Future Operating Results Subject to Fluctuation.
During fiscal 1999, the Company's operating results were adversely
affected by shifts in corporate
and retail buying patterns, lack of adequate financing, increased
competition, economic instability
in Asia and turbulence in the computer industry. In the future,
the Company intends to refocus it
direction, change it's products to services relating to an Internet
site and change it's officers and
directors. The Company's operating results may fluctuate as a
result of these factors and as a result
of a wide variety of other factors, including, but not limited to,
competition in the Internet service
business, general market perception of the value of such
businesses, valuation of such businesses
by the financial industry and general worldwide economic and
computer industry fluctuations. In
addition, fluctuations may be caused by future accounting
pronouncements, changes in accounting
policies, and the timing of acquisitions of other business products
and technologies and any
associated charges to earnings. The volume and timing of business
to be generated during any
quarter are difficult to forecast with exacting precision.
The Company will, from time to time, encounter uncertain and
changing demand for it's products
and services.. If demand falls below the forecasts that the Company
has made, the operating results
will suffer. The Company is entering into a new field of business
so it's prior history of operations
has little or no value towards forecasting the success of the
Company or its annual revenues.
Because much of the Company's operating budget is relatively fixed
in the short term, if revenues
do not meet the Company's expectations, the Company's operating
income and net income may be
disproportionately affected. Operating results in any particular
quarter which do not meet the
expectations of securities analysts are likely to cause volatility
in the price of the Company's
Common Stock.
Projections are based upon assumptions made regarding future
events. There is no assurance that
actual events will correspond precisely with assumptions. Actual
results for any period may or may
not approximate results shown for any such period in the
projections. In fact, actual results will
almost certainly differ from projections and such differences could
be material.
Certain Risks Associated With Mergers and Acquisitions.
Following the issuance of common shares of Photonics Corporation,
REP-D will complete its
acquisition of REP-T. As part of its overall strategy, the
Company plans, when appropriate, to
continue to acquire or invest in complementary companies, products,
or technologies and to enter
into joint ventures and strategic alliances with other companies.
Risks commonly encountered in
such transactions include the difficulty of assimilating the
operations and personnel of the
combined companies, the potential disruption of the Company's
ongoing business, the inability to
retain key technical and managerial personnel, the inability of
management to maximize the
financial and strategic position of the Company through the
successful integration of acquired
businesses, additional expenses associated with amortization of
acquired intangible assets, dilution
of existing equity holders, the maintenance of uniform standards,
controls, procedures, and
policies, and the impairment of relationships with employees and
customers as a result of any
integration of new personnel. There can be no assurance that the
Company will be successful in
overcoming these risks or any other problems encountered in
connection with such business
combinations, investments, or joint ventures, or that such
transactions will not materially adversely
affect the Company's business, financial condition, or operating
results.
Dependence on Key Personnel.
The Company's future success depends in large part on the continued
service of its key technical,
marketing, and management personnel, and on its ability to continue
to attract and retain qualified
employees, particularly those highly skilled design, process, and
test engineers involved in the
design enhancements and maintenance of the REP-T web pages and the
development of new
products and processes. The competition for such personnel is
intense, and the loss of key
employees could have a material adverse effect on the Company's
business or operating results.
The Corporate Board of Directors and Advisory Board play important
developmental, support and
oversight roles. Since considerable financial and personal
investment have gone into the design,
development and launch of this Company, these key personnel are
expected to remain active with
the Company indefinitely. But the unexpected loss of more than one
of these principal personnel
could have an adverse effect upon the operations of the Company
until suitable replacement if ever
is found. The Company will seek to obtain substantial key-man
insurance, to the benefit of the
Company.
Intellectual Property Protection and Disputes.
The Company will devote significant resources to research and
development and believes that the
intellectual property derived from such research and development is
a valuable asset that will be
important to the success of the Company's business. Although the
Company actively maintains and
defends its intellectual property rights, no assurance can be given
that the steps taken by the
Company will be adequate to protect its proprietary rights.
From time to time, third parties may assert exclusive patent,
copyright, and other intellectual
property rights to technologies that are important to the Company.
There can be no assurance that
third parties will not assert infringement claims against the
Company in the future, that assertions
by third parties will not result in costly litigation or that the
Company would prevail in such
litigation or be able to license any valid and infringed patents
from third parties on commercially
reasonable terms. Litigation, regardless of its outcome, could
result in substantial cost and
diversion of resources of the Company. Any infringement claim or
other litigation against or by the
Company could materially adversely affect the Company's business or
operating results.
Natural Disasters.
The Company's corporate headquarters are located in Sunnyvale,
California in an area which has
historically been subjected to earthquakes. Any damage to the
Company's information systems or
computers caused as a result of an earthquake, fire, floods or any
other natural disasters could have
a material adverse effect on the Company's business, results of
operations and financial condition.
Volatility of Stock Price.
The stock market in general, and the market for shares of
technology companies in particular, have
from time to time experienced extreme price fluctuations, which
have often been unrelated to the
operating performance of the affected companies. In addition,
factors such as technological
innovations or new product introductions by the Company, its
competitors, or its customers may
have a significant impact on the market price of the Company's
Common Stock. In addition, the
Company's stock price may be affected by general market conditions
and international
macroeconomic factors unrelated to the Company's performance such
as those recently evidenced
by the financial turmoil in Asia. These conditions, as well as
factors that generally affect the
market for stocks of high technology companies, could cause the
price of the Company's Common
Stock to fluctuate substantially over short periods.
Funding of the Company
Following the completion of the acquisition, the Company intends to
prepare a public offering of
stock in order to raise additional capital for the Company. Such
additional capital will be used to
fund the operations of the Company as well as for the acquisition
of additional companies that are
considered to by strategic partners critical to the growth of the
Company. Without the funding of
the secondary offering, the future growth of the combined companies
will be severely limited.
Systems Collapse
Most computer systems are fragile (consider the number of instances
that banking systems or
credit-clearance systems slow down or crash: "the system is down,
please call back later."). The
press has been reporting crashes and freezes on such well-known
Internet sites as eBay, eTrade,
and Amazon.com. These are now winning Internet companies with
material investments in
systems, system controls, backup capabilities, technology talents
and the like. REpipeline.com is a
new company with a starting system base. It is much more likely
that some system breakdown may
occur with the Company than with established, more robust Internet
operating companies,
possessing large budgets including substantial technology
structures (equipment, software, network
linkages and personnel). The Company is conscious of these system
frailties and has engaged
PandesicT to be both its foundation system structure and its system
"general contractor." Pandesic
has in place extensive, dedicated system foundations to support the
Company's Internet operations,
e-commerce, service and electronic support. Though sureties of
system robustness cannot be made,
the Company is confident that its overall approach and its
"strategic partner" relationship with
Pandesic will prove to lessen system errors.
Competition
The Company operates in a highly competitive world market and an
Internet market in which new
competition is being launched at an extraordinary pace. There are
hundreds of auction sites already
operating, dozens of business-to-business focused auction houses,
specialized Internet companies
whose capabilities and interests overlap with the Company and an
established base of
physical/traditional close-out/clearance jobbers, distributors and
Discounters who have well-
established bases of operations and relationships and no interest
to see these disappear. All of this
competition is material and some of it could prove to be extremely
significant to the Company, and
short cut or slow down its potential.
Various Government Regulations
There can be no assurance that changes in various country federal,
state and local laws and
regulations in the future, or in the interpretation or enforcement
of existing regulations, might not
have a material adverse effect on the Company's business.
Legal Proceedings
Though the Company will not take ownership possession of any
inventories owned by Buyers or
Sellers on its Internet site, it is possible that some party may
try to hold the Company responsible
for the condition of inventory, its satisfactory shipment to a
recipient location, an aspect of
financing involved in any transaction, or some other dimension of
auction trading. The Company is
preparing liability-reducing wording for its "contracts" that each
Seller and Buyer must agree to in
order to conduct transactions through the Company's site. However,
there is no surety that some
party may not still try to hold the Company responsible for some
transactional element and
commence legal action. At this time, the Company is not involved in
any litigation relating to the
operation of it's web site.
Dilution and Possible Future Dilution
Purchasers of the Common Stock offered hereby will suffer dilution
in net tangible book value of
the Company by virtue of the costs associated with raising future
capital. Additional dilution could
take place from future offerings or conversion of stock options or
other authorized transactions.
Unidentified Risks
Although the Company has endeavored to identify many of the
material risks particularly
associated with an investment in its Common Stock, risks could
exist which have not been
identified herein.
PHOTONICS ANNUAL MEETING
Date Time and Place of Meeting
The Annual Meeting of Shareholders will be held on Wednesday,
September 27, 2000, at 10:00
a.m. local time (the "Annual Meeting"), or at any adjournment or
postponement thereof, for the
purposes set forth herein and in the accompanying Notice of Annual
Meeting. The Annual Meeting
will be held at the Company's principal executive office located at
1222 Alderwood, Sunnyvale,
California 94089.
Record Date and Outstanding Shares
Currently, the Company has no shares of Preferred Series A and
6,765,496 shares of Common
Stock issued and outstanding on a fully diluted basis. The Company
anticipates issuing
approximately 4,265,818 shares of Common Stock that will be either
be exchanged with creditors
of the Company for the forgiveness of debt or set aside for
settlement of litigation and disputed
accounts. Once the creditors exchange their debt for shares of
Common Stock, the approximate
total outstanding number of Common Shares will be 11,031,314.
Based on this number of existing
shares, the Company anticipates issuing approximately 62,509,334
shares of Common stock to the
shareholders of REP-T and the REP-T Acquisition and Finance
subsidiary in order to complete the
acquisition..
Present
After Acquisition
Common (fully
diluted) 6,765,496
73,540,648
Preferred A 0
0
Total (1)
6,765,496
73,540,648 (2)
1. REP-T shareholders will own approximately 85% of the Common
Shares issued.
2. There will be 29,159,021 shares issued and outstanding.
The
Acquisition and Finance subsidiary of REP-T will hold 44,381,627
shares that
are issued but not outstanding.
Only holders of record of Common Stock at the close of business on
July 31, 2000 (the "Record
Date") will be entitled to notice of and to vote at the Annual
meeting.
Each holder of record of Common Stock on such date will be entitled
to one vote for each share
held on all matters to be voted upon at the Annual Meeting. With
respect to the election of
directors, shareholders may exercise cumulative voting rights.
Under cumulative voting, each
holder of Common Stock will be entitled to four votes for each
share held. Each shareholder may
give one candidate all the votes such shareholder is entitled to
cast or may distribute such votes
among as many candidates as such shareholder chooses. However, no
shareholder will be entitled
to cumulative votes unless the candidate's name has been placed in
nomination prior to the voting
and at least one shareholder has given notice at the meeting, prior
to the voting, of his or her
intention to cumulate votes. Unless the proxy holders are otherwise
instructed, shareholders, by
means of the accompanying proxy, will grant the proxy holders'
discretionary authority to
cumulative votes.
All votes will be tabulated by the inspector(s) of election
appointed for the meeting, who will
separately tabulate affirmative and negative votes, abstentions and
broker non-votes.
Voting of Proxies
The Photonics proxy accompanying this Proxy Statement/ Prospectus
is solicited on behalf of
shareholders representing over 10% of the current outstanding
shares of Photonics Corporation for
use at the Photonics Annual Meeting. Shareholders are requested to
complete, date and sign the
accompanying proxy and promptly return it in the accompanying
envelope or otherwise mail it to
Photonics. All proxies that are properly executed and returned,
and that are not revoked, will be
voted at the Photonics Annual Meeting in accordance with the
instructions indicated on the proxies
or, if no direction is indicated, to approve the Agreement and the
Acquisition and other specific
proposals that are recommended by the solicitors of the Proxy as
indicated herein. A Photonics
shareholder who has given a proxy may revoke it at any time before
it is exercised at the Photonics
Annual Meeting, by (i) delivering to the Secretary of Photonics (by
any means, including
facsimile) a written notice. bearing a date later than the proxy,
stating that the proxy is revoked. (ii)
signing and so delivering a proxy relating to the same shares and
bearing a later date prior to the
vote at the Photonics Annual Meeting or (iii) attending the
Photonics Annual Meeting and voting in
person (although attendance at the Photonics Annual Meeting will
not, by itself, revoke a proxy).
Vote Required
Approval by Photonics' shareholders of the Acquisition, the other
proposals and the Photonics
Bylaws Amendment each requires the affirmative vote of the holders
of not less than a majority of
the shares of Photonics Common Stock issued and outstanding on the
Record Date. For purposes
of these proposals, shares will be voted as follows: Shares
represented by proxies cast "for" a
proposal will be voted in favor of the proposal. Shares represented
by proxies cast "against" a
proposal or "abstain" will be treated as votes against the
proposal. Broker non-votes will be
counted as votes against a proposal. As of the Record Date, all
former executive officers and
directors of Photonics and their affiliates as a group beneficially
owned approximately 2,710,228
shares of Photonics Common Stock (approximately 40.1% of the shares
of the fully diluted
Photonics Common Stock then outstanding). Each of the executive
officers and directors has
advised Photonics that he or she intends to vote or direct the vote
of all shares of Photonics
Common Stock over which he or she has voting control, subject to
and consistent with any
fiduciary obligations in the case of shares held as a fiduciary,
for approval of the Agreement, the
other proposals and the Photonic's Bylaws Amendment and the
transactions contemplated thereby.
Quorum; Broker Non-votes
The required quorum for the transaction of business at the
Photonics Annual Meeting is a majority
of the shares of Common Stock issued and outstanding on the Record
Date. Abstentions and broker
non-votes each will be included in determining whether a quorum is
present for the transaction of
business. With respect to proxies that are executed by the record
holders of shares of Photonics
Common Stock but are not marked to indicate how the holder is
voting, such proxies will be voted
in favor of all of the items being considered at the Photonics
Annual Meeting.
Solicitation of Proxies and Expenses
The shareholders who are soliciting the Proxy will bear the cost of
the solicitation of proxies in the
enclosed form from the shareholders of Photonics. In addition to
solicitation by mail, they may
solicit proxies from shareholders by telephone, telegram, letter or
in person. Following the original
mailing of the proxies and other soliciting materials, Photonics
will request brokers, custodians,
nominees and other record holders to forward copies of the proxy
and other soliciting materials to
persons for whom they hold shares of Photonics Common Stock and to
request authority for the
exercise of proxies. In such cases, the Proxy solicitors, upon the
request of the record holders, will
reimburse such holders for their reasonable expenses.
The proposals that will be presented at the Annual Meeting as part
of the Acquisition
PROPOSAL 1
AMENDMENT AND RESTATEMENT OF THE COMPANY'S CERTIFICATE OF
INCORPORATION TO INCREASE THE NUMBER OF AUTHORIZED SHARES OF
COMMON STOCK
Current amount of Stock authorized, issued and Outstanding:
Preferred stock, $1.00 par and liquidation value, 6,000,000 shares
authorized. There were
2,248,136 shares issued as of December 31, 1998 and 2,018,009
shares issued as of December 31,
1997. All preferred shares were converted to common shares as of
July 31, 2000. There are
currently no issued and outstanding preferred shares.
There remain dividends in arrears of $201,801 for fiscal year
1998, dividends in arrears of
$224,814 for fiscal year 1999 and dividends in arrears of $63,703
for the first two quarters of 2000.
These dividends will be paid by issuing one common share of
Photonics for each dollar of dividend
in arrears, pursuant to Proposal #3.
Common stock, $.001 par value, 20,000,000 shares authorized. There
are 6,765,496 issued and
outstanding as of July 31, 2000.
The following is the text of Article III of the Second Amended
and Restated Articles of
Incorporation, as proposed to be amended by the Amendment:
"This Corporation is authorized to issue two classes of shares, to
be designated, respectively, 'Common,' with a par value of $0.001
per share, and 'Preferred,' with a par value of $0.001 per share.
The number of Common shares authorized to be issued is two
hundred million (200,000,000) and the number of Preferred shares
authorized to be issued is fifty million (50,000,000)."
The purpose of the proposed Amendment is to allow the Company
to have a sufficient number
of shares of authorized and unissued Common Stock that can be
issued in connection with such
corporate purposes as may, from time to time, be considered
advisable by the Board. Having such
shares available for issuance in the future will give the Company
greater flexibility and will allow
such shares to be issued as determined by the Board without the
expense and delay of a special
stockholders' meeting to approve such additional authorized capital
stock. Such corporate
purposes, could include, without limitation: issuance in connection
with acquisitions, the issuance
of shares in connection with stock splits or stock dividends, the
issuance of Common Stock upon
exercise of options granted under various approved stock option
plans or in connection with other
employee benefit plans and issuances in connection with equity
financings.
Except for the effect of the merger described in Proposal #5,
the increase in authorized Common
Stock will not have any immediate effect on the rights of existing
stockholders. However, the
Board will have the authority to issue authorized Common Stock
without requiring future
stockholder approval of such issuances, except as may be required
by the Certificate of
Incorporation and applicable law and regulations. To the extent
that the additional authorized
shares are issued in the future, they will decrease the existing
stockholders' percentage equity
ownership and, depending upon the price at which they are issued as
compared to the price paid by
existing stockholders for their shares, could be dilutive to our
existing stockholders. The holders of
Common Stock have no preemptive rights to subscribe for or purchase
any additional shares of
Common Stock that may be issued in the future.
The increase in the authorized number of shares of Common Stock
and the subsequent issuance
of such shares could have the effect of delaying or preventing a
change in control of the Company
without further action by the stockholders. Shares of authorized
and unissued Common Stock could
(within the limits imposed by applicable law) be issued in one or
more transactions which would
make a change in control of the Company more difficult, and
therefore less likely. Any such
issuance of additional stock could have the effect of diluting the
earnings per share and book value
per share of outstanding shares of Common Stock, and such
additional shares could be used to
dilute the stock ownership or voting rights of a person seeking to
obtain control of the Company.
The Board is not aware of any attempt to take control of the
Company and has not presented this
proposal with the intention that the increase in the authorized
shares of Common Stock be used as a
type of anti-takeover device.
The proposed use of the additional common shares is set out in
Appendix H attached hereto.
Effective Date of Amendment
If the proposed Resolution is approved by the Company's
shareholders, the amendments to the
Company's Amended and Restated Articles of Incorporation dated
February 9, 1996 would be
effective immediately.
Vote Required
The change to the Articles of the Company, under Section 903 of the
California Corporations
Code, requires a vote of the majority of the holders of the common
stock of the Company as of the
record date. While there is no definitive statutory or case law
authority in California as to the
proper treatment of abstentions and broker non-votes in the
election of directors, the Company
believes that both abstentions and broker non-votes should be
counted solely for purposes of
determining whether a quorum is present at the Annual Meeting. In
the absence of controlling
precedent to the contrary, the Company intends to treat abstentions
and broker non-votes with
respect to the election of directors in this manner.
Anti-takeover Implications
California, like many other states, permits a corporation to adopt
a number of measures through
amendment of the corporate charter or bylaws or otherwise, which
measures are designed to reduce
a corporation's vulnerability to unsolicited takeover attempts.
Proposal #1 is not being proposed in
order to prevent any present attempt known to the Board to acquire
control of the Company or to
obtain representation on the Board.
The Board has considered or may consider in the future certain
defensive strategies designed to
enhance the Board's ability to negotiate with an unsolicited
bidder. These strategies include, but are
not limited to, the adoption of a shareholder rights plan,
severance agreements for its management
and key employees which become effective upon the occurrence of a
change in control of the
Company, and the designation and issuance of preferred stock, the
rights and preferences of which
are determined by the Board. Some of these measures may be
implemented under California law.
Furthermore, certain changes to the relative rights of shareholders
and management which have
anti-takeover implications may be implemented under California law.
These include the
elimination of cumulative voting and the establishment of a
classified Board of Directors in certain
circumstances.
The Board believes that unsolicited takeover attempts may be unfair
or disadvantageous to the
Company and its shareholders because:
(a) a non-negotiated takeover bid may be timed to take
advantage of temporarily depressed
stock prices;
(b) a non-negotiated takeover bid may be designed to
foreclose or minimize the possibility of
more favorable competing bids; and
(c) a non-negotiated takeover bid may involve the
acquisition of only a controlling interest in
the corporation's stock, without affording all shareholders the
opportunity to receive the same
economic benefits.
By contrast, in a transaction in which an acquirer must negotiate
with an independent Board of
Directors, the Board of Directors can and should take account of
the underlying and long-term
values of assets, the possibilities for alternative transactions on
more favorable terms, possible
advantages from a tax-free reorganization, anticipated favorable
developments in the corporation's
business not yet reflected in the stock price and equality of
treatment of all shareholders.
Despite the belief of the Board as to the benefits to shareholders
of Proposal #1, it may be
disadvantageous to the extent that it has the effect of
discouraging a future takeover attempt which
is not approved by the Board of Directors, but which a majority of
the shareholders may deem to be
in their best interests or in which shareholders may receive a
substantial premium for their shares
over the then-current market value or over their cost basis in
such shares. As a result of such
effects of Proposal #1, shareholders who might wish to participate
in a tender offer may not have
an opportunity to do so. In addition, to the extent that such
provisions enable the Board of Directors
to resist a takeover or a change in control of the Company, they
could make it more difficult to
change the existing Board of Directors and management..
Recommendation of the Company
THE COMPANY RECOMMENDS A VOTE FOR APPROVAL OF THE PROPOSED
AMENDMENT AND RESTATEMENT OF THE CERTIFICATE OF INCORPORATION
TO INCREASE THE AUTHORIZED SHARES OF COMMON STOCK FROM 20,000,000
TO 200,000,000 AND THE PREFERRED STOCK FROM 6,000,000 TO
50,000,000.
PROPOSAL 2
AMENDMENT OF BYLAWS
To consider and vote upon a proposal to amend the Bylaws of
Photonics Corporation to provide for
a minimum four and maximum of seven members of the Board of
Directors.
Background
Section 3.2 of Article III of the Company's Amended and Restated
By-Laws dated August 25, 1993
states:
"3.2. NUMBER OF DIRECTORS.
The number of directors of the corporation shall be not less
than four (4) nor more than
six (6). The exact number of directors shall be five (5) until
changed, within the limits specified
above, by a bylaw amending this Section 3.2, duly adopted by the
board of directors or by the
shareholders."
The following is the text of Section 3.2 Article III of the
Company's Amended and Restated By-
Laws, as proposed to be amended by the Amendment:
"3.2. NUMBER OF DIRECTORS.
The number of directors of the corporation shall be not less
than four (4) nor more than
seven (7). "
Reasons in Support of the Resolution
The Company currently has no Directors. The former Directors
resigned in mid-1999, due the
anticipated bankruptcy of the Company and the failure of the
Company to provide adequate
director's liability insurance. From time to time the Company has
the opportunity to add to its
Board of Directors individuals with qualifications which, in the
opinion of the then current board
members, would enhance the Board's ability to function on behalf of
the Company. These
opportunities occur at times distant from the next scheduled annual
meeting of shareholders, at
which directors are elected, such that the services of these
individuals may no longer be available if
asked to wait for the next annual meeting of shareholders before
being elected to the Board. This
proposed amendment to the Company's Amended and Restated By-Laws
will allow for four (4)
Board positions to be filled immediately, and would allow the
present Board members, acting by
majority vote, to fill the additional positions, until the
Company's next annual meeting of
shareholders, at which time all directors would be elected by the
shareholders.
For this reason, the Board of Directors of the Company has
recommended that the Company seek
to amend its Amended and Restated By-Laws to accomplish the
foregoing.
Reasons Against the Resolution
This Resolution would increase the number of the Company's
Directors and would allow these new
directors to be chosen by the present members of the Board. Such
new directors would then hold
office and act on behalf of the Company without having been
elected by the Company's
shareholders, at least until the next annual meeting of
shareholders.
Effective Date of Amendment
If the proposed Resolution is approved by the Company's
shareholders, the amendments to the
Company's Amended and Restated By-Laws dated August 25, 1993 would
be effective
immediately.
Vote Required
The change to the Bylaws of the Company, under California law may
be enacted by the Board of
Directors of the Company. In the absence of a functioning Board of
Directors, the Company is
seeking the approval of the amendment to the Bylaws by a vote of
the majority of the holders of the
common stock of the Company as of the Record Date. While there is
no definitive statutory or
case law authority in California as to the proper treatment of
abstentions and broker non-votes in
the election of directors, the Company believes that both
abstentions and broker non-votes should
be counted solely for purposes of determining whether a quorum is
present at the Annual Meeting.
In the absence of controlling precedent to the contrary, the
Company intends to treat abstentions
and broker non-votes with respect to the election of directors in
this manner.
Recommendation of the Company
THE COMPANY RECOMMENDS A VOTE FOR APPROVAL OF THE PROPOSED
AMENDMENT AND RESTATEMENT OF THE BY-LAWS.
PROPOSAL 3
ELECTION OF DIRECTORS
The Company currently has no Directors. The former Directors
resigned in mid-1999, due the
anticipated bankruptcy of the Company and the failure of the
Company to provide adequate
director's liability insurance. There are four nominees being
presented for the six available Board
positions presently authorized in the Company's Bylaws (This number
could be increased to seven
if the shareholders approve proposal 2). Each director to be
elected will hold office for the period
from election until the next annual meeting of the shareholders or
until the earlier of his death,
resignation or removal and a successor is duly appointed by the
Board of Directors and/or elected
by the shareholders.
Vote Required
Regarding the election of the directors, the four nominees
receiving the highest number of
affirmative votes, of the shares entitled to be voted, shall be
elected as directors of the Company.
Shares represented by executed proxies will be voted, if the
authority to do so is not withheld, for
the election of the four nominees named below. Votes withheld from
any director are counted for
purposes of determining the presence or absence of a quorum, but
have no legal effect under
California law. While there is no definitive statutory or case law
authority in California as to the
proper treatment of abstentions and broker non-votes in the
election of directors, the Company
believes that both abstentions and broker non-votes should be
counted solely for purposes of
determining whether a quorum is present at the Annual Meeting. In
the absence of controlling
precedent to the contrary, the Company intends to treat abstentions
and broker non-votes with
respect to the election of directors in this manner.
Under California law, with respect to the election of directors,
shareholders may exercise
cumulative voting rights. Under cumulative voting, each holder of
Common Stock will be entitled
to four votes for each share held. Each shareholder may give one
candidate all the votes such
shareholder is entitled to cast or may distribute such votes among
as many candidates as such
shareholder chooses. However, no shareholder will be entitled to
cumulative votes unless the
candidate's name has been placed in nomination prior to the voting
and at least one shareholder has
given notice at the meeting, prior to the voting, of his or her
intention to cumulate votes. Unless the
proxy holders are otherwise instructed, shareholders, by means of
the accompanying proxy, will
grant the proxy holders' discretionary authority to cumulative
votes.
Nominees
At the Annual Meeting, the shareholders will elect four directors
to serve until the 2001 Annual
Meeting of Shareholders or until their respective successors are
elected and qualified. Unless
otherwise directed, the proxy holders will vote the proxies
received by them for the four nominees
named below. In the event any nominee is unable or unwilling to
serve as a director at the time of
the Annual Meeting, the proxies may be voted for the balance of
those nominees named and for
any substitute nominee designated by the present Board or the proxy
holders to fill such vacancy,
or for the balance of the nominees named without nomination of a
substitute. Each person
nominated for election has agreed to serve if elected and
management has no reason to believe that
any nominee will be unable to serve.
The names of the nominees and certain information about them are
set forth below:
NAME TERM AGE POSITION WITH THE COMPANY
T. James Vaughn 3 Yrs 56 Chairman of the Board, Director
G. Thomas Bailey 3 Yrs 51 President, CEO, Director
Joseph F. Langston 3 Yrs 48 VP, Chief Financial Office,
Director
James T. Koo 3 Yrs 59 Director
T. James Vaughn - Chairman of the Board/Director, is 56 years of
age. Mr. Vaughan has 30
years of experience in retailing and consulting. Most recently, Mr.
Vaughan has been the owner of
J. Vaughan Consulting LLC. A boutique consulting agent dealing with
one major National account
and several start up companies in the B2B Internet area. Prior to
that Mr. Vaughan was Vice
President of development for a division of Tandy Corp. Mr. Vaughan
was National Vice President
of stores for Computer City a 110-store chain with revenues in
excess of $2,000,000,000. Mr.
Vaughan was co-founder and Sr. Vice president of Pace Membership
Warehouse, a $3,000,000,000
warehouse club. Mr. Vaughan was founder, President and C.E.O. of
Med-club a retailer of medical
devices and products to medical professionals and consumers. Mr.
Vaughan is experienced in start
up companies and has successfully raised the capital to bring two
of his own to market as well as
assisting in several others. His knowledge of venture funding,
IPO's and capital markets is
extensive.
George Thomas Bailey - President, CEO/Director is 51 years of age.
Mr. Bailey has 30 years
of experience in the consumer products, technology, distribution
and healthcare Industries. His
consumer product career was with Fortune 500 companies, General
Foods, Sara Lee and PepsiCo
in Senior Management, General Management and Marketing Positions.
He held the position of
Vice President of Strategic Planning for FoxMeyer Health Corp. a $6
Billion Health Care
Distribution and Technology Company. He was the President and
Chief Operating Officer for
Health Streams Technology a publicly traded start up technology
company that developed and
marketed software applications, wide area networking services,
outsourcing and integration
services to the healthcare vertical segment. He held the position
of President and CEO for
NECCO, a rollup and consolidation of environmental companies.
Earlier in his career, he was a real estate broker and building
contractor in the state of Florida.
Most recently, he was a consultant that advised companies on
strategic planning, operations
planning, technology, business process reengineering and e-
commerce.
Mr. Bailey's experiences and skills are in brand management
classical marketing, software
development, mergers and acquisitions, business restructuring,
start up and rapid growth
companies and general management.
He earned his undergraduate degree from Florida State University
and a MBA from the University
of Florida. Upon graduation from Florida State University Mr.
Bailey was a professional athlete
with the Philadelphia Eagles in the National Football league for
five years.
Joseph F. Langston Jr. - Chief Financial Officer/Director, is 48
years of age. Mr. Langston
has over 20 years experience as a Chief Finance Officer for various
public companies, including
Trans-Western Exploration and Search Exploration. The last 3.5
years Mr. Langston has worked
with small and medium companies overseeing securities filings,
registration documents and raising
capital. He is experienced in all aspects of the requirements to
become a public entity, as well as
lead in raising capital through the public markets and
institutional investors.
James T. Koo - Director, is 59 years of age. Mr. Koo has over 30+
years in the electronics
industry, most recently has been an unpaid consultant to the
Company from June 23, 1999 to
present for overseeing selling of the Company. He served as the
President and member of the
Board of DTC since 1994, CEO, President and member of the Board of
Photonics Corp. since
1996. From 1992 to 1994 he was a Vice President of Qume
Corporation and General Manager of
DTC Data Technology Corporation, then a wholly owned subsidiary of
Qume Corporation. Prior
to joining DTC, from 1984 until April 1992, Mr. Koo was with Mosel-
Vitelic, a developer and
manufacturer of memory integrated circuits. There he held several
positions including Senior Vice
President of Engineering, Operations, Marketing, Marketing and
Sales of Taiwan Operations, and
other management positions.
Board Committees and Meetings
The Board has an Audit Committee and a Compensation Committee. The
Audit Committee meets
with the Company's independent auditors at least annually to review
the results of the annual audit
and discuss the financial statements; recommends to the Board the
independent auditors to be
retained; and receives and considers the accountants' comments as
to controls, adequacy of staff
and management performance and procedures in connection with audit
and financial controls.
The Compensation Committee makes recommendations concerning
salaries and incentive
compensation, awards stock options to employees and consultants
under the Company's stock
option plans and otherwise determines compensation levels and
performs such other functions
regarding compensation as the Board may delegate.
The Board of Directors will receive reimbursement of expenses for
their direct out of pocket
expenses incurred in fulfilling their duties and responsibilities,
as well as stock opinions pursuant to
Proposal 6.
Recommendation of the Company
THE COMPANY RECOMMENDS A VOTE IN FAVOR OF EACH NAMED NOMINEE
AND THE CREATION OF THE COMPENSATION COMMITTEE.
PROPOSAL 4
CONVERSION OF DEBT TO COMMON STOCK
Photonics Corporation and its subsidiaries have an estimated debt
of $3.5 MM. (Face amount, not
including all accrued interest, penalties or legal expenses) and
this debt is past due, in default with
no visible means of repayment. The former Board of Directors had
discussions with legal counsel
concerning the alternative of filing for protection under
bankruptcy. All of the debt that the
Company owes is classified as overdue accounts payable incurred
during the prior three years of
operations. However, as part of the acquisition of REP-T, a
majority of the accounts payable debt
holders have agreed to convert such debt to equity. The
conversion of this debt to equity in the
newly capitalized Company will provide the Company with the ability
to avoid the need for an
immediate bankruptcy filing The debt holders that have agreed to
convert their debt to common
shares are indicated on Appendix G, attachment 1. A proforma copy
of the agreement that each of
the debt holders who have agreed to convert have executed is
included with this Proxy/Prospectus
as Appendix G.
This approximate $ 3.5 million in debt will be given .45 shares of
common stock for every $1.00 of
debt, with allowance for litigation and disputed accounts. Once the
conversion of debt to equity is
completed, the debt holders will hold approximately 4,265,563
shares of common stock or
approximately 14.6 % ownership of common stock of the post
acquisition Company's shares
outstanding.
The former insiders of PHOX and their survivors represent
approximately $2 million of the
approximate $3.5 million of total debt. The conversion of the debt
of the former insiders will
increase their ownership of the Company, post acquisition, by
approximately 6.86% of the shares
outstanding .
Recommendation of the Company
THE COMPANY THAT THE CONVERSION OF DEBT TO COMMON SHARES BE
RATIFIED BY THE SHAREHOLDERS OF THE COMPANY.
PROPOSAL 5
ACQUISITION OF REP-T
To consider and vote for authorization of the acquisition of
REpipeline.com, Inc., a Texas
corporation ("REP-T"), by REpipeline.com Inc., a Delaware
corporation ("REP-D"), a wholly
owned subsidiary of Photonics, through the issuance of a majority
of the shares of Common Stock
of Photonics. The terms of the acquisition are set out in the
Stock Purchase Agreement (the
"Agreement") dated as of June 30, 2000 between Photonics
Corporation, REP-D, REP-T and the
selling shareholders of REP-T. A copy of the Agreement is appended
to this Proxy/Prospectus as
Appendix E.
The Company has entered into an agreement, subject to shareholder
approval, to acquire all of the
shares of REpipeline.com, Inc., Texas corporation, headquartered in
Dallas, Texas, into a newly
created wholly owned subsidiary of the Company, REP-D, Inc., a
Delaware corporation. The
acquisition will be accomplished through an exchange of stock.
There will be no cash paid as part
of the acquisition. The rate of exchange of stock is one (1) share
of REP-T, Inc. for each 9.11
shares of the Company (such exact conversion to be determined by
Board of Directors based on
approximately 85% of PHOX shares being issued to REpipeline on a
fully diluted basis of PHOX
for 100% of REP-T). The Company required and received the
agreement that a minimum of 95%
of all shareholders of REP-T to accept the terms of the acquisition
prior to signing a definitive
agreement to acquire the REP-T shares. This requirement has been
met to the satisfaction of the
Company.
Background of the Transaction
Historical Activities of the Company:
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, prior
to their resignation, hired James
T. Koo, formally the Company's CEO and President, as a consultant
with no pay, to attempt to find
a buyer for the Company or sell all possible assets and then to
shut down the business.
Effective June 23, 1999, the Company followed the procedures
outlined above, rather than seek
protection under the bankruptcy, in hopes of maximizing value to
both the creditors and
shareholders of the Company. Initially most creditors agreed to
suspend any legal actions against
the Company, to provide the Company time to seek a buyer or pursue
liquidation.
In July 1999, a potential buyer of the Company was identified
conditioned on the creditors
accepting $ 0.15 for every dollar owed. However, the Company was
not able to obtain an
affirmative answer from a major creditor, CompUSA. After months of
delays and waiting for a
response from CompUSA, two creditors recommenced legal claims
against the Company.
On August 1, 1999, the Company reduced operating expenses by moving
into headquarters at 1222
Alderwood Avenue, Sunnyvale, CA. 94089.
Since July 1999, Coast Business Credit, the Company's secured
lender, has requested customers of
the Company to send payments directly to them. It then advanced
needed operating expenses to the
Company. At the beginning of November of 1999, Coast Business
Credit determined that the
Company would not be able to pay back the debt that was owed to
Coast based on income stream
of the accounts receivables of the Company, and thereafter decided
to stop advances to the
Company unless a personal guarantee was in place. At that time,
James T. Koo, consultant to the
Company, provided a personal guarantee for the amount of $15,000
that was advanced by Coast.
The Company paid off the loan at the end of December 1999.
The independent auditing firm of Turner and Stone issued a "going
concern" audit opinion as of
December 31, 1999, that expressed the opinion that there is serious
doubt the Company could
continue to exist without a merger or significant additional
capital. Without a merger, the proceeds
from a sale of the Company, if such sale could be arranged, and
after deducting necessary legal
expenses would be minimal. The Company expects that it could pay
the priority employee payroll,
vacation due, then pay unsecured debt holders less than one cent
($0.01) for every dollar owed.
However, there can be no assurances that a sale could be arranged
or that there would be any funds
available to pay any person. The Company does not expect that any
shareholders would receive
any distribution from such a sale.
Recent Events
On May 22, 2000 the Company's listing on the NASDAQ over-the-
counter bulletin board market
was deleted by NASDAQ. The reason for the delisting was the
failure of the Company to file
audited financial statements along with the Company's 10K annual
report. The Company has
engaged a new auditing firm that has completed the required audit.
The Company has filed it's
10Q quarterly report with the SEC on a timely basis. However, the
quarterly report does not
require audited financial statements. The Company has filed, on
June 20, 2000, an amended 10K,
known as a 10K/A, that includes the audited financial statements.
. The Company applied for
relisting on the NASDAQ over-the-counter bulletin board market,
and was reinstated on August
14, 2000.
Proposed Acquisition of RealEstate4Sale.com / REP-T
On February 3, 2000 Photonics Corporation, agreed to and announced
the principal terms of the
Company's pending acquisition of RealEstate4Sale.com, Inc., a
Dallas, Texas based, privately held
Colorado corporation that was developing a listing information
database of commercial/investment
properties for sale and lease, within the United States along with
the development of planned
access to application services within that industry. On May 31,
2000, Photonics Corporation and
RealEsate4Sale.com, Inc. terminated the agreement with
RealEstate4Sale.com pursuant to the
terms and conditions of the February 3, 2000 agreement.
On July 10, 2000 but dated effective as of June 30, 2000, Photonics
Corporation entered into and
announced a definitive agreement (the "Agreement") to merge with
REpipeline.com, Inc., a Texas
corporation ("REP-T"), which is an Applications Service Provider
(ASP) in the commercial real
estate industry. The Agreement is subject to the fulfillment of
the following conditions:
(i) Photonics must have has received confirmation from eighty-
five percent
(85%) of the debt holders of record as of December 31, 1999 to
convert
their respective debt into common stock of Photonics at a ratio of
.45
shares of Photonics common stock for each $1.00 of debt, such debt
to be
a negotiated amount with each creditor, with any exceptions
requiring
either the approval of an authorized representative of REP-T or the
deposit
into Acquisition and Finance corporation of an appropriate number
of
shares to satisfy any contingent liability resulting from
litigation and/or
disputed accounts. A representative of REP-T has accepted these
approvals and exceptions, as noted in Appendix A attached to the
Agreement. As part of this condition, there exists an understanding
between the parties that any non-converted debt of Photonics,
including
any litigation resulting therefrom will be borne by the Payables
Trust
Account as further described in the Agreement.
(ii) All Photonics Preferred Stock has converted into common stock
of
Photonics on a 1 to 1 ratio. This condition has also been fulfilled
by the
Company. The dividends that remain unpaid for the fiscal year ends
of
1998 and 1999 will be paid in the form of common stock of the
Company
at a price of $1 per share of Photonics common stock.
(iii) The Company will set up a trust account (the " Payables
Trust Account")
for the purpose of indemnifying the combined company against any
potential or outstanding litigation or creditors of Photonics that
had unpaid
debt as of December 31, 1999. The Trust Account will have a term
that
expires on a time table that matches the expiration of liability
resulting
from the running of the statute of limitations for the individual
claims.
The Payables Trust Account will be funded with Photonics shares
issued at
the Closing. During the term of the Payables Trust Account, the
shares in
the Payables Trust Account can be sold pursuant to instructions by
the
Company; but no distributions can be made out of the account until
released or approved by the Board of REP-D.
(iv) James T. Koo will set up a trust account (the "Koo Trust")
for the purpose
of indemnifying the combined Company against any fraud, errors or
omissions that might have been committed by James T. Koo in the
corporation's representation and warranties section of the Purchase
Agreement. The Koo Trust will have a term of one year and will be
funded with his current holdings of Photonics shares and will be
increased
n the future by all dividends that he receives from Photonics and
all stock
received through conversion of debt (owed to him) into common
stock.
During the term of the Koo Trust, the shares in the Koo Trust can
be sold
pursuant to instructions by both Mr. James T Koo, or his designated
agent;
but no distributions can be made out of the account until released
or
approved by the Board of the combined Company.
(v) Photonics shareholders must ratify the transfer of the assets
and business
of the division of Photonics, DTC Data Technology and a wholly
owned
subsidiary DTC Hong Kong, to Sunnyvale Technology Corporation and
the subsequent sale of 90% of Sunnyvale Technology Corporation to
James T. Koo for $75,000 plus certain assumed liabilities as of
December
31, 1999.
(vi) Photonics issue a sufficient number of newly issued common
shares to
provide such issuance (approximately 85% of total issued shares
after full
dilution) for the acquisition of all outstanding shares of REP-T,
Inc.
(vii) Both parties agree to abide by all local, state and federal
securities laws in
relationship to the pending acquisition.
(viii) REP-T will provide all required legal and securities
work to effect such
acquisition and meet all state, federal and securities filing
requirements.
(ix) Photonics will provide a copy of the last audit of financials
and other
necessary documents and expenses of this merger at their expense.
(x) Photonics will initiate required filings, documents and
notices to hold a
shareholders' meeting to elect Directors, of which Photonics will
recommend 3 Directors to be specified by REP-T, Inc.
(xi) The proxy notice of shareholder meeting shall be sent within
5 days of the
SEC approving such proxy statement.
(xii) The effective date of acquisition shall be the date of the
shareholders
meeting, subject to shareholder approval of such acquisition.
(xiii) REP-T is authorized to handle all public statements as
same are to be
approved by the President or Chief Financial Officer or Attorney or
duly
authorized person of each respective company. All news releases
are to
conform to all local, state, federal and securities guidelines.
(xiv) REP-T will incorporate REpipeline Acquisition and Finance
Corporation,
a Texas corporation, that will hold approximately 44,381,627
shares less
an option to purchase of 14.7 million shares granted to Tom Bailey
pursuant to his Employment Agreement leaving approximately
29,673,549
shares of Photonics stock for the indemnification of any liability
that arises
from the succession of REP-T from RE4S.
Management's Discussion and Analysis of Financial Condition and
Results of Operations of
REP-T
REpipeline.com , Inc. is a Texas corporation incorporated in June
2000. REP-T was formed to
provide Internet based business services and software applications
to commercial real estate
brokers and other participants in the real estate industry. REP-T
offers Internet based services that
improve the workflow for the real estate transaction and the
marketing of services for the real
estate industry.
On July 10, 2000, the shareholders of REP-T approved the purchase
of the assets and liabilities of
RE4S to REP-T for an exchange of stock on a 1 for 1 basis. This
acquisition was affective as of
June 30, 2000. On July 10, 2000 but dated effective as of June 30,
2000, REP-T entered into a
definitive agreement with Photonics, as previously described.
The Company has identified a void for the current Internet market
offerings and will position REP-
T as the "One Stop" shopping Internet site for business services,
marketing services and hosted
software applications that are tailored to the commercial real
estate business community. The Hubs
the company will participate in are the commercial Real Estate
Broker services, enterprise
document management for the real estate transaction; Internet based
tenant services, closing and
settlement and property management technology solutions.
The Company's business model consists of building the company
through internal technology
development, strategic partnerships and acquisitions. The core them
to the business model is to
become the applications platform for the participants in the
Commercial Real Estate transaction
much like Microsoft Office has become for integrating multiple
application into one user-friendly
portal. The Company will have a proprietary applications platform
for integrating the portfolio of
products and services. The Company's business model products and
service strategy consists of
building the company through internal technology development,
strategic partnerships and
acquisitions.
The first building block for the Company is the commercial property
Internet listings service. The
commercial property listing site is operational today and has
approximately 500 listings. The
Company is in the process of completing the technology development
to provide the portfolio of
services from on Internet site.
Our marketing research has presented a major opportunity for REP-T
to become the technology
conduit to link the major participants in the commercial real
estate through a seamless flow of
information via the Internet, improve work flow processes and
capitalize on a new marketing
channel, the Internet, to market the products and services of REP-
T.
The Company's market is commercial / investment property owners,
owners of real state brokerage
firms, REO departments and real estate trustees. The company's
services will also appeal to title
insurance companies, lawyers, contractors, space planners and other
firms in the commercial real
estate transaction and value chain. The annual market revenue for
three key major segments of the
commercial real estate industry are large in scale. The annual
revenue for commercial real estate
property sales is $222 billion, commercial property leasing is $200
Billion, there is approximately
5.33 to 6.86 billion square feet of rentable of commercial property
for lease and $546 Billion
projected in new commercial property construction. The company's
business model is positioning
the company to participate in the rapid growing Business-to-
Business (B2B) on the Internet.
The commercial real estate industry has historically treated
information as confidential and a means
of gaining competitive advantage. This has fostered a closed
environment and the Internet is
opening up this environment. The commercial real estate brokerage
business has been primarily
localized in the market that they operate. There are firms such as
Trammel Crow that have national
trademark recognition but by in large the real estate brokerage
business is a local business with
local trademark recognition. The Internet is changing the value
chain and transaction process for
the commercial real estate industry. It will open up new marketing
channels for marketing a real
estate brokerage firm services and property listings on a local,
national and international basis. The
commercial real estate transaction is a very manual and labor
intense process. A research firm,
Market Connections, conducted research that asked real estate
brokers what percent of their time
was spent collecting information to support transactions and the
answer was 33%. The Internet can
provide tools to reengineer the work flow process, however the real
estate broker is now faced with
multiple choices and Internet sites that will add time to the
already time intense real estate
transaction. REpipeline.com can provide a portfolio of services
that can be accessed through
offices, home and wireless connectivity to one Internet site that
will provide the Real Estate
business community with business solutions that improve the
marketing of their services,
reengineer the work flow process for a real estate transaction with
technology and keep them ahead
of the rapidly changing Internet and technology environment.
The Company has recruited Senior Management that have skills and
experience in technology,
start-ups and rapid growth Companies, general management from
Fortune 500 Companies,
commercial real estate, consumer products marketing, public
Companies and connecting an
industry business community with technology experiences.
The Internet
The Internet is quickly proving to be a transformational medium,
not merely another distribution or
communication channel. Early e-commerce development is showing that
the Internet (more
accurately the World Wide Web, the graphical and text common-
protocol exchange across widely
divergent network computer stations) represents a whole new way to
work, conduct trades and
transactions, communicate, research, and improve operational
efficiencies around the world.
The Gartner Group has forecasted the business to business (B2B)
Internet business will grow from
$145 Billion in 1999 to $7.29 Trillion in 2004. In addition the
Gartner Group is forecasting that the
"Marketplaces" segment which is Internet sites that bring buyers
and sellers together in a particular
industry, affinity or geographic region will account for 37% of the
B2B space by 2004.
IDC, a nationally recognized Internet research group, stated small
businesses with fewer than 100
employees will take off as a key online community. The Internet
will equalize the playing field for
small to mid size companies to compete in the market place. The
technology trends for the new
Internet will be personalized and customization and will be the
"ante" for a successful commercial
Internet site. The commercial real estate business community is
primarily made up of businesses
with fewer than 100 employees. REpipeline.com will capitalize on
this market trend by offering
Internet based services and solutions to small and mid size
companies that provide them the
technology tools to compete in the new environment.
An Internet market that will have a major impact on the industry is
the applications service
provider (ASP). The market for hosting clients' office
applications and other software applications
and technology is projected to grow from $889 million in 1998 to
$22.7 billion in 2003 according
to the Gartner Group research. The outsourcing and management of
application software and other
technology is especially true for the small and mid size companies
like a commercial real estate
brokerage firm. Advantages for businesses conducting business on
the Internet with a company
like REpipeline.com.
? Opens up new marketing channels for marketing goods and
services to national and
international audiences and customers.
? Connects trading partners in a business transaction via the
Internet that allow them to
exchange information and documents in a more efficient manner.
? Personalize and improved efficiency for the business
communication with video
conferencing and group computer conferencing capabilities with
clients and trading
partners.
? Improves efficiency in the supply chain for goods and
services through communication
transmission of data with one language protocol that all companies
can use for the
procurement of materials, supplies and products.
? Provides an electronic market place where buyers and sellers
can purchase and sell goods
and services through an e-market maker.
? The Internet allows with e-mail capabilities and collection
of current and potential
customer information to take targeted marketing to a new level and
sophistication.
? Research and the ability to source industry, market and
customer information on the
Internet is providing businesses with sources that they were not
able to get before.
? Levels the playing field for companies that do not have the
capital to invest into an Intranet
or private wide area network to compete with large well-funded
companies.
? The Internet is a free network that will allow companies to
out source their software
applications and technology and access it through the Internet to
company such as an
application service provider (ASP) that will allow them to keep
pace with the changing
technology markets and not invest substantial capital.
? Wireless and computer remote site access such as a lap top
computer and palm held
devices to a company's software and REpipelines.com Internet site
and its portfolio of
services will use the Internet technology as its backbone for the
communication platform.
The U.S. government's FY 1999 budget includes $850 million for
high-performance computing
and communications, a part of which is for the "Next Generation
Internet Initiative," creating a
network that is 100 to 1,000 times faster than today's Internet,
including faster networks that
support new applications such as telemedicine, distance learning,
and real-time collaboration.
Business Strategies
? Value proposition "One Stop Shopping" e-Business network.
Market research has
provided a clear message that a comprehensive Internet site that
provides solutions to
improving the work flow process for participants in the real estate
business community
and improving the marketing for the participants company and their
services will be
very high in value.
? Technology strategy will minimize risk, integration and
scalability. The technology
plan will use existing and available applications that are easily
integrated into the
technology architecture. The plan is to use technology that is
scalable to reduce cash
investments up front and add capacity as we grow. The software
applications
developed internally will use tier one standards and will be
written in XML to
maximize Internet usage.
? Develop, acquire and license leading edge technology. The
company's plan is to stay
ahead of the technology curve by providing state of the art
technology to clients.
? Establish a barrier to entry for long-term competitive
advantage. The company feels
that first to market provides some level of competitive advantage.
The key barrier to
entry in the company's business model is the ASP service. Once the
client is a user of
the applications services the switching cost and time will make the
client think through
thoroughly before switching the e-Business Network vendor.
? Rollup and consolidation of private Internet companies. The
Company's position is
the Internet is going through a shake out period and acquisitions
will be a key part of
the company's growth strategy.
There can be no assurance such business strategies will lead to
financial success of the
Company.
Marketing Strategies
? Create value with the customer through an integrated service
portfolio via the
Internet for the commercial real estate transaction.
? Build awareness for the company's services through a targeted
marketing and
media campaign.
? Build organic revenue streams by tapping into acquired
companies customer
base to introduce the portfolio of services marketed by the
Company.
? Utilize a bundle-pricing plan for its services and products
and leverage big
event marketing tactics.
? Build the internal sales force through acquisitions and
external hires.
There can be no assurance such marketing strategies will lead to
financial success of the
Company.
Technology Strategies
? The architecture of the Internet site will be open and
scaleable in order to
reduce integration risk and capital requirements.
? Secure maximum Internet bandwidth and partner with tier one
ISP partners
with redundant communications capability and expandability.
? The operating systems will be Unix based and storage capacity
for relational
databases will be with industry leaders like Oracle or Microsoft's
SQL.
? Applications will be proprietary and licensed with HTML and
ASP script
language capability.
? The applications will have XML data transfer and
communications capability.
? All applications will be 24/7, redundant and easily
expandable.
There can be no assurance such technical strategies will lead to
financial success of the
Company.
An In-depth Approach
The Company is very conscious that the Internet has been
around now for essentially five years,
has a number of new "winners," is very topical but also raises
skepticism from some in the media,
sectors of the investment community, and still some business
leaders, as it becomes hard to
separate substance from hype, strategic-value companies from
promotional emphasis.
The Company has taken and is taking the following steps to
raise the probability that
REpipeline.com, Inc.'s service is highly successful:
? Engagement of a seasoned, high-level Board of Directors and
Advisory Board, to provide
cross-checks on business building, networks to high level strategic
partners and potential
customers, and provide insights on specific areas of the commercial
real estate transaction.
? A focused business model and business strategies that will
provide the road map and the
priority of company initiatives to create market place value.
? Careful selection of the Senior Management team with emphasis
on experience and skills in
start up and rapid growth companies, technology and wide area
network, mergers and
acquisition experience, positioning and development of a new
business concepts, execution for
the company business model, general management, classical consumer
products marketing
skills and change management.
There can be no guarantee that the business will be
successful. However, the Company's
Management team and Board of Directors are drawing on their decades
of considerable experience
to raise the probability that REpipeline.com becomes a successful
Internet company.
Competing Commercial Real Estate Internet Sites
There are a number of Commercial Real Estate Sites on the Internet.
The business models for
theses companies have focused on the "niche" solutions and have
been primarily in the marketing
of commercial property. REP-T's business model is an umbrella for a
portfolio of services and the
primary thrust is in improving workflow processes and the second
thrust is marketing of services
and commercial property.
The commercial real estate applications service provider (ASP)
market is highly under developed
and to our knowledge there are two to three ASP's Internet sites
that offer niche application
software on the Internet and currently there is not an Internet
site that offers the products and
services REpipeline will be introducing to the market.
The market for the portfolio of product and services that REP-T
will be offering with "One stop
shopping" at its Internet site is virtually an untapped market. It
is the Company's opinion that
competition will try and enter this space on the Internet however
the company feels its strategies,
execution plan and management team will be successful in
capitalizing on the untapped market
opportunity.
The Company believes it is the only commercial real estate
business, and marketing services
company that will offer an Integrated portfolio of Internet based
business services with hosted
software applications at one web site. There are single service
providers in the commercial property
bulletin board listing market and companies who offer market
information in the leasing and tenant
market. Examples of these types of single service companies are
LoopNet, CoStar Group and
small commercial property Internet listing sites.
ASP Industry
There are new Applications Service Providers that have been
launched in the last two years.
Companies such as USinternetwork, Interliant and Navisite provide
ASP services to a broad based
market. However, there is not currently an ASP provider that is
offering an Internet based, hosted
suite of software applications to the Commercial Real Estate Broker
vertical segment or to the
other participant in the commercial real estate process. There are
companies offering single real
estate software applications through an Internet site.
Repipeline.com is not aware of a company
offering either a suite of hosted software applications for the
commercial real estate industry or
hosted applications integrated with Internet based transaction
business services.
Vertical Trade Communities
A major opportunity with the Internet is the integration of the
participants in a transaction into an
online trade community. While the company, Vertical Net, provides
content specific information
to certain Industry segments, their services are built around
information services only while
providing only limited transaction capability between the
participants in an on-line market
community. Vertical net is not participating in the commercial
real estate business on line
community market at this point in time. WebMD is an example of a
company that is connecting a
fragmented industry with electronic transactions. WebMD is
providing wide area network and
Internet based transactions services between the participants in
the healthcare delivery system.
Repipeline.com is not aware of any Company providing interest based
transaction services in the
commercial real estate process or that WebMD will enter the
commercial real estate transaction
market.
Commercial Real Estate Internet based property listing bulletin
boards
LoopNet
LoopNet is the largest Internet commercial listing site and has
approximately 90,000 listings and
does not charge for this service. It is the leading Internet
commercial real estate listing site. The
company's investors include Trammel Crow, one of the United States
leading commercial real
estate services companies and Grubb & Ellis. The company offers
commercial property listings,
access to mortgages and industry news.
LoopNet's market positioning and REpipeline.com advantage:
LoopNet's service offering is limited in scope and they are not
currently charging for posting a
commercial property listing on the Internet. The market needs and
benefits that the commercial
real estate broker is seeking are well beyond LoopNet's service
offering. It is the company's
opinion that with LoopNet being financially backed by two large
commercial real estate firms that
this could conflict with other commercial real estate companies
using their services in the event
that they want to charge a fee for listing commercial property.
Small Commercial Property Listing Sites
There are hundreds of commercial property bulletin board listing
sites on the Internet. In doing a
search on American on Line 7,000 sites came up for commercial real
estate listing sites. In order to
enter the Internet commercial listing site business very little
capital is required. The listing sites
focus on a local geography and local relationships. These
companies are being considered as
acquisition candidates by REpipeline.com to expand its geographic
coverage for a commercial real
estate portfolio of services. In addition local commercial real
estate brokerage firms have Internet
sites for their own property and the number of sites to their site
is limited due to the limited number
of listings and site visits.
Small Commercial Property market positioning and REpipeline.com
advantage:
The small commercial property listings sites in general do not meet
the market needs with a one-
service product offering. The market wants a portfolio of services
from one Internet site. In
addition these companies have limited capital for expansion and
should be consolidated into a
larger Internet based company with a portfolio of services.
Market Information Companies
CoStar
The largest company in the Internet commercial real estate market
intelligence is CoStar. CoStar
provides information on office and industrial space for the leasing
commercial real estate industry.
Through its software products, the company's clients can access its
database of office space,
analyze leasing options, market conditions and competitive
property. CoStar charges clients a
monthly subscription fee for this commercial property leasing
information. CoStar has been
acquiring local research companies and expanding their geographic
U.S. coverage. CoStar
provides the commercial real estate brokers with market information
on tenants who are leasing
property so they can prospect for new clients.
CoStar market positioning and REpipeline.com advantage: CoStar is a
research information source
for commercial property listings. The way the data is gathered for
the research is very labor
intensive. CoStar does not offer a portfolio of services and its
acquisitions do not appear to achieve
a high level of operating cost reductions or operating efficiency.
However, competition can change and new competitive companies can
form and can be a
barrier to the success of the Company.
Recent Events for REP-T
Technology
REpipline.com has been investing resources in the development of
the Virtual Desktop Internet site
for the commercial real estate broker and transaction in the
commercial real estate process. The
site is functional today and beta testing will begin for the
portfolio of business services in the fall of
2000. The company plans to launch the ASP services in the first
quarter 2001.
Acquisitions
Repipeline.com has entered in to an agreement to acquire the
software, source code and intellectual
properties for an accounting software package for title insurance
companies from a leading
software developer. The accounting software package can also be
used in the mid size and small
company commercial real estate brokerage office. In this
acquisition the company also acquired a
software application for the settlement and closing process in the
commercial real estate
transaction. REpipeline.com business model is focusing on
acquiring software application in the
commercial real estate vertical segment to build the ASP
(Application Service Provider) business
unit.
Strategic Partnerships
REpipeline.com is developing within the company the virtual desktop
operating system for the
business service transactions. A key component of the business
model is to sign strategic
partnerships for services with companies that will be offered on
the virtual desktop. The strategic
partners will secure the service "Icon" on the virtual desktop and
provide the services to
REpipeline.com's client base. The company has entered into
agreements with strategic partners to
provide Internet based services for real estate property signage
ordering and installation, brochures,
computer conferencing, document authentication and a service to
source service vendors for
services provided within the commercial real estate pipeline
transaction. There are other strategic
partnerships that are in the negotiation stage and will be added to
the company virtual desktop in
the future.
Management of REP-T that will become the Management of Photonics
after the Acquisition
The Company's senior management team and directorial
oversight are in place. Core
management's expertise in general business development, advanced
technology applications,
systems design and structuring, strategic planning, marketing,
financing, human resources, global
trade, and knowledge of specific industry requirements, is
supplemented by a range of specialized
skills and experience of Board members (both Directors and
Advisors) and the team now being
assembled. Founding Directors will hold office until the next
annual stockholders meeting, at
which time their successors will be chosen. Directors will continue
until their successors have been
elected or qualified, or until their death, resignation,
retirement, removal, or disqualification.
Vacancies on the board will be filled by a majority vote of the
remaining directors. Officers of the
Company serve at the discretion of the Board of Directors. The
Company's core team comprises:
James Vaughn 56 Chairman of the Board of
Directors
February/2000
Thomas Bailey 51 President, CEO and Director
February/2000
Michael Craven 40 Vice President Sales and
Business Development
March/2000
Chip Langston 48 Chief Financial Officer and
Director
July/1999
Each director is elected for a period of one year at the Company's
annual meeting of stockholders
and serves until his successor is duly elected by a majority of
stockholders. Officers are elected by
and serve at the discretion of the Board of Directors. Each
Director currently receives no cash
compensation in connection with attending meetings of the Board of
Directors.
The following is a brief summary of the background of each Director
and Executive Officer
of the Company:
James Vaughan - Chairman of the Board of Directors, is 56 years of
age. Mr. Vaughan has 30
years of experience in retailing and consulting. Most recently Mr.
Vaughan has been the owner of
J. Vaughan Consulting LLC. A boutique consulting agent dealing with
one major National account
and several start up companies in the B2B Internet area. Prior to
that Mr. Vaughan was Vice
President of development for a division of Tandy Corp. Mr. Vaughan
was National Vice President
of stores for Computer City a 110-store chain with revenues in
excess of $2 billion Mr. Vaughan
was co-founder and Sr. Vice president of Pace Membership Warehouse,
a $3 billion warehouse
club. Mr. Vaughan was founder, President and CEO of Med-club a
retailer of medical devices and
products to medical professionals and consumers. Mr. Vaughan is
experienced in start up
companies and has successfully raised the capital to bring two of
his own to market as well as
assisting in several others. His knowledge of venture funding,
I.P.O's, and the capital markets are
extensive.
George Thomas Bailey - President and CEO/Director is 51 years of
age. Mr. Bailey has 30 years
of experience in the consumer products, technology, software
development, distribution and
healthcare Industries. His consumer product career was with
Fortune 500 companies, General
Foods, Sara Lee and PepsiCo in Senior Management, General
Management and Marketing
Positions. He held the position of Vice President of Strategic
Planning for FoxMeyer Health Corp.
a $6 Billion Health Care Distribution and Technology Company. He
was the President and Chief
Operating Officer for Health Streams Technology a publicly traded
start up technology company
that developed and marketed software applications, wide area
networking services, outsourcing and
integration services to the healthcare vertical segment. He held
the position of President and CEO
for NECCO, a rollup and consolidation of environmental companies.
Earlier in his career he was a real estate broker and building
contractor in the state of Florida. Most
recently he was a consultant that advised companies on strategic
planning, operations planning,
technology, business process reengineering and e-commerce. Mr.
Bailey's experiences and skills
are in brand management classical marketing, software development,
mergers and acquisitions,
business restructuring, start up and rapid growth companies and
general management.
He earned his undergraduate degree from Florida State University
and a MBA from the University
of Florida. Upon graduation from Florida State University Mr.
Bailey was a professional athlete
with the Philadelphia Eagles in the National Football league for
five years.
Michael Craven - Vice President of Sales & Business Development, is
40 years of age. Mr. Craven
has over 15 years of experience in sales, marketing and business
management. Mr. Craven was
most recently the President & CEO of Hebel SouthCentral; a U.S.
subsidiary of the worldwide
German based Hebel AG. Mr. Craven was responsible for all aspects
of this start-up company
involved in the introduction and development of a new structural
system for use in the U.S.
commercial design and construction industry. The company ultimately
merged with Matrix, a
division of J.A. Jones, Inc. Prior to that Mr. Craven was the
Executive Vice President of Materials
Marketing Corporation responsible for all U.S. commercial sales and
operations. Mr. Craven not
only has experience with start-up operations but also with the
sales and marketing development of
a completely new technology and industry. Mr. Craven has extensive
experience in the area of
developing and managing high performance sales organizations
particularly within complex selling
environments. Mr. Craven is a veteran of the U.S. Navy where he
earned numerous awards and
commendations for his outstanding leadership skills.
Chip Langston - Chief Financial Officer/Director, is 48 years of
age. Mr. Langston has over 20
years experience as a Chief Finance Officer for various public
companies, including Trans-Western
Exploration and Search Exploration. The last three and one-half
years Mr. Langston has worked
with small and medium companies overseeing securities filings,
registration documents and raising
capital. He is experienced in all aspects of the requirements to
become a public entity, as well as
led in raising capital through the public markets and institutional
investors.
Executive Compensation of Officers and Directors of REP-T that will
be assumed by
Photonics
Remuneration of Officers; Employment Agreements
Effective as June 10, 2000, the REP-T entered into an employment
agreement with Mr. Thomas
Bailey, the President and Chief Executive Officer of the REP-T.
Following the completion of the
acquisition, REP-D will assume the employment agreement. The
agreement provides for the
Company to employ Mr. Bailey for a base salary of $225,000. The
agreement provides for annual
bonus payments as determined by the Board of directors and
severance payment for termination
without cause in an amount of equal to twelve (12) months of salary
and any bonus paid for during
the previous twelve (12) months. In the event in a change of
ownership by virtue of a merger or
acquisition, where by the net effect is a change in Bailey's title,
responsibility or pay structure,
Bailey would have the option to accept such change or elect to
exercise the severance option for
termination without cause. The employment agreement provides for
a 20% equity position in the
company that will be rewarded based on certain performance targets.
The 20% equity stake in the
Company is effected through a series of stock options for common
shares of Photonics that,
following the completion of the acquisition, will be held available
for Mr. Bailey in Acquisition
and Finance Corporation, a subsidiary of REP-T.
The following are excerpts from Mr. Bailey's employment contract
and contain the salient points
relating to his duties and compensation:
a. Bailey agrees to assume the position as an officer of
Repipeline.com as President &
Chief Executive Officer on June 10, 2000. This position shall
report to the Board
of Directors. Bailey also agrees to remain a member of the Board
of Directors
until such time as employment herein is terminated or he is removed
as Director by
a majority vote of the Shareholders.
b. Bailey's duties shall include, but not be limited to:
Oversight and direction of
Company development, growth, investment, mergers & acquisitions,
capital
raising functions, investor contact and other duties normally
associated with the
President and Chief Executive Officer of a company who is charged
with
benefiting the shareholders of such company.
c. Bailey's duties shall also include, but not be limited to:
Responsibility for oversight
of all financial reports required, public securities issues,
implementation and
maintenance of a financial plan, oversight of the preparation of
any security
offering or compliance report, protective measures to provide
security to the
Company's assets and shareholder value.
d. Bailey, as Chief Executive Officer is charged with insuring
that directives handed
down by Board of Directors is implemented into the operations of
the Company.
Such charge places Bailey in position to make all final decisions
on all corporate
events, hires & terminations, financial plans, and executive
placements.
e. Bailey acknowledges herein that he will serve as President /
Chief Executive
Officer and Director, placing the shareholders interest above his
own in the
management and direction of the Company.
f. Bailey acknowledges herein he understands Securities Laws and
is aware that the
position of an executive within a publicly traded company places
him in a position
of corporate inside information, of which may not be disclosed
outside of the
executive infrastructure. Such information may not be disclosed to
family, friends
or others and such passage of information is considered violation
of transference of
'inside information'.
g. Compensation shall be derived as follows:
? $10,000 monthly pay of for a period of 3 months, of which
100% shall be paid in
common shares of the Company's stock.
? $150,000 annual salary base after the initial 3-month period.
Such annual salary
shall remain in effect until the Company has completed a minimum of
$2 million
in equity funding after the date of the contract herein.
? $225,000 annual salary base after the Company has achieved $2
million in equity
funding after the date of the contract herein. Such increase from
previous pay,
shall be on a non-accrued basis, in as such, the previous pay shall
stand and
increase will only be applicable to pay period thereafter.
? Severance package shall be equivalent to 12 months of salary
and any bonuses paid
during the previous 6 months, non-inclusive of the signing bonus
stated above and
initial Equity bonus as stated below. Such severance package
shall become
immediately effective after the first round of financing of which a
minimum of $2
million has been raised. Such severance package shall be based on
termination
without cause. Should termination be for cause, such severance
package shall be
reduced by 50%.
? Equity bonus package shall consist of:
a. An option to purchase for $0.10 per share, 1,290,000 shares
of REP-T. Such
shares are considered a form of signing bonus and will be rescinded
and returned
to the Company's treasury should Bailey resign or be terminated for
cause prior to
1 year of service Such shares shall be held in Acquisition and
Finance
Corporation, a subsidiary of REP-T
b. An option to purchase for $0.10 per share, 500,000 newly
issued shares of
Photonics Corporation following the completion of the pending
merger with a
Photonics Corporation.
c. Change in ownership protection - should the Company have a
change in controlling
ownership by virtue of a merger or acquisition, whereby the net
effect is a change
in title, responsibilities, job location move of over 60 miles or
pay structure of the
position herein, Bailey would have the option to accept such change
or trigger the
severance package option without cause and all stock options will
be fully vested.
h. REpipeline.com agrees to pay 100% of general medical coverage
for Bailey and
50% for spouse and any minors in the family on the company policy.
The medical
plan and payment for Bailey will be consistent with the Executive
medical plan.
There is a 30-day enrollment wait period before any health
insurance becomes
valid. Until funding is secured for the company or for an
indefinite period the
Company may elect to pay the current premium for Bailey's current
Health
Care Insurance plan of approximately $389.00 @ month.
i. Bailey agrees herein to maintain confidentiality of corporate
affairs, list, clients,
shareholders, and any other items that are of material importance
to the company.
Bailey also agrees to sign a confidentiality agreement.
j. Bailey recognizes herein that the position herein is a
control position, and all
guidelines, rules and laws with respect to inside/restricted
information and other
laws involving the company as are required by the Securities and
Exchange
Commission, the National Association of Securities Dealers and
other governing
agencies will be adhered to.
Compensation of the Executive Officers
The following sets forth information in tabular form regarding
compensation for the Company's
Chief Executive Officer and other executive officers of the
Company.
Name and Annual Compensation
Principal Position Year
Salary Bonus
Mr. Thomas Bailey 2000 $225,000 --
--
President and Chief
Executive Officer
Mr. Chip Langston 2000 $165,000 --
--
Chief Financial
Officer
Mr. Michael Craven 2000 $135,000 --
--
Vice President Sales
& Business Development
(1) Salaries are annualized for a full year and annual bonus will
be determined by the Board of
Directors. The CEO position annual bonus potential is 100% of
salary, the CFO is 60% of
salary and the Vice President of Sales and Business Development is
50% of salary.
(2) Mr. Langston and Mr. Craven's long term compensation will be
determined by the Board
of Directors during the year 2000.
The following table sets forth certain information regarding
nonstatutory stock options for REP-T
stock granted during 2000 as part of the employment agreements for
the employees listed below.
These options will be assumed by Photonics as part of the
acquisition of REP-T and will be
converted to Photonics stock.
Number of
Securities
Underlying Exercise Price Grant Date
Options
Name
Mr. Thomas Bailey------ 500,000* $.10
June 1, 2000
1,500,000 ** $.10 June 1,
2000
Mr. Chip Langston --- 375,000 * $.10
June 1, 2000
Mr. Michael Craven---- 325,000* $.10
June 1, 2000
* Options are for shares of stock post acquisition. They are not
subject to the exchange ratio (the
"Exchange Ratio") of approximately 11.23 to 1.
** These options are for shares issued but not outstanding and
held in the REP-T subsidiary,
Acquisition and Finance Corporation.. These shares are pre
acquisition shares and will be
increased by the Exchange Ratio.
Compensation Philosophy
The Company operates in a highly competitive and rapidly changing
high technology industry. The
goals of the compensation program are to align compensation with
the company's newly revised
business objectives and the performances of the employees, to
enable the Company to attract,
retain and reward executive officers and other key personnel who
contribute to the long-term
success of the Company, and to motivate them to enhance long-term
shareholder value. Key
elements of this philosophy are:
1. Total compensation should be sufficiently competitive with other
companies in similar or related
industries so that the Company can attract and retain qualified
personnel.
2. The Company desires to maintain annual incentive opportunities
sufficient to provide motivation
to achieve specific operating goals and to generate rewards that
bring total compensation to
competitive levels.
3. The Company desires to provide significant equity-based
incentives for executives and other key
employees to ensure that they are motivated over the long-term to
respond to the Company's
business challenges and opportunities as owners and not just as
employees.
Base Salary. The Committee annually reviews each executive
officer's base salary. When
reviewing base salaries, the Committee considers individual and
corporate performance, levels of
responsibility, prior experience, breadth of knowledge and
competitive pay practices.
Long-Term Incentives. The Company's long-term incentive program
consists of the Stock Option
Plans set out hereinabove, as amended from time to time. The stock
option program utilizes vesting
periods (generally three to four years) to encourage key employees
to continue in the employ of the
Company. Through option grants, executives receive equity
incentives to build long-term
shareholder value. Grants are made at 100% of fair market value on
the date of the grant.
Executives receive value from these grants only if the Company's
common stock appreciates in the
long term. The size of option grants is determined by the Company's
philosophy of linking
executive compensation with shareholder interests.
Remuneration of Officers and the approval of a Stock Option Plan
The 2000 Incentive Stock Option (ISO) plan provides options to
purchase common stock, may be
granted only to employees of the company and its subsidiaries. It
is to be put into effect subject to
the approval of the stockholders and is described in detail
hereinbelow under Proposal 9.
Outside Director Stock Option Plan
The Outside Director Stock Option Plan provides for the issuance of
stock options to the outside
directors of the company. It is to be put into effect subject to
the approval of the stockholders and is
described in detail hereinbelow under Proposal 10.
Employment Agreements
Effective as June 30, 2000, the REP-T entered into an employment
agreement with Mr. Thomas
Bailey, the President and Chief Executive Officer of the REP-T.
Following the completion of the
acquisition, REP-D will assume the employment agreement. The terms
of the agreement are
described in detail hereinbelow.
Securities Ownership of Principal Stockholders and Management of
REP-T
The following table sets forth the shares of the Company's Common
Stock beneficially owned at
June 30, 2000, by each person who is known by the Company to be the
beneficial owner of more
than five percent of the Common Stock.
Shares Issued
Outstanding
Beneficially Note #
Percent Percent
Beneficial Owner Owned (1)
Owned (2) Owned (3)
Acquisition & Finance Corp. 3,909,267 70.29%
0.00%
C/o REpipeline.com, Inc.
12377 Merit Drive
Dallas, Texas 75251
James Vaughan 66,625 1.20%
4..03%
Chairman of the Board
12377 Merit Drive
Dallas, TX 75251
Thomas Bailey 142,982 2.57%
8.65%
President
12377 Merit Drive
Dallas, TX 75251
Joseph Langston 171,300 3..08%
10.37%
Chief Financial Officer
12377 Merit Drive
Dallas, TX 75251
Dale Sparrow 287,188 5.16%
17.38%
12377 Merit Drive
Dallas, TX 75251
Michael Craven 78,700
1.42% 4.76%
Vice President
12377 Merit Drive
Dallas, TX 75251
Other Shareholders 905,772
16.29% 54.81%
Total Number of Shares 5,561,834
100.00% 100.00%
1. Beneficial Ownership is determined in accordance with the rules
of the Securities and Exchange
Commission and generally includes voting or investment power with
respect to securities. Except
as indicated by footnote, and subject to community property laws
where applicable, the persons
named in the table above have sole voting and investment power with
respect to all shares of
Common and Preferred Stock and options or warrants to purchase
stock.
2 Percentage calculations are based on June 30, 2000 figures of
5,561,834 shares of Common
Stock.
3. Shares held by the subsidiary are not considered outstanding for
calculating Earnings Per Share.
Securities Ownership of Principal Stockholders and Management of
REP-T after the
Acquisition
The following table sets forth the shares of the Company's Common
Stock beneficially after the
completion of the merger between Photonics and REpipeline.com, Inc.
by each person who is
known by the Company to be the beneficial owner of more than five
percent of the Common Stock,
and by all former directors and officers as a group.
Issued Outstanding
Beneficially
Percent Percent
Beneficial Owner Owned
Owned (1) Owned (2)
Acquisition & Finance Corp. 44,381,627 59.74%
0.00%
C/o REpipeline.com, Inc.
James Vaughan 748,798 1.02% 2.53%
Chairman of the Board
Thomas Bailey 1,606,975 2.19% 5.43%
President/Direct
Joseph Langston 1,925,241 2.62%
6.50%
C.F.O./Director
Michael Craven 884,509 1.20%
2.99%
Vice President
James T. Koo 858,475
1.17% 2.90%
Director
Dale Sparrow 3,227,706 4.39%
10.90%
David S. Lee 1,475,360 2.01%
4.98%
Other Shareholders 18,877,078 25.67% 63.77%
Total Shares Issued 73,540,648 100.00%
100.00%
Total Shares Outstanding 29,159,021
1. Beneficial Ownership is determined in accordance with the rules
of the Securities and Exchange
Commission and generally includes voting or investment power with
respect to securities. Except
as indicated by footnote, and subject to community property laws
where applicable, the persons
named in the table above have sole voting and investment power with
respect to all shares of
Common and Preferred Stock and options or warrants to purchase
stock.
2. Shares held by the subsidiary are not considered outstanding for
calculating Earnings Per Share.
Comparison of Rights of Shareholders of Photonics and REP-T
The rights of Photonics' stockholders are governed by its Articles
of Incorporation. its By-laws
("Photonics Bylaws") and the laws of the State of California. The
rights of REP-T's stockholders
are governed by its Certificate of Incorporation, its Bylaws ("REP-
T Bylaws") and the laws of the
State of Texas.
Following receipt of the Photonics' shares to be distributed to
them when REP-D acquires all of the
stock of REP-T, the rights of REP-T stockholders who become
Photonics shareholders will be
governed by the Photonics Articles of Incorporation, Photonics
Bylaws and the laws of the State of
California. In most respects, the rights of Photonics shareholders
and REP-T stockholders are
similar.
The following is a summary comparison of certain differences
between the rights of REP-T
stockholders under the Texas Law and its Certificate of
Incorporation, as amended, and Bylaws
and the rights of Photonics shareholders under the California Law
and the Photonics Articles and
Bylaws.
Cumulative Voting. In an election of directors under cumulative
voting, each share of stock
normally having one vote is entitled to a number of votes equal to
the number of directors to be
elected. A stockholder may then cast all such votes for a single
candidate or may allocate them
among as many candidates as the stockholder may choose (up to the
number of directors to be
elected). Without cumulative voting, the holders of a majority of
the shares present at an annual
meeting or any annual meeting held to elect directors would have
the power to elect all the
directors to be elected at that meeting, and no person could be
elected without the support of
holders of a majority of the shares voting at such meeting.
Under the Texas Law, cumulative voting in the election of directors
in not permitted unless the
shareholder who wishes to cumulate his votes give notice to the
secretary of the corporation on or
before the day preceding the election . Under the California Law,
cumulative voting in the election
of directors is a right available to all shareholders of California
corporations unless a corporation is
"listed" for trading and that corporation's articles of
incorporation specifically eliminate cumulative
voting. The Photonics Articles do not eliminate cumulative voting.
Shareholder Power to Call Annual Shareholders Meeting. Under the
Texas Law, a special meeting
of stockholders may be called by the president; board of directors;
by the holders of at least ten
(10) percent of all the shares entitled to vote at the proposed
special meeting, unless the articles of
incorporation provide for a number of shares greater than or less
than ten (10) percent, in which
event special meetings of the shareholders may be called by the
holders of at least the percentage of
shares so specified in the articles of incorporation (but in no
event shall the articles of
incorporation provide for a number of shares greater than fifty
(50) percent); or any other person
authorized to do so in the corporation's certificate of
incorporation or bylaws.
Under the California Law, a annual meeting of shareholders may be
called by the board of
directors, the chairman of the board, the president, the holders of
shares entitled to cast not less
than 10% of the votes at such meeting and such persons authorized
to do so in the articles of
incorporation or bylaws.
Dissolution. Under the Texas Law, a dissolution must be approved by
stockholders holding 100%
of the total voting power or the dissolution must be initiated by
the board of directors and approved
by the holders of a two-thirds majority of the outstanding voting
shares of the corporation.
Under the California Law, shareholders holding 50% or more of the
total voting power may
authorize a corporation's dissolution and this right may be
modified by its articles of incorporation.
Size of Board of Directors. The Texas Law permits the board of
directors of a Texas corporation to
consist of one or more persons and permits the board to change the
authorized number of directors
by amendment to the corporation's bylaws or in the manner provided
in the bylaws unless the
number of directors is fixed in the corporation's certificate of
incorporation. in which case a change
in the number of directors may be made only by amendment to the
certificate of incorporation.
Under the California Law, although changes in number of directors
must in general be approved by
the shareholders, the board of directors of a California
corporation may fix the exact number of
directors within a stated range set forth in the corporation's
articles of incorporation or bylaws, if
the stated range has been approved by the shareholders.
The Photonics By-laws currently provide, and such provision is
proposed to be changed pursuant to
Proposal number five of this Proxy, that the number of directors
shall be established from time to
time by resolution of the Photonics Board or the shareholders,
provided that the authorized number
shall not be fewer than five nor more than seven.
Classified Board of Directors. A classified board is one with
respect to which a certain number of
the directors, but not necessarily all, are elected on a rotating
basis each year. The Texas Law
permits,. but does not require, a Texas corporation to provide in
its bylaws for a classified board of
directors, pursuant to which the directors can be divided into up
to three classes of directors with
staggered terms of office, with only one class of directors to be
elected each year for a maximum
term of three years.
Under the California Law, generally directors must be elected
annually unless the corporation is
"listed" and specifically provides in it's by-laws for terms other
than one year. Under the
California Law, a listed corporation may have a classified board of
no fewer than six directors
divided into two classes of directors or a classified board of no
fewer than nine directors divided
into three classes. The Photonics charter documents do not provide
for a classified board.
Removal of Directors. Under the Texas Law, any director or the
entire board of directors may be
removed with or without cause by a vote of the majority of the
shareholders of the corporation
however, no director may be removed (unless the entire board is
removed) if the number of shares
voted against the removal would be sufficient to elect the director
under cumulative voting.
Under the California Law, any director or the entire board of
directors may be removed, with or
without cause, with the approval of a majority of the outstanding
shares entitled to vote; however,
no director may be removed (unless the entire board is removed) if
the number of shares voted
against the removal would be sufficient to elect the director under
cumulative voting.
Actions by Written Consent of Stockholders. Under the Texas Law,
stockholders may execute an
action by written consent in lieu of a meeting of stockholders. The
Texas Law permits a
corporation to eliminate such actions by written consent in its
certificate of incorporation or in it's
bylaws.
Under the California Law, unless otherwise provided in the articles
of incorporation, any action
that may be taken at any annual or annual meeting of shareholders
may be taken without a meeting
by written consent of shareholders having the requisite number of
votes, subject to the requirement
that ten days' advance notice of such shareholder approval of
certain types of transactions and
matters be given where all shareholders' consents are not
solicited. The Photonics Articles do not
limit the rights of shareholders to act by written consent.
Advance Notice Requirement for Shareholder Proposal and Director
Nominations Photonics'
Bylaws do not require advance notice of proposal or director
nominations intended to be presented
by a shareholder at an annual meeting.
Voting Requirements. Unless otherwise specified in a Texas
corporation's certificate of
incorporation, an amendment to the certificate of incorporation
requires the affirmative vote of a
two-thirds majority of the outstanding stock entitled to vote
thereon. Furthermore, under the Texas
Law, the holders of the outstanding shares of a class are entitled
to vote as a class upon any
proposed amendment to the certificate of incorporation, whether or
not entitled to vote thereon by
the provisions of the corporation's certificate of incorporation,
if the amendment would increase or
decrease the aggregate number of authorized shares of such class,
increase or decrease the par
value of the shares of such class, or alter or change the powers,
preferences or specific rights of the
shares of such class so as to adversely affect them.
Unless otherwise specified in a California corporation's articles
of incorporation, an amendment to
the articles of incorporation requires the affirmative vote of a
majority of the outstanding shares
entitled to vote thereon. Under the California Law, the holders of
the outstanding shares of a class
are entitled to vote as a class if the proposed amendment would (i)
increase or decrease the
aggregate number of authorized shares of such class, (ii) effect an
exchange, reclassification or
cancellation of all or part of the shares of such class, other than
a stock split, (iii) effect an
exchange, or create a right of exchange, of all or part of the
shares of another class into the shares
of such class, (iv) change the rights, preferences, privileges or
restrictions of the shares of such
class, (v) create a new class of shares having rights, preferences
or privileges prior to the shares of
such class, or increase the rights, preferences or privileges or
the number of authorized shares
having rights, preferences or privileges prior to the shares of
such class, (vi) in the case of preferred
shares, divide the shares of any class into series having different
rights, preferences, privileges or
restrictions or authorize the board of directors to do so, or (vii)
cancel or otherwise affect dividends
on the shares of such class which have accrued but have not been
paid.
Under Texas Law, any merger, consolidation or sale of all or
substantially all of a corporation's
assets must be approved by the corporation's board of directors and
a two-thirds majority of the
outstanding shares entitled to vote unless the board of directors
requires a higher percentage of
votes in it's presentation of the merger proposal.
Under California Law, with certain exceptions, any merger,
consolidation or sale of all or
substantially all of a corporation's assets must be approved by the
corporation's board of directors
and a majority of the outstanding shares entitled to vote. In
addition, the California Law requires
such transactions, among others, to be approved by a majority of
the outstanding shares of each
class of stock without regard to limitations on voting rights.
Rights of Dissenting Stockholders. Generally, stockholders of a
Texas corporation have a right to
dissent from a merger or consolidation of the corporation for which
a stockholders' vote is required.
There are, however, generally no statutory rights of dissent with
respect to stockholders of a Texas
corporation merger in which there is a single surviving or new
domestic or foreign corporation, or
from any plan of exchange whose shares of stock on the record date
were either (i) listed on a
national securities exchange or designated as a national market
system security on an inter-dealer
quotation system by the National Association of Securities Dealers,
Inc. or (ii) held of record by
more than 2,000 stockholders where such stockholders receive only
shares of stock of the
corporation surviving or resulting from the merger or consolidation
(or cash in lieu of fractional
interests therein).
Generally, shareholders of a California corporation who dissent
from a merger or consolidation of
the corporation are entitled to dissenters' rights.
Inspection of Stockholders List. Both the Texas Law and the
California Law allow any stockholder
to inspect the stockholders list for a purpose reasonably related
to such person's interest as a
stockholder. Additionally, the California Law provides for an
absolute right to inspect and copy the
corporation's shareholders list by a person or persons holding at
least 5% in the aggregate of the
corporation's outstanding voting shares.
Dividends. Subject to any restrictions contained in a corporation's
certificate of incorporation, the
Texas Law generally provides that a corporation may declare and pay
dividends at the direction of
the board of directors except that a share dividend payable in
authorized but unissued shares may
not be paid by a corporation if the surplus of the corporation is
less than the amount required by the
Texas Business Corporation Act to be transferred to stated capital
at the time that share dividend is
paid.
The California Law provides that a corporation may make a
distribution to its shareholders if: (i)
the retained earnings of the corporation immediately prior to the
distribution equal or exceed the
amount of the proposed distribution: or (ii) immediately after
giving effect to the distribution, (a)
the sum of the assets of the corporation (exclusive of goodwill,
capitalized research and
development expenses and deferred charges) would be at least equal
to 1'/4 times its liabilities (not
including deferred taxes, deferred income and other deferred
credits), and (b) the current assets of
the corporation would be at least equal to its current liabilities
or. if the average of the earnings of
the corporation before taxes on income and before interest expense
for the two preceding fiscal
years was less than the average of the interest expense of the
corporation for such fiscal years, at
least equal to 11/4 times its current liabilities. In addition, the
corporation making the distribution
must not be, and must not as a result of the distribution become,
likely to be unable to meet its
liabilities (except those whose payment is otherwise adequately
provided for) as they mature.
Neither the Photonics Articles nor its Bylaws contain any presently
applicable restrictions on the
declaration or payment of dividends.
By-laws Under the Texas Law, the authority to adopt, amend, or
repeal the bylaws of a Texas
corporation is held by either the board of directors or by the
stockholders unless such authority is
conferred differently in the corporation's certificate of
incorporation. A bylaw adopted by the
shareholders may restrict or eliminate the power of the Board to
adopt, amend or repeal the bylaws
Under the California Law, a corporation's bylaws may be adopted,
amended or repealed either by
the board of directors or the shareholders of the corporation.
Photonics' Bylaws provide that the
Bylaws may be changed either by the vote of the holders of a
majority of the outstanding shares
entitled to vote or by the board of directors; provided. however,
that the Board may not amend the
Bylaws in order to change a fixed number of directors (except to
alter the authorized number of
directors within the existing range of a minimum of five and a
maximum of seven directors). A
bylaw adopted by the shareholders may restrict or eliminate the
power of the Board to adopt,
amend or repeal the bylaws.
Preemptive Rights. Stockholders of a Texas corporation generally
have preemptive rights except as
may be limited by statute or as may be limited in the company's
certificate of incorporation.
Shareholders of a California corporation have such preemptive
rights as may be provided in the
corporation's articles of incorporation. The Photonics Articles do
not grant any preemptive rights to
Photonics shareholders. However, case law in California has created
a doctrine of
"quasi-preemptive" rights in appropriate circumstances, even when
no such rights exist in the
corporation's articles of incorporation.
Transactions Involving Officers or Directors. A Texas corporation
may lend money to, or
guarantee any obligation incurred by, its officers or directors if,
in the judgment of the board of
directors, such loan or guarantee may reasonably be expected to
benefit the corporation. With
respect to any other contract or transaction between the
corporation and one or more of its directors
or officers, such transactions are neither void nor voidable if
either (i) the director's or officers
interest is made known to the disinterested directors or the
stockholders of the corporation. who
thereafter approve the transaction in good faith, or (ii) the
contract or transaction is fair to the
corporation as of the time it is approved or ratified by either the
board of directors, a committee
thereof, or the stockholders.
Under the California Law, any loan or guarantee to or for the
benefit of a director or officer of the
corporation or its subsidiaries requires approval of the
shareholders unless such loan or guarantee is
provided for under a plan approved by shareholders owning a
majority of the outstanding shares of
the corporation. In addition, the California Law permits
shareholders to approve a bylaw
authorizing the board of directors alone to approve a loan or
guarantee to or on behalf of an officer
(whether or not a director) if the board of directors determines
that such a loan or guarantee may
reasonably be expected to benefit the corporation, which bylaw may
be utilized to authorize officer
loans and guarantees if the corporation has 100 or more
shareholders of record. The shareholders of
Photonics have not approved such a bylaw provision.
The California Law similarly states that contracts or transactions
between a corporation and (i) any
of its directors or (ii) a second corporation of which a director
is also a director are not void or
voidable if the material facts as to the transaction and as to the
director's interest are fully disclosed
and the disinterested directors or a majority of the disinterested
shareholders represented and voting
at a duly held meeting approve or ratify the transaction in good
faith, or the person asserting the
validity of the contract or transaction sustains the burden of
proving that the contract or transaction
was just and reasonable as to the corporation at the time it was
authorized, approved or ratified.
Filling Vacancies on the Board of Directors. Under the Texas Law,
vacancies on the board of
directors and newly created directorships may be filled by a
special meeting of the shareholders or
a majority of the directors then in office (even though less than a
quorum) unless otherwise
provided in the certificate of incorporation or bylaws of the
corporation.
Under the California Law, any vacancy on the board of directors
other than one created by removal
of a director may be filled by the board of directors. If the
number of directors is less than a
quorum, a vacancy may be filled by the unanimous written consent of
the directors then in office,
by the affirmative vote of a majority of the directors at a meeting
held pursuant to notice or waivers
of notice or by a sole remaining director. A vacancy created by
removal of a director may be filled
by the board of directors only if so authorized by a corporation's
articles of incorporation or by a
bylaw approved by the corporation's shareholders. Photonics'
Articles and Bylaws do not authorize
the Board to fill such a vacancy.
Limitation of Liability of Directors and Indemnification. Under the
Texas Law, a corporation may
include in its certificate of incorporation a provision which
would, subject to the limitations
described below, eliminate or limit directors' liability for
monetary damages for breaches of their
fiduciary duty of care. Under the Texas Law, a director's liability
cannot be eliminated or limited
(i) for breaches of the duty of loyalty, (ii) for acts or omissions
not in good faith or that involve
intentional misconduct or a knowing violation of law, (iii) for the
payment of unlawful dividends
or expenditure of funds for unlawful stock purchases or
redemptions, or (iv) for transactions from
which such director derived an improper personal benefit.
Under the California Law, a corporation is permitted to adopt a
provision in its articles of
incorporation eliminating the liability of a director to the
corporation or its shareholders for
monetary damages for breach of the director's fiduciary duty of
care, provided such liability does
not arise from certain proscribed conduct, including intentional
misconduct and transactions
pursuant to which the director received an improper personal
benefit. In addition, under the
California Law, (i) a corporation has the power to indemnify a
director against expenses,
judgments, fines and settlements if that person acts in good faith
and in a manner the person
reasonably believed to be in the best interests of the corporation
and, in the case of a criminal
proceeding. had no reasonable cause to believe the conduct of the
person was unlawful, and (ii) a
corporation has the power to indemnify, with certain exceptions,
any person who is a party to any
action by or in the right of the corporation, against expenses
actually and reasonably incurred by
that person in connection with the defense or settlement of the
action if the person acted in good
faith and in a manner the person believed to be in the best
interests of the corporation and its
shareholders.
The indemnification authorized by the California Law is not
exclusive, and a corporation may grant
its directors, officers, employees or other agents certain
additional rights to indemnification. The
Photonics Articles and Bylaws provide for indemnification of its
agents (as defined under the
California Law) to the fullest extent permissible under the
California Law, which may be in excess
of the indemnification expressly permitted by Section 317 of the
California Law. Photonics also
has indemnification agreements with its officers and directors.
Shareholder Derivative Suits. Under the Texas case law, a
stockholder may only bring a derivative
action on behalf of the corporation if the stockholder was a
stockholder of the corporation at the
time of the transaction in .question or his or her stock thereafter
devolved upon him or her by
operation of law.
The California Law provides that a shareholder bringing a
derivative action on behalf of the
corporation need not have been a shareholder at the time of the
transaction in question, provided
that certain tests are met. The California Law also provides that
the corporation or the defendant in
a derivative suit may make a motion to the court for an order
requiring the plaintiff shareholder to
furnish a security bond.
Representations and Covenants
Under the Agreement, Photonics and REP-T made a number of
representations regarding their
respective capital structures. operations, financial condition and
other matters, including their
authority to enter into the Agreement and consummate the
Acquisition. Each party covenanted that,
until the consummation of the acquisition or the termination of the
Agreement, it will maintain its
business, and it will not take certain actions outside the ordinary
course of business. Photonics
agreed that following consummation of the Acquisition, it will
undertake all necessary steps to
distribute it's shares of Sunnyvale Technology Corporation to the
stockholders
Conditions to the Closing
In addition to the approvals of the shareholders of REP-T and
Photonics sought hereby, the
obligations of Photonics and REP-T to consummate the Acquisition
will be subject to the
satisfaction of a number of other conditions, including the absence
of any proceedings, order,
decree or ruling by any court or governmental agency or any other
legal restraint or action that
would prohibit or render illegal the transactions contemplated by
the Agreement.
Each party's obligations under the Agreement will also be
conditioned upon the accuracy in all
material respects of the representations and warranties made by the
other party; the performance in
all material respects by the other party of its covenants; the
absence of material adverse changes in
the financial condition, results of operations or assets and
liabilities of the other party; the receipt of
certain legal opinions. The receipt of any required third party
consents to the Acquisition, and the
receipt of certain other documents.
At any time on or prior to the closing of the Acquisition, to the
extent legally allowed, Photonics or
REP-T, without approval of the shareholders of such respective
company, may waive compliance
with any of the agreements or conditions contained in the Agreement
for the benefit of that
company.
Termination or Amendment
The Agreement may be terminated by both parties at any time prior
to the closing of the
Acquisition by mutual consent or by either party if such party's
conditions to closing as specified in
the Agreement have not been satisfied as of the closing of the
Agreement. The terms of the
Agreement may be amended at any time by mutual consent of both
parties, except that, after
shareholder approval of the Agreement.
Indemnification
The closing of the Agreement is conditioned upon the approval of
Proposal 6 as set forth
hereinbelow relating to the indemnification of James T. Koo for all
actions taken relating to the
acquisition.
Regulatory Matters
Photonics and REP-T are not aware of any governmental or regulatory
approvals required for
consummation of the Acquisition other than compliance with the
federal securities laws and
applicable securities and "blue sky" laws of the various states.
Expenses and Fees
In the event that the Acquisition is consummated, all legal,
accounting, tax, investment advisory
and other fees incurred by Photonics and REP-T in connection with
the Acquisition that are not
paid out of the escrow account that has been established from the
proceeds of the sale of Sunnyvale
Technology Corporation will be assumed by Photonics. In the event
that the Acquisition is
consummated, to the extent that the costs exceed the amount in the
escrow account that has been
established from the proceeds of the sale of Sunnyvale Technology
Corporation, REP-T will bear
the remainder of the costs and expenses in connection with the
Agreement and the transactions
provided for therein. Transaction cost, and other direct costs
associated with such transactions are
anticipated to total approximately $125,000, consisting primarily
of transaction costs and legal and
accounting expenses.
Reasons for the Acquisition
Photonics Reasons
The management of Photonics also believes that the following are
additional reasons for
shareholders of Photonics to vote FOR approval of the .Acquisition:
Because of its several years of operating losses, Photonic's
management has been forced to
end its operations, lay off its employees and liquidate its product
inventories. Due to the fact
that Photonics' ability to survive as an independent entity is in
doubt, the acquisition of REP-
T is an alternative to dissolution and liquidation.
The Acquisition allows Photonics an opportunity to enter into both
a new business and new
markets and better utilize its technology and resources. Because
Photonics has thus far
focused on a single market niche (the personal computer I/O
market). Photonics'
performance has been exclusively dependent on a market which has
failed to be profitable in
line with expectations.
Photonics believes that the combined company will be able to
obtain equity and/or debt
financing. At present, Photonics is unable to procure any equity
or debt financing. Such
additional financing is needed to build Photonics' newly revised
management, development,
marketing and customer support operations.
The Acquisition allows Photonics to leverage REP-T's
established business operations.
In the course of its deliberations, the Company and its advisors
received presentations from, and
reviewed a number of additional factors relevant to the
.Acquisition including the alternatives to
the Acquisition such as possible financing, merger with other
entities and dissolution and
liquidation. Ultimately, the Board determined that their were no
viable merger partners other than
REP-T. The principal factors considered in connection with the
determination of the consideration
for the Acquisition were the trading prices of shares of Photonics
Common Stock over the past
several months, the companies' historical and projected revenue,
the accounts payable and other
financial and technical assets of the two companies.. The Company
also specifically considered
the advisability of a liquidation of Photonics as opposed to the
proposed Acquisition. The
Company believes the benefits to Photonics' shareholders from the
Acquisition will enhance value
to Photonics' shareholders in the future. Based on the structure of
the proposed Acquisition, the
Company evaluated the combined company on a going forward basis.
Additionally, the Company
considered the fact that Photonics' liquidation value after payment
of the accounts payable would
be at or close to zero.. The dissolution of Photonics would be less
favorable to Photonics'
shareholders due to potentially high liquidation costs which would
adversely affect the value of a
distribution to Photonics' shareholders. The Company understands,
as should each shareholder, that
no assurances can be given that the combined company will realize
the long term benefits of
Acquisition. A number of potentially negative factors concerning
the Acquisition were also
discussed including the risk that the trading prices of Photonics'
Common Stock could be
adversely affected by announcement of the Acquisition, the risk
that the benefits sought to be
achieved by the Acquisition will not be realized, potential adverse
tax consequences of the
Acquisition and the difficulty of combining two separate operations
with disparate geographic
locations, as well as the other risks described above under "Risk
Factors."
REP-T Reasons
The Board of Directors of REP-T believes that the following are
additional reasons for
stockholders of the Company and REP-T to vote FOR approval of the
Acquisition.
REP-T believes the Acquisition will allow the combined
company to increase its sales
revenues and enhance the market penetration of its products by
potentially gaining access to
new distribution channels and marketing relationships. Such access
may be gained through
acquisitions of software licenses and companies..
The Acquisition may enhance the combined company's access to
debt and equity markets
and allow it to fund its operations at more favorable terms because
the combined company's
balance sheet may be viewed more favorably by potential lenders and
investors than REP-T's
current balance sheet.
The legal structure of the Acquisition would permit the exclusion
of certain liabilities from being
liabilities of the combined company through the conversion of such
liabilities into common stock
and the indemnification of the Company against liabilities through
the Photonics Trust (as set out
in the STOCK PURCHASE AGREEMENT AND PLAN OF REORGANIZATION that is
attached
hereto as an Appendix).
In the course of its deliberations, the Board of Directors of REP-T
reviewed with REP-Ts
management a number of other factors relevant to the Acquisition.
In particular, the REP-T Board
considered, among other things: (i) information concerning REP-T's
and Photonics' respective
businesses, prospects, financial performances, financial conditions
and operations; (ii) the public
stock market price of Photonics Common Stock in the recent past;
(iii) exchange ratios in other
selected similar transactions of merger and acquisition; (iv) an
analysis of the respective
contributions to revenues and operating results of the combined
company; (v) compatibility of the
managements of REP-T and Photonics; (vi) alternatives for growth in
the markets served by REP-
T; and (vi) the sizable loss carry-forward held by Photonics.
The Board of Directors of REP-T also considered a variety of
potentially negative factors in its
deliberations concerning the Acquisition, including: (i) the
operating losses and recent curtailment
of business activity of Photonics: (ii) the risk that the combined
company might not realize the
expected advantages of the Acquisition: (iii) the charges expected
to be incurred in connection with
the Acquisition including the transaction costs and costs of
integrating the businesses of the
companies; (iv) the risk that the combined company's ability to
increase or maintain revenues
might be diminished by intensified competition among suppliers of
similar or related products; (v)
the risk that. despite the efforts of the combined company, the
services of key persons might not be
retained: (vi) the risk of potentially adverse tax consequences of
the Acquisition; and (vii) other
risks described above under "Risk Factors." .
After considering the foregoing factors, the Board of Directors of
Photonics determined that the
Acquisition was in the best interest of Photonics and its
shareholders. and the Board of Directors of
REP-T determined that the Acquisition was in the best interest of
REP-T and its stockholders.
Accordingly. the Boards of Directors of both companies approved the
Acquisition. In view of the
wide variety of factors considered. both positive and negative.
Photonics" and REP-T's Boards of
Directors did not find it practicable to and did not quantify or
otherwise assign relative weights to
the specific factors considered.
Disadvantages of the Acquisition of REP-T
The shareholders of REP-T shall be, upon approval of the
reorganization and acquisition by the
shareholders of the Company, issued sufficient shares of PHOX, to
own approximately 85% of the
fully diluted shares of PHOX. This issuance of shares of PHOX to
the shareholders of REP-T will
have the effect of greatly diluting the interest of the current
shareholders of PHOX.
Recommendation of the Company
THE COMPANY RECOMMENDS THAT THE SHAREHOLDERS APPROVE THE
ACQUISITION OF REP-T BY THE PHOTONICS SUBSIDIARY, REPIPELINE.COM,
INC., A DELAWARE CORPORATION
In making the foregoing recommendation, the Company considered the
following material factors:
(i) The terms of the Stock Purchase Agreement which is the
product of arm's length
negotiations among the parties;
(ii) The Company's potential for an increased cash
resources as a result of the Company's
acquisition of REP-T;
(iii) The opportunity to provide both public and employee
stockholders with an opportunity to
obtain additional liquidity for a portion of their equity holdings
in the Company; and
(iv) The potential strategic benefit to the Company from
an entry into a field of business with
opportunities to expand through further strategic acquisitions.
Management did not assign relative weight to the above factors
or determine that any factor was
of particular importance. Rather, the management views this
position and its recommendations as
being based on the totality of the information presented to it and
considered by it.
PHOTONICS FINANCIAL STATEMENT PRESENTATION
While the Agreement provides that the Photonics Trust shall
indemnify the Purchaser as to certain
liabilities, under purchase accounting. the pro forma financial
statements included in this Proxy
Statement/ Prospectus include the complete liabilities on the
balance sheet of the combined
company. The combined company will include such liabilities in its
financial statements with an
entry for the offsetting indemnity until such time as the
liabilities are settled. The combined
company intends to record appropriate adjustments relating to the
liabilities upon settlement
thereof.
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma condensed combined financial
statements combine Photonic's
results of operations for the six month period ending June 30, 2000
with REP-T's results of
operations for the six months ended June 30, 2000 giving effect to
the transaction contemplated by
the Agreement as if it has occurred on January 1, 2000. The pro
formas reflect certain assumptions
deemed probable by management regarding the proposed acquisition.
No adjustments to the pro
forma condensed combined financial information have been made to
account for different possible
results in connection with the foregoing, as management believes
the impact on such information
of the varying outcomes individually or in the aggregate would not
be material.
The Photonics historical financial statement data as of and for the
six months ended June 30, 2000
is unaudited. The REP-T historical financial statement data as of
and for the six months ended
June 30, 2000 is audited. The pro forma financial statements have
been prepared on the same basis
as the audited financial statements and, in the opinion of their
respective managements, contain all
adjustments necessary for the fair presentation of the results of
operations for such period if the
companies were combined.
The pro forma information is presented for illustrative purposes
only and is not necessarily
indicative of the operating results or financial position that
would have occurred had the transaction
contemplated by the Agreement been consummated at the beginning of
the periods presented, nor
is it necessarily indicative of future operating results or
financial position.
Photonics Corporation
REpipeline.com, Inc.
Combined Balance Sheet
(Amounts in thousands)
Photonics REP-T
Combined
June
30, June 30, June 30,
2000
2000 2000
(Unaudited) (Unaudited) (Unaudited)
Assets
Current Assets:
Cash and cash equivalents 16
73 89
Accounts Receivable less reserves 0
37 0
Other Receivables 0
0 0
Inventories, net 0
0 0
Prepaid expenses and other current assets 0
0 0
Total current assets 16
60 76
Furniture and equipment, net 0
8 8
Other Assets 0
116 116
Total Assets 16 184
124
Liabilities and shareholders equity (deficiency)
Current Liabilities:
Accounts payable (1) 1,780
59 59
Accrued liabilities (2)
362 19 19
Note Payable - AR Credit Line 0
0 0
Due to Related Parties (3) 2,071
0 0
Other
0 0 0
Total current liabilities
4,213 78 78
Deferred Taxes 0
0 0
Total Liabilities
4,213 78 78
Minority interest in subsidiaries
Shareholders' equity (deficiency):
Common stock 46,344
556 46,900
Treasury stock
0
Capital subscription 0
716 716
Accumulated deficit (50,541)
(610) (51,151)
Cumulative translation adjustment 0
0 0
Total shareholders' equity (deficiency) (4,197)
662 (3,535)
Total liabilities and shareholders' equity $ 16
184 200
1 - 2) Conversion of Accounts Payable into Common Stock prior to
closing
3) Conversion of Notes Payable to Common Stock
Photonics Corporation
REpipeline.com, Inc.
Combined Statements of Operations
(Amounts in thousands, except per share data)
Six months ended
June 30, 2000
(Unaudited)
Photonics REP
Combined
REVENUES:
Net Product Sales $ 0 $ 0
$ 0
Cost of Revenues 0 0
0
---------- -------
----------
Gross Profit 0
0 0
OPERATING EXPENSES:
Research and
development 0 109
109
Selling, general and
administration 57 297
354
------ -------
----------
Total operating
expense 57 406
461
Income (loss) from
operations (57) (406)
(461)
OTHER INCOME (EXPENSE):
Interest income 0
0 0
Interest expense 0
0 0
Other Income 0
0 0
Other expense (54)
0 0
-----
---------- ----------
Total other
income (expense) (54)
0 0
Provision for taxes 0
0 0
Net income (loss) $ (111)
$ (406) $ (517)
Net income (loss) per
share (.02)
(.073) (.03)
=====
========= ==========
Shares used in
per share calculation 6,765,496
5,561,834 29,158,766 (4)
======= ==========
==========
4) Number of Shares Outstanding after completion of the proposed
consolidation
Photonics Corporation
REpipeline.com, Inc.
Combined Statement of Cash Flows
(Amounts in thousands)
(Unaudited)
Six months ended June 30, 2000
Photonics REP
Combined
-----------
----------- -----------
Cash flows from operating activities:
Net income (loss) $ (111)
$ (402) $ (513)
Adjustments to reconcile net cash
used in operating activities:
Depreciation
0 0 0
Changes in operating assets and liabilities:
Accounts Receivable
0 0 0
Inventories
0 0 0
Deposits and prepaid expenses 0
0 0
Accounts payable
54 0 54
Due to Related Parties
0 0 0
Accrued Liabilities
0 0 0
Other
0 0 0
Net Cash Provided by (used for) Operations $ (57)
$ (455) $ (512)
======= ======= =======
Cash flows from Investing Activities:
Sale (Purchase) of Property and Equipment ( 0)
0 0
Net Cash used in Investing Activities $ ( 0)
$ 0 $ 0
======= ========= ======
Cash Flows from Financing Activities:
Proceeds from Capital Stock Subscription 0
464 464
Net Borrowings (Repayments) under Bank Lines 0
0 0
Borrowing (repayments of other debt ), net 0
0 0
Other Equity Transactions, net 0
0 0
Net Cash provided by (used for) Financing 0
$ 0 0
===== ======= =======
Net increase (decr.) in Cash and Cash
Equivalents (57)
9 48
Cash and Cash Equivalents Beginning of Period 73
12 85
Cash and Cash Equivalents at end of Period $ 16
$ 13 $ 29
====== ====== ========
.
Photonics Corporation
REpipeline.com, Inc.
Combined Statements of Operations
(Amounts in thousands, except per share data)
Six months ended June 30,
2000
(Unaudited)
Photonics REP
Combined
REVENUES:
Net Product Sales $ 0 $ 0 $
0
Cost of Revenues 0 0
0
---------- -------
----------
Gross Profit 0 0
0
OPERATING EXPENSES:
Research and
development 0 164
164
Selling, general and
administration 59 446
505
------ -------
----------
Total operating
expense 59 610
669
Income (loss) from
operations (59) (610)
(669)
OTHER INCOME (EXPENSE):
Interest income 0 0
0
Interest expense (53)
0 (53)
Other Income 0 0
0
Other expense (110) 0
(110)
-----
---------- ----------
Total other
income (expense) (163) 0
(163)
Provision for taxes 0 0
0
Net income (loss) $ (222) $
(610) $ (832)
Net income (loss) per
share (.03)
(.11) (.03)
=====
========= ==========
Shares used in
per share calculation 6,765,496 5,561,834
29,158,766 (4)
=======
========== ==========
PROPOSAL 6
RATIFICATION OF THE ACTIONS OF JAMES T. KOO AND INDEMNIFICATION OF
JAMES T. KOO
Prior to the resignation of each of the individual directors from
the board of Photonics in June
1999, the then incumbent board voted to engage James T. Koo as a
management consultant for the
broad purpose of selling, liquidating or otherwise winding down
Photonics Corporation. Mr.
Koo's engagement is documented by minutes and a resolution from the
board of directors. Such
resolution from the prior board of directors is included with this
Proxy/Prospectus as Appendix K.
Management believes that all of the actions taken by Mr. Koo fall
squarely within the authority
granted to him as managing consultant on behalf of the board of
directors. However, the Company
is requesting shareholder approval of the actions of Mr. Koo
relating to the Proposals set out in this
Proxy/Prospectus in order to have finite corporate records that
ensure the validity of all actions
taken in preparation for and in consummation of the transactions
relating to the Proposals set forth
herein.
Further to the ratification of Mr. Koo's actions and subject to the
approval of this Proposal, the
Company intends to enter into an indemnification agreement with
James T. Koo. The agreement is
included with this Proxy/Prospectus as Appendix L and is in the
nature of the customary indemnity
agreement entered into with members of the board of directors of
the Company. It requires the
Company to indemnify Mr. Koo for certain liabilities to which he
may be subject as a result of his
affiliation with the Company and preparation and negotiation of the
transactions relating to the
Proposals set forth herein, to the fullest extent allowed by
California law.
The Company does not anticipate or expect any claims or legal
action relating to the actions of Mr.
Koo. However, the Company feels that it is good business practice
to indemnify officers, directors
and consultants in the position of Mr. Koo. The closing of the
REP-T acquisition as outlined in
Proposal 5 is conditioned upon the approval of this Proposal 6.
Recommendation of the Company
THE COMPANY RECOMMENDS THAT THE SHAREHOLDERS APPROVE THE
RATIFICATION OF THE ACTIONS OF JAMES T. KOO AND THE INDEMNIFICATION
OF JAMES T. KOO.
PROPOSAL 7
RATIFICATION OF THE DTC DATA TECHNOLOGY TRANSFER AND SALE OF 90%
OF SUNNYVALE TECHNOLOGY CORPORATION
The Company is seeking ratification of the incorporation of
Sunnyvale Technology Corporation as
a subsidiary of Photonics Corporation, Inc, the transfer of the
assets and business of DTC Data
Technology, a division of Photonics, to Sunnyvale Technology
Corporation and the sale of 90% of
the shares of Sunnyvale Technology Corporation to James T. Koo.
History of DTC and Sunnyvale Technology
DTC Data Technology (DTC) was an operating division of Photonics
resulting from a merger
completed in March 1996. Photonics Corporation carried on its
business under the name of DTC
since DTC was a better known name in the personal computer I/O
peripheral business. On June
21, 1999, the Company's board of directors voted to shutdown the
business due to continued losses,
a lack of capital and a changing market. The managing consultant,
James T. Koo was engaged to
wind down the business which included selling all the tangible and
intangible assets and the
business of the DTC division. Mr. Koo attempted to sell the entire
inventory and fixed assets of the
DTC division and received two offers in the amounts of $17,000 and
$5,000 respectively. Mr. Koo
declined both offers and eventually derived sales over $250,000
from these inventories in second
half of 1999. During September of 1999 an offer of $50,000 to buy
all the intellectual property,
including the trademark DTC of the Company but without any
associated inventory bearing the
trademark and without the assumption of any liability was received.
However the individual
making the offer for the buyer has since left the company that made
the offer. No firm offer has
since been received from that company. In November 1999, Coast
Business Credit, which had
been acting as the secured credit facility for the Company, after
an audit in October, questioned the
quality of the receivables and determined that the Accounts
Receivable of the Company, although,
at that time, over $500,000, would not be able to pay back the bank
debt at $17,000, and refused to
advance an additional $15,000 to the Company unless a personal
guarantee was in place.
Consultant James T. Koo provided the required personal guarantee
for the advancement of the
funds required for continuing operation of the Company. This loan
was paid off in December 1999
after an intense effort of collection from Company's receivables.
Because of the lack of financial resources, DTC was no longer
pursuing R&D efforts and had no
cash to procure needed inventory to satisfy customer demands. It
was losing its major customers
and operating in a declining market by selling existing older
inventory which would eventually
cease to provide any revenues. At the same time, a massive
inventory and fixed assets write off was
taken when the Company moved to a much smaller headquarter space
during the year of 1999.
This move negatively impacted the Gross Margin and made it
meaningless for any detailed
discussions. Due to lack R&D in a rapidly changing market of
Personal Computer, the Company's
products quickly become non-competitive or obsolete. Approximately
34% ($0.263 million) sales
during 1999 were derived from Company's Y2K solutions for PCs. The
sales for these products
stopped after January 1, 2000. Approximately 55% of the sales were
from distributors Ingram
Micro and Merisel in 1999. Both of them terminated the
relationship with the Company in 2000.
Assets of Sunnyvale Technology
A list of the assets of Sunnyvale Technology is included with this
Proxy/Prospectus as Appendix J.
The total fixed assets have a book value of $3,985. Total
inventory has a book value of
$23,857.33. Together, the total book value of all hard assets is
equal to $27,842.33. No value has
been assigned to the Company's accounts receivable which were last
estimated to be approximately
$140,000.
The DTC/Sunnyvale Technology Transaction as it relates to the
Acquisition
During the extensive negotiations for the acquisition, REP-T
indicated that it has no interest in this
business segment and conditioned the acquisition transaction on the
disposal of DTC and the use
of the proceeds from the sale thereof to defray the legal and
accounting costs of the acquisition. As
a result, in preparation for the pending acquisition, the Company
incorporated a new subsidiary
company, Sunnyvale Technology Corp., a Texas corporation, and
transferred all the tangible and
intangible assets of the DTC division including the trademark DTC,
the name DTC Data
Technology, and associated business into Sunnyvale Technology Corp.
The Company then sold
90% of Sunnyvale Technology to the former CEO of Photonics
Corporation for $75,000 cash plus
the assumption of certain liabilities, totaling approximately
$65,000 effective December 31, 1999.
This price far exceeds both the prior third party offer and the
independent appraisal of the DTC
assets. The funds received by Photonics have been used for
auditing and other legal fees relating to
the pending acquisition of REP-T. The transfer of assets into
Sunnyvale Technology Corp and
subsequent sale of 90% interest in Sunnyvale Technology Corp has
removed Photonics
Corporation from transacting any commercial business.
Selected Financial Data for Sunnyvale Technology Corporation
Selected financial information taken from calendar year end 1998
and 1999 is audited and is
selected from the financial statements of Photonics Corporation
relating to it's DTC Data
Technology division. Selected financial information for the
period ending June 30, 2000 is
unaudited and is from the start up operations of Sunnyvale
Technology Corporation.
Reasons in Support of the DTC/Sunnyvale Technology Transaction
The management of Photonics also believes that the following are
the salient reasons for
shareholders of Photonics to vote FOR approval of the
.DTC/Sunnyvale Transaction:
? Because of its constrained capital resources, Photonic's
management has been forced to
end its operations, lay off its employees and liquidate its product
inventories. The
remaining inventory and accounts receivable of DTC, which were
transferred into
Sunnyvale Technology, are rapidly declining in value due to
changing technology. Third
parties have indicated that there is no other buyer to whom to sell
the assets at a higher
price.
? Sunnyvale Technology has continued to lose customers,
revenue, and became unprofitable
in the quarter ending June 30, 2000 following the transfer of the
DTC assets to it.
? Sunnyvale Technology is unable to obtain equity and/or debt
financing. Such additional
financing is needed to rebuild management, development, marketing
and customer support
operations.
? The sale of 90% of Sunnyvale Technology allows Photonics an
opportunity to pay for the
necessary accounting and legal costs associated with the
Acquisition
? The price of $75,000 plus the assumption of approximately
$65,000 of liabilities exceeds
any other offer received for the sale of Sunnyvale Technologies or
the assets formerly
residing in DTC.
? REP-T has indicated that the sale of Sunnyvale Technology and
the use of the proceeds
from such sale to defray the cost associated with the merger is a
condition of the
completion of the acquisition.
Vote Required
The sale of a substantial asset of the Company, under California
law, requires a vote of the majority
of the holders of the common stock of the Company as of the record
date. While there is no
definitive statutory or case law authority in California as to the
proper treatment of abstentions and
broker non-votes in the election of directors, the Company believes
that both abstentions and
broker non-votes should be counted solely for purposes of
determining whether a quorum is
present at the Annual Meeting. In the absence of controlling
precedent to the contrary, the
Company intends to treat abstentions and broker non-votes with
respect to the election of directors
in this manner.
Recommendation of the Company
THE COMPANY RECOMMENDS RATIFICATION OF THE FORMATION OF
SUNNYVALE TECHNOLOGY CORPORATION, A TEXAS CORPORATION, AS A
SUBSIDIARY OF PHOTONICS, THE TRANSFER OF ALL OF THE ASSETS AND
CERTAIN LIABILITIES OF DTC DATA TECHNOLOGY TO SUNNYVALE
TECHNOLOGY CORPORATION, THE SALE OF 90% OF THE SHARES OF
SUNNYVALE TECHNOLOGY CORPORATION TO JAMES T. KOO FOR A CASH
PAYMENT OF $75,000 PLUS THE ASSUMPTION OF CERTAIN LIABILITIES OF
APPROXIMATELY $65,000 RELATING TO THE PRIOR DTC OPERATION DIVISION.
PROPOSAL 8
APPROVAL OF A STOCK DIVIDEND CONSISTING OF SHARES OF SUNNYVALE
TECHNOLOGY CORPORATION
The Company is planning, and is thus seeking shareholder approval,
to spin-off, in the form of a
shareholder dividend, the remaining ten percent (10%) of Sunnyvale
Technology Corporation
("STC") that the company retained as part of the sale of Sunnyvale
Technology Corporation. The
separation will complete the creation of two separate companies and
is designed to speed the
growth and development of REP-D and provide STC with an opportunity
to restructure and
recapitalize it operations. The two companies will focus on the
separate and diverse areas of their
respective businesses. STC will focus on developing and delivering
innovative computer peripheral
communication devices and system software solutions for future
internet and integrated peripheral
communications systems. Photonics, through its wholly owned
subsidiary REP-D, will focus on
developing and supporting the growth of it's website technology and
driving the convergence of
business to business commerce and software solutions for the real
estate industry.
As contemplated, Photonic's operating division, DTC Data
Technology, has been transferred to
STC, including all inventory, assets and selected current
liabilities and shares of STC would be
distributed to Photonics stockholders in the form of a tax-free
dividend.
The Company expects the spin-off to be completed by August 31,
2000. The proposed separation
of the two companies and the spin-off are each subject to final
approval by the Company's
shareholders and newly elected Board of Directors.
History of DTC and Sunnyvale Technology
DTC Data Technology (DTC) was an operating division of Photonics
resulting from a merger
completed in March 1996. Photonics Corporation carried on its
business under the name of DTC
since DTC was a better known name in the personal computer I/O
peripheral business. On June
21, 1999, the Company's board of directors voted to shutdown the
business due to continued losses,
a lack of capital and a changing market. The managing consultant,
James T. Koo was engaged to
wind down the business which included selling all the tangible and
intangible assets and the
business of the DTC division. Mr. Koo attempted to sell the entire
inventory and fixed assets of the
DTC division and received two offers in the amounts of $17,000 and
$5,000 respectively. Mr. Koo
declined both offers and eventually derived sales over $250,000
from these inventories in second
half of 1999. During September of 1999 an offer of $50,000 to buy
all the intellectual property,
including the trademark DTC of the Company but without any
associated inventory bearing the
trademark and without the assumption of any liability was received.
However the individual
making the offer for the buyer has since left the company that made
the offer. No firm offer has
since been received from that company. In November 1999, Coast
Business Credit, which had
been acting as the secured credit facility for the Company, after
an audit in October, questioned the
quality of the receivables and determined that the Accounts
Receivable of the Company, although,
at that time, over $500,000, would not be able to pay back the bank
debt at $17,000, and refused to
advance an additional $15,000 to the Company unless a personal
guarantee was in place.
Consultant James T. Koo provided the required personal guarantee
for the advancement of the
funds required for continuing operation of the Company. This loan
was paid off in December 1999
after an intense effort of collection from Company's receivables.
Because of the lack of financial resources, DTC was no longer
pursuing R&D efforts and had no
cash to procure needed inventory to satisfy customer demands. It
was losing its major customers
and operating in a declining market by selling existing older
inventory which would eventually
cease to provide any revenues. At the same time, a massive
inventory and fixed assets write off was
taken when the Company moved to a much smaller headquarter space
during the year of 1999.
This move negatively impacted the Gross Margin and made it
meaningless for any detailed
discussions. Due to lack R&D in a rapidly changing market of
Personal Computer, the Company's
products quickly become non-competitive or obsolete. Approximately
34% ($0.263 million) sales
during 1999 were derived from Company's Y2K solutions for PCs. The
sales for these products
stopped after January 1, 2000. Approximately 55% of the sales were
from distributors Ingram
Micro and Merisel in 1999. Both of them terminated the
relationship with the Company in 2000.
Photonic's Intellectual Property Arrangements with STC
To give STC the ability to negotiate cross-licenses, gain
reasonable access to third party intellectual
property and defend itself as may be necessary, Photonics has
assigned to STC all of it's
intellectual property rights. Following the spin-off, STC's
intellectual property portfolio will
consist of patents and patent applications relating to Infra-red
LAN applications, substantially all of
which are no longer useful in the industry. STC will not maintain
the patents that have been
transferred.
Benefits to Photonics of the Spin-off.
Photonics expects to realize benefits from its complete separation
from STC, including the
following:
COMPLETION OF THE REP-T ACQUISITION. Since REP-T has made the
sale/spin-off of
STC a condition of the closing of the acquisition, the completion
of the sale/spin-off will allow
each company to pursue its separate business purposes.
GREATER STRATEGIC FOCUS. Following the acquisition, REP-D's
business will benefit from
the distinction of the business of REP-D and STC and will benefit
from the disassociation with the
prior business of DTC Data Technology.
BETTER INCENTIVES FOR EMPLOYEES. Photonics and REP-D will
experience a greater
motivation of its employees and the focus of its senior management
team will be strengthened by
incentive compensation programs tied to the market
performance of Photonics common
stock. The separation will enable Photonics to offer its employees
compensation directly linked to
the performance of the new business of Photonics and Photonics
common stock, which the
company believes will enhance its ability to attract and retain
qualified personnel.
PHOTONICS MANAGEMENT AND BUSINESS FOLLOWING THE SPIN-OFF. The
Company's senior management team and directorial oversight are in
place. Core management's
expertise in general business development, advanced technology
applications, systems design and
structuring, strategic planning, marketing, financing, human
resources, global trade, and knowledge
of specific industry requirements, is supplemented by a range of
specialized skills and experience
of Board members (both Directors and Advisors) and the team now
being assembled. Founding
Directors will hold office until the next annual stockholders
meeting, at which time their successors
will be chosen. Directors will continue until their successors have
been elected or qualified, or until
their death, resignation, retirement, removal, or disqualification.
Vacancies on the board will be
filled by a majority vote of the remaining directors. Officers of
the Company serve at the discretion
of the Board of Directors. The Company's core team is described in
detail under Proposal 5 of this
Proxy/Prospectus.
Capitalizing upon its industry insight into the integration of the
Internet and the business of
residential and commercial real estate, the Company's experienced
management team with their
established industry relationships intend to use the cash flow
generated from the Company's
Internet site to create, acquire or make strategic investments in
new businesses that are focused on
and provide new services, products or technology that will
accelerate the demand for the
company's products. Photonics through its subsidiary REP-D intends
not only that these new
businesses be independently successful, but also that they generate
revenue and licensing
opportunities through the general expansion of the Internet market
and use of the proprietary
software that will be offered, licensed and sold from the Company's
Internet site..
Restricted Securities
The Company will distribute the STC stock dividend at not cost to
the shareholders of record who
receive the STC shares.. The distribution of the STC shares will
be made pro-rata to all owners of
Photonics stock as of the record date specified in this
Proxy/Prospectus. The securities that are
delivered to the Photonics shareholders will be restricted
securities subject to the provisions of
Rule 144. The certificates will contain a restrictive legend that
prohibits resale of the securities
except pursuant to Rule 144, registration under the Securities Act
of 1934 or an exemption
therefrom.
Financial Information on STC
See Item 7 of this Report for certain selected financial
information of STC.
Vote Required
The sale of a substantial asset of the Company, under California
law, requires a vote of the majority
of the holders of the common stock of the Company as of the record
date. While there is no
definitive statutory or case law authority in California as to the
proper treatment of abstentions and
broker non-votes in the election of directors, the Company believes
that both abstentions and
broker non-votes should be counted solely for purposes of
determining whether a quorum is
present at the Annual Meeting. In the absence of controlling
precedent to the contrary, the
Company intends to treat abstentions and broker non-votes with
respect to the election of directors
in this manner.
Recommendation of the Company
THE COMPANY RECOMMENDS THE APPROVAL OF A STOCK DIVIDEND
CONSISTING OF THE REMAINING TEN PERCENT SHARES OF SUNNYVALE
TECHNOLOGY CORPORATION, TO ALL RECORD DATE HOLDERS OF SHARES OF
THE COMPANY.
PROPOSAL 9
STOCK OPTION PLAN FOR THE OFFICERS AND EMPLOYEES OF THE COMPANY
The Company is seeking shareholder approval for an Incentive Stock
Option Plan (the "Stock
Plan") for the officers and employees of the Company. Set forth
below is a summary of the
principal features of the Stock Plan. The summary, however, does
not purport to be a complete
description of all the provisions of the Stock Plan.
Employee Stock Option Plan
The 2000 Stock Plan provides options to purchase common stock, may
be granted only to
employees of the company and its subsidiaries. Subject to any
adjustment as provided by the Stock
Plan, the aggregated number of shares, which have been authorized
and reserved for issuance under
the Stock Plan, subject to adjustments to reflect changes in the
company's capitalization resulting
from stock splits, stock dividends and other similar events be
issued and sold, cannot exceed
3,000,000 shares of the combined company.
The plan is administered by the Compensation Committee. The
Committee has the sole authority
to interpret the plan, to determine the persons to whom the options
will be granted, to determine the
basis upon which the options will be granted, and to determine the
exercise price, duration and
other terms of the options to be granted under the plan. The
maximum period for exercise of an
option may not be more than ten years from the date of grant and
the exercise price may not be less
than the fair market value of the shares underlying the options on
the date of the grant. Options
granted become execrable at dates determined by the Stock Option
Committee of the Board of
Directors. The Board of Directors may amend without stockholder
approval, in any respect other
than any amendment that requires stockholder approval by law, and
may modify any outstanding
option, including the repricing of non-qualifying options with the
consent of the option holder.
The incentive stock options have a term of ten years (10) and an
exercise price equal to the market
price of the common stock on the day of the grant. The incentive
stock options will vest at the rate
of thirty-three and a third percent (33 1/3%) on an annual basis
for three years.
Compensation Philosophy
The Company operates in a highly competitive and rapidly changing
high technology industry. The
goals of the compensation program are to align compensation with
the company's newly revised
business objectives and the performances of the employees, to
enable the Company to attract,
retain and reward executive officers and other key personnel who
contribute to the long-term
success of the Company, and to motivate them to enhance long-term
shareholder value. Key
elements of this philosophy are:
1. Total compensation should be sufficiently competitive with other
companies in similar or related
industries so that the Company can attract and retain qualified
personnel.
2. The Company desires to maintain annual incentive opportunities
sufficient to provide motivation
to achieve specific operating goals and to generate rewards that
bring total compensation to
competitive levels.
3. The Company desires to provide significant equity-based
incentives for executives and other key
employees to ensure that they are motivated over the long-term to
respond to the Company's
business challenges and opportunities as owners and not just as
employees.
General
The Company believes that long-term equity compensation in the form
of stock options is critical
in order to attract qualified employees to the Company and to
retain and provide incentive to
current employees, particularly in light of the increasingly
competitive environment for talented
personnel. As of June 10, 2000, options to purchase 1,000,000 post
acquisition shares of REP-T
were outstanding pursuant to various stock option grants in
connection with employment
agreements of REP-T. These shares will be integrated into the
Stock Plan if the Stock Plan is
approved by the shareholders. There are currently no options
outstanding for shares of Photonics.
The holders of the options for REP-T shares are set out under the
discussion for Proposal 5.
Options granted under the Stock Plan may be either "incentive stock
options" within the meaning
of Section 422 of the Code, or nonstatutory stock options, at the
discretion of the Board of
Directors and as reflected in the terms of the written option
agreement. The Board of Directors, at
its discretion, may also grant rights to purchase common stock
directly, rather than pursuant to
stock options, subject to certain restrictions discussed below.
The Stock Plan is not a tax-qualified deferred compensation plan
under Section 401(a) of the Code,
and is not subject to the provisions of the Employee Retirement
Income Security Act of 1974, as
amended. However, the terms of the Stock Plan may be changed in
the future in order to comply
with the provisions of the above or the Company may institute a
second plan that incorporates the
provisions of Section 401(a) of the Internal Revenue Code and the
Employee Retirement Income
Security Act of 1974.
Except for REP-T options that will be integrated, no stock purchase
rights have been granted under
the Stock Plan. Shares not purchased under an option prior to its
expiration will be available for
future option grants under the Stock Plan. The actual benefits, if
any, to the holders of stock
options issued under the Stock Plan are not determinable prior to
exercise as the value, if any, of
such stock options to their holders is represented by the
difference between the market price of a
share of the Company's common stock on the date of exercise and the
exercise price of a holder's
stock option.
Purpose
The purposes of the Stock Plan are to attract and retain the best
available personnel for positions of
substantial responsibility, to provide additional incentive to
employees and consultants of the
Company and to promote the success of the Company's business.
Administration
The Stock Plan may be administered by the Board of Directors or by
a committee of the Board of
Directors. The present intention of the Company is to have the
Stock Plan administered by the
Compensation Committee of the Board of Directors. The Compensation
Committee, which shall be
constituted to satisfy the applicable requirement of Rule 16b-3 of
the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and Code Section 162(m), has
the exclusive authority to
grant stock options and purchase rights and otherwise administer
the Stock Plan with respect to the
officers and directors. Members of the Board of Directors receive
no additional compensation for
their services in connection with the administration of the Stock
Plan.
Eligibility
The Stock Plan provides that either incentive stock options or
nonstatutory stock options may be
granted to employees (including officers and directors) of the
Company or any of its subsidiaries or
affiliates (including a partnership or limited liability company in
which the Company owns any
equity interest), provided, however, that employees of an affiliate
are not eligible to receive
incentive stock options. In addition, the Stock Plan provides that
nonstatutory stock options may be
granted to consultants (including directors who are not employees
of the Company) of the
Company or any of its subsidiaries or affiliates. The Board of
Directors or the Compensation
Committee selects the optionees and determines the number of shares
to be subject to each option.
In making such determination, a number of factors are taken into
account, including the duties and
responsibilities of the optionee, the value of the optionee's
services to the Company, the optionee's
present and potential contribution to the success of the Company,
and other relevant factors.
The Stock Plan provides that the maximum number of shares of
common stock which may be
granted under options to any one employee during any fiscal year
shall be 300,000, subject to
adjustment as provided in the Stock Plan. There is also a limit on
the aggregate market value of
shares subject to all incentive stock options that may be granted
to an optionee during any calendar
year.
Terms of Options
Each option is evidenced by a stock option agreement between the
Company and the optionee.
Under the Stock Plan, as amended, each option is subject to the
following additional terms and
conditions:
(a) EXERCISE OF THE OPTION. The Board of Directors or
its committee determines
when options may be exercised. An option is exercised by giving
written notice of exercise to the
Company specifying the number of full shares of common stock to be
purchased and by tendering
payment of the purchase price. The purchase price of the shares
purchased upon exercise of an
option shall be paid in consideration of such form as is determined
by the Board of Directors or its
committee and specified in the option agreement, and such form of
consideration may vary for
each option.
(b) EXERCISE PRICE. The exercise price under the Stock
Plan is determined by the Board
of Directors or its committee and may not be less than 100 percent
of the fair market value of the
common stock on the date the option is granted, or 85 percent in
the case of nonstatutory stock
options granted to optionees who are not "covered employees" under
Code Section 162(m). The
fair market value per share is equal to the closing sale price
on the Nasdaq Stock Market on the
date of grant. In the case of an incentive stock option granted to
an optionee who owns more than
ten percent of the total combined voting power of all classes of
stock of the Company or any of its
subsidiaries, the exercise price must not be less than 110 percent
of the fair market value on the
date of grant.
(c) TERMINATION OF EMPLOYMENT. If the optionee's
employment or consulting
relationship (including service as a director) terminates for any
reason other than disability or
death, options under the Stock Plan may be exercised not later than
three months (or such other
period of time not less than 30 days nor more than three months in
the case of an incentive stock
option or not less than 30 days nor more than 12 months in the case
of a nonstatutory stock option
as is determined by the Board of Directors or its committee, with
such determination in the case of
an incentive stock option being made at the time of grant) after
such termination and may be
exercised only to the extent that the option was exercisable on the
date of termination. In no event
may an option be exercised by any person after the expiration of
its term.
(d) DISABILITY. If an optionee is unable to continue his
or her employment or consulting
relationship with the Company as a result of his or her total and
permanent disability, options may
be exercised within twelve months of termination and may be
exercised only to the extent the
option was exercisable on the date of termination, but in no event
may the option be exercised after
the expiration of its term.
(e) DEATH. Under the Stock Plan, if an optionee should
die while employed or retained by
the Company or during the 30 day period following termination of
the optionee's employment or
consulting relationship (including service as a director), options
may be exercised within 12
months after the date of death (but in no event later than the
expiration of its term) to the extent the
options would have been exercisable (i) on the date of death, in
the case of an optionee who dies
while employed or retained by the Company, or (ii) on the date of
termination of employment or
consulting relationship, in the case of an optionee who dies within
30 days after termination of
employment or consulting relationship.
(f) EXTENSION OF EXERCISE PERIOD. The Stock Plan provides
that, notwithstanding
the limited periods described above, following termination of
employment, disability or death of an
optionee, the Board of Directors or its committee can extend the
period of time for which an option
will remain exercisable following termination of an optionee's
employment or consulting
relationship with the Company. In no event, however, may an option
be exercised by any person
after its expiration.
(g) TERMINATION OF OPTIONS. The Stock Plan provides that
options granted under the
Stock Plan shall have the term as defined in such option agreement.
In general, these agreements
currently provide for a term of ten years. Incentive stock options
granted to an optionee who,
immediately before the grant of such option, owned more than ten
percent of the total combined
voting power of all classes of stock of the Company or any of its
subsidiaries, may not in any case
have a term of more than five years. No option may be exercised by
any person after its expiration.
(h) OPTION NOT TRANSFERABLE. An option is nontransferable
by the optionee other
than by will or the laws of descent and distribution, and is
exercisable only by the optionee during
his or her lifetime or, in the event of the optionee's death, by a
person who acquires the right to
exercise the option by bequest or inheritance or by reason of the
death, provided, however, that the
Stock Plan permits the Board of Directors or its committee in its
discretion to grant transferable
nonstatutory stock options that comply with applicable laws.
(i) ASSUMPTION OR SUBSTITUTION OF OPTIONS. In the event
of a merger or
consolidation in which the Company is not the surviving entity, the
Board of Directors is obligated
to either accomplish a substitution or assumption of options or
give 30 days notice of the optionee's
right to exercise his or her outstanding options as to some or all
of the optioned stock at any time
within 30 days of such notice.
(j) OTHER PROVISIONS. The option agreement may contain
such other terms, provisions
and conditions not inconsistent with the Stock Plan as may be
determined by the Board of
Directors or its committee.
Restricted Stock Purchase Rights
The Stock Plan permits the granting of rights to purchase common
stock of the Company either
alone, in addition to, or in tandem with other awards made by the
Company. No such grants have
been made to date. Upon the granting of a stock purchase right
under the Stock Plan, the offeree is
advised in writing of the terms, conditions and restrictions
related to the offer, including the
number of shares of common stock that such person is entitled to
purchase, the price to be paid and
the time in which such person must accept such offer. The purchase
price for stock purchased
pursuant to such rights shall not be less than 85 percent of the
fair market value of such shares on
the date of grant.
Unless the Administrator of the Stock Plan determines otherwise,
the underlying stock purchase
agreement for stock purchased pursuant to a stock purchase right
granted under the Stock Plan will
grant the Company a repurchase option exercisable upon the
voluntary or involuntary termination
of the purchaser's employment with the Company for any reason
(including death or disability).
Adjustments upon Changes in Capitalization
In the event any change, such as a stock split or dividend, is made
in the Company's capitalization
that results in an increase or decrease in the number of
outstanding shares of common stock
without receipt of consideration by the Company, appropriate
adjustment shall be made in the
exercise price of each outstanding option, the number of shares
subject to each option, the annual
limitation on grants to employees, as well as the number of shares
available for issuance under the
Stock Plan. In the event of the proposed dissolution or liquidation
of the Company, each option
will terminate unless otherwise provided by the Board of Directors
or its committee.
Amendment and Termination
The Board of Directors may amend the Stock Plan at any time or may
terminate it without approval
of the shareholders, provided however, that shareholder approval is
required for any amendment to
the Stock Plan that increases the number of shares that may be
issued under the Stock Plan,
modifies the standards of eligibility, modifies the limitation on
grants to employees described in the
Stock Plan or results in other changes which would require
shareholder approval to qualify options
granted under the Stock Plan as performance-based compensation
under Section 162(m) of the
Code. However, no action by the Board of Directors or shareholders
may alter or impair any option
previously granted under the Stock Plan. The Stock Plan shall
terminate on December 31, 2010,
provided that any options then outstanding under the Stock Plan
shall remain outstanding until they
expire by their terms.
Plan Benefits
The Company cannot currently determine the number of shares subject
to options that may be
granted in the future to executive officers, directors and
employees under the Stock Plan.
Federal Income Tax Aspects of the Stock Plan
Options granted under the Stock Plan may be either "incentive stock
options," as defined in Section
422 of the Internal Revenue Code, or nonstatutory stock options.
The recipient of an incentive
stock option does not incur ordinary taxable income at the time of
grant or exercise of the option.
However, the optionee may incur alternative minimum tax upon
exercise of the option. The
Company is not entitled to a tax deduction at the time of exercise
of an incentive stock option
regardless of the applicability of the alternative minimum tax.
Upon the sale or exchange of the
shares at least one year after receipt of the shares by the
optionee and two years after grant of the
incentive stock option, any gain is treated as long-term capital
gain. If these holding periods are not
satisfied, the optionee recognizes ordinary taxable income equal to
the difference between the
exercise price, and the lower of the fair market value of the stock
at the date of the option exercise
or the sale price of the stock. In turn, the Company is entitled to
a tax deduction for the amount of
the ordinary income recognized by the optionee. Any gain to the
optionee in excess of the ordinary
income from a disposition which does not meet the statutory holding
period requirements, is long-
term capital gain if the sale occurs more than one year after
exercise or short-term capital gain if
the sale occurs within one year after the exercise.
Options which do not qualify as incentive stock options are
nonstatutory stock options. An
optionee does not recognize taxable income at the time of grant of
a nonstatutory stock option.
However, upon exercise, the optionee does recognize ordinary
taxable income equal to the excess
of the fair market value of the shares at time of exercise over the
exercise price. The income
recognized by an optionee who is also an employee of the Company is
subject to income tax
withholding. Upon resale of such shares by the optionee, any
difference between the sale price and
the optionee's tax basis (exercise price plus the income recognized
upon exercise) is treated as
capital gain or loss.
Vote Required
The establishment or modification of a statutory and nonstatutory
Stock Plan, under California law,
requires a vote of the majority of the holders of the common stock
of the Company as of the record
date. While there is no definitive statutory or case law authority
in California as to the proper
treatment of abstentions and broker non-votes in the election of
directors, the Company believes
that both abstentions and broker non-votes should be counted solely
for purposes of determining
whether a quorum is present at the Annual Meeting. In the absence
of controlling precedent to the
contrary, the Company intends to treat abstentions and broker non-
votes with respect to the election
of directors in this manner.
Recommendation of the Company
THE COMPANY RECOMMENDS APPROVAL OF THE ESTABLISHMENT OF THE
STOCK OPTION PLAN FOR THE OFFICERS AND EMPLOYEES OF THE COMPANY.
PROPOSAL 10
STOCK OPTION PLAN FOR THE OUTSIDE DIRECTORS OF THE COMPANY
The Company is seeking approval to include outside directors (non
Company employees) in the
2000 Stock Plan.
Outside Director Stock Option Plan
The inclusion of outside directors in the 2000 Stock Option Plan
will provides for the issuance of
stock options to the outside directors of the company. Pending
approval of this proposal, a total of
250,000 shares has been authorized and reserved for issuance under
the plan, subject to
adjustments to reflect changes in the company's capitalization
resulting for stock splits, stock
dividends and similar events. Outside Directors are those
Directors of the Company who are not
Executive Officers or regular salaried employees of the Company as
of the date the option is
granted. Under the plan, an option for 15,000 shares Common Stock
will be granted to each person
who qualified as an outside director each year that such person is
elected as a director of the
Company. The exercise price of each option granted under the plan
will be the fair market value
(as reported by the Nasdaq national market) of the Common stock at
the time the option is granted.
Each option will be exercisable immediately, and will expire ten
years from the date of grant.
Vote Required
The establishment or modification of a statutory and nonstatutory
Stock Plan, under California law,
requires a vote of the majority of the holders of the common stock
of the Company as of the record
date. While there is no definitive statutory or case law authority
in California as to the proper
treatment of abstentions and broker non-votes in the election of
directors, the Company believes
that both abstentions and broker non-votes should be counted solely
for purposes of determining
whether a quorum is present at the Annual Meeting. In the absence
of controlling precedent to the
contrary, the Company intends to treat abstentions and broker non-
votes with respect to the election
of directors in this manner.
Recommendation of the Company
THE COMPANY RECOMMENDS APPROVAL OF THE INCLUSION OF OUTSIDE
DIRECTORS IN THE STOCK OPTION PLAN FOR THE OFFICERS AND EMPLOYEES
OF THE COMPANY.
PROPOSAL 11
RATIFICATION OF INDEPENDENT AUDITORS FOR THE YEAR 2000
History of Auditors
Hein and Associates, LLC was hired as the Company's independent
public accountants for the
fiscal year ending December 31, 1999, by James Koo, as consultant
to the Company, due to cost
reasons. Such placement of Hein and Associates typically is done
by Director approval, however
there are no current Directors serving on the Company's Board of
Directors and an auditor is
needed immediately to ensure the Company's required SEC filings are
maintained timely.
Subsequent to the hiring of Hein and Associates, LLC, management
determined that the auditors
were not performing in a timely manner. Their lack of timely
response caused the Company to not
be able to file audited financial statements with the 10K annual
reports. As a result, the Company's
listing on NASDAQ has been moved to the pink sheets for share price
quotations. In order to
remedy this situation, the Company hired Turner Stone and
Associates, LLC who has completed
the audit and filed an amended annual report. The Company is in the
process of re-applying for
listing on the over-the-counter reporting status.
Shareholder ratification of the selection of Turner Stone and
Associates LLC as the Company's
independent public accountants is not required by the Company's
Bylaws or otherwise. However,
the Board is submitting the selection of Turner Stone and
Associates to the shareholders for
ratification as a matter of good corporate practice due to the lack
of a Board of Directors. If the
shareholders fail to ratify the selection, the new Audit Committee
and the new Board will
reconsider whether or not to retain that firm. Even if the
selection is ratified, the new Audit
Committee and the new Board, at their discretion may direct the
appointment of different
independent accounting firm at any time during the year if they
determine that such a change
would be in the best interests of the Company and its shareholders.
Vote Required
The affirmative vote of the holders of a majority of the shares
present in person or represented by
proxy and voting at the Annual Meeting will be required to ratify
the selection of Turner Stone and
Associates, LLC.
THE COMPANY RECOMMENDS THAT THE SHAREHOLDERS APPROVE TURNER
STONE AND ASSOCIATES, LLC AS THE INDEPENDENT AUDITORS FOR THE
COMPANY FOR THE YEAR 2000.
PROPOSAL 12
SHAREHOLDER PROPOSALS FOR 2000 ANNUAL SHAREHOLDERS'
MEETING
Proposals of shareholders intended to be included in the Company's
proxy statement for the
Company's 2000 Annual Meeting of Shareholders must be received by
Photonics Corporation,
Attn: James T. Koo, Managing consultant at 1222 Alderwood,
Sunnyvale, California 94089, no
later than August 15, 2000. Such proposal shall be recognized as
such when properly presented by
shareholders.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 as amended
(the "Exchange Act") requires
the Company's officers (as defined in Rule 16a-1(f), directors and
persons who own more than ten
percent of a registered class of the Company's equity securities to
file reports of ownership and
changes in ownership with the Securities and Exchange Commission
("SEC"). Such persons are
required by SEC regulations to furnish the Company with copies of
all Section 16(a) forms they
file.
SECURITY OWNERSHIP BY CERTAIN OWNERS AND MANAGEMENT OF
PHOTONICS
The following table sets forth the shares of the Company's Common
Stock beneficially owned at
December 31, 1999, by (i) each person who is known by the Company
to be the beneficial owner
of more than five percent of the Common Stock, (ii) by each of the
former directors, (iii) by each of
the former executive officers listed in the Summary Compensation
Table for 1998, and (iv) by all
former directors and officers as a group. The options, warrants
and common and preferred stock
represented in this table reflect the 1 for 5 reverse split of
Photonics stock with became effective
February 9, 1996 prior to the finalization of the merger with DTC.
Shares
Beneficially Note #
Percent
Beneficial Owner Owned (1)
Owned (2)
David S. Lee 1,106,521
16.4%
Chairman of the Board
c/o Photonics
1222 Alderwood Ave.
Sunnyvale, CA 94089
Broadsino Computer 891,412
13.2%
Development, Ltd.
K.C. Yeung
Room 1101, 1103 and
1104 Star Center
443-451 Castle Peak Road
Kwai Chung NT, Hong Kong
Domex Technology 779,612
11.5%
Corporation
No. 2, Technology Rd. 1,
Science-Based
Industrial Park
Hsinchu, Taiwan, ROC
James T. Koo 536,761
8.1%
President
c/o Photonics
1222 Alderwood Ave.
Sunnyvale, CA 94089
Robert P. Dilworth 15,491
*
Director
John Miao, Director 155,000
2.2%
C/o Photonics
1222 Alderwood Ave
Sunnyvale, CA 94089
All Officers and 2,710,288 (5
persons) 40.1%
Directors as a group
* Denotes less than 1%
1. Beneficial Ownership is determined in accordance with the rules
of the Securities and Exchange
Commission and generally includes voting or investment power with
respect to securities. Except
as indicated by footnote, and subject to community property laws
where applicable, the persons
named in the table above have sole voting and investment power with
respect to all shares of
Common and Preferred Stock and options or warrants to purchase
stock.
2. Percentage calculations are based upon December 31, 1999
figures of 4,517,362 shares of
Common Stock, 2,248,136 shares of Preferred stock, which since that
date has all been converted
to common stock, and no options to purchase stock. All options
have expired as of Dec. 31, 1999.
No new options have been granted.
DISSENTER'S RIGHTS
If the Acquisition is approved by the required vote of Photonics
shareholders and is not abandoned
or terminated, holders of Photonics capital stock who did not vote
in favor of the Acquisition may
be entitled, by complying with Sections 1300 through 1312 of the
California Law, to dissenters'
rights as described therein. The record holders of the shares of
Photonics Common Stock that are
eligible to, and do, exercise their dissenters' rights with respect
to the Acquisition are referred to
herein as "Dissenting Shareholders'' and the shares of stock with
respect to which they exercise
dissenters' rights are referred to herein as "Dissenting Shares."
If a Photonics shareholder has a
beneficial interest in shares of Photonics Common Stock that are
held of record in the name of
another person, such as a broker or nominee, and such shareholder
desires to perfect whatever
dissenters' rights such beneficial shareholder may have, such
beneficial shareholder must act
promptly to cause the holder of record timely and properly to
follow the steps summarized below.
The following discussion is not a complete statement of the
California Law relating to dissenters'
rights, and is qualified in its entirety by reference to Sections
1300 through 1312 of the California
Law attached to this Proxy Statement/ Prospectus and incorporated
herein by reference. This
discussion and Sections 1300 through 1312 of the California Law
should be reviewed carefully by
any holder who wishes to exercise statutory dissenters' rights or
wishes to preserve the right to do
so, since failure to comply with the required procedures will
result in the loss of such rights.
Shares of Photonics Common Stock must satisfy each of the following
requirements to qualify as
Dissenting Shares under the California Law: (i) the share of
Photonics Common Stock must have
been outstanding on the Record Date; (ii) the shares of Photonics
Common Stock must not have
been voted in favor of the Acquisition; (iii) the holder of such
shares of Photonics Common Stock
must make a written demand that Photonics repurchase shares of
Photonics Common Stock for
cash at fair market value assuming approval of the Acquisition by
shareholders (as described
below); and (iv) the holder of such shares of Photonics Common
Stock must submit certificates for
endorsement (as described below). A vote by proxy or in person
against the Acquisition does not in
and of itself constitute a demand for appraisal under the
California Law.
Pursuant to Sections 1300 through 1312 of the California Law,
holders of Dissenting Shares may
require the issuer to repurchase their Dissenting Shares for cash
at a price equal to the fair market
value of such shares determined as of the day before the first
announcement of the terms of the
Acquisition, excluding any appreciation or depreciation as a
consequence of the proposed
Acquisition, but adjusted for any stock split, reverse stock split
or stock dividend that becomes
effective thereafter.
Within ten days following approval of the Acquisition by Photonics
shareholders, Photonics is
required to mail to each of its shareholders who has not voted in
favor of the Acquisition a notice
of the approval of the Acquisition, a statement of the price
determined by Photonics , as the case
may be, to present the fair market value of Dissenting Shares
(which shall constitute an offer by
Photonics to purchase such Dissenting Shares at such stated price),
and a description of the
procedures for such holders to exercise their rights as Dissenting
Shareholders.
Within 30 days after the date on which the notice of the approval
of the Acquisition by the
outstanding shares is mailed to Dissenting Shareholders, a
Dissenting Shareholder must demand
that Photonics repurchase such shareholder's Dissenting Shares in a
statement setting forth the
number of Dissenting Shares held of record by such Dissenting
Shareholder that the Dissenting
Shareholder demands that the issuer purchase, and a statement of
what the Dissenting Shareholder
claims to be the fair market value of the Dissenting Shares as of
the day before the announcement
of the proposed Acquisition. The statement of fair market value in
such demand by the Dissenting
Shareholder constitutes an offer by the Dissenting Shareholder to
sell the Dissenting Shares at such
price within such 30-day period. Such holder must also submit to
the issuer or its transfer agent
certificates representing any Dissenting Shares that the Dissenting
Shareholder demands the issuer
purchase, so that such Dissenting Shares may be either be stamped
or endorsed with the statement
that the shares are Dissenting Shares or exchanged for certificates
of appropriate denomination so
stamped or endorsed.
If upon the Dissenting Shareholder's surrender of the certificates
representing the Dissenting Shares
Photonics and a Dissenting Shareholder agree upon the price to be
paid for the Dissenting Shares
and agree that such shares are Dissenting Shares, then the agreed
price is required by law to be paid
to the Dissenting Shareholder within the later of 30 days after the
date of such agreement or 30
days after any statutory or contractual conditions to the
consummation of the Acquisition are
satisfied or waived.
If Photonics and a Dissenting Shareholder disagree as to the price
for such Dissenting Shares or
disagrees as to whether such shares are entitled to be classified
as Dissenting Shares, such holder
has the right to bring an action in California Superior Court,
within six months after the date on
which the notice of the approval of the .acquisition by the
shareholders is mailed, to resolve such
dispute. In such action, the court will determine whether the
shares of Photonics Common Stock
held by such shareholder are Dissenting Shares, the fair market
value of such shares of Photonics
Common Stock, or both. California Law provides, among other
things, that a Dissenting
Shareholder may not withdraw the demand for payment of the fair
market value of Dissenting
Shares unless the issuer consents to such request for withdrawal.
EXPERTS
The financial statements of Photonics as of December 31, 1999
included in the Photonic's Annual
Report on Form 10-K/A for the year ended December 31, 1999 are
attached hereto as Appendix C
and have been incorporated by reference herein in reliance upon the
report of Turner Stone &
Company, Dallas, Texas, independent certified public accountants.
The report of Turner Stone &
Company covering the December 31, 1999 financial statements
contains an explanatory paragraph
that states that the Company's recurring losses from operations and
accumulated deficit raise
substantial doubt about the entity's ability to continue as a going
concern. The financial statements
do not include any adjustments that might result from the outcome
of that uncertainty. Such
financial statements are incorporated herein by reference in
reliance upon such report given upon
the authority of such firm as experts in accounting and auditing.
LEGAL MATTERS
The validity of the shares of common stock issued pursuant to the
terms of the Agreement will be
passed upon for Photonics by Richard J. Hockert, Esq., Dallas,
Texas.
APPENDICES AND ATTACHMENTS
The following Appendices and attachments are attached to this proxy
for reference:
Attachment A: Proxy Form.
Attachment B: Notice to Shareholders of Right to Dissent.
Appendix A: 10Q filed by the Company for the quarter ended June
30, 2000;
Appendix B: 10Q filed by the Company for the quarter ended March
31, 2000;
Appendix C: 10K/A filed by the Company on June 16, 2000, for the
year end December 31, 1999;
Appendix D: 10K filed by the Company for the year ended December
31, 1998;
Appendix E: The Stock Purchase agreement between PHOX and REP-T.
Appendix F: Sections 1300-1312 of the California Corporations Code
Appendix G: Creditor Agreement to Convert Debt to Common Shares
Appendix G, Attachment 1: List of Creditors who have agreed to
convert to Common Shares
Appendix H: Table of the Use of the newly authorized shares;
Appendix I: Audited Financial Statements for REpipeline.com, Inc.,
a Texas corporation.
Appendix J: List of Assets for Sunnyvale Technology as of 12-31-
99.
Appendix K: Certificate of a Board Resolution Appointing James T.
Koo as Managing Consultant
Appendix L: Indemnity Agreement for James T. Koo
Attachment A to Proxy/Prospectus
PHOTONICS CORPORATION
PROXY SOLICITED BY A MAJORITY OF SHAREHOLDERS, DUE TO A LACK OF
DIRECTORS,
FOR THE ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON SEPTEMBER
27, 2000.
The undersigned hereby appoints James T. Koo as attorney and proxy
of the undersigned, with full
power of substitution, to vote all of the shares of stock of
Photonics Corporation which the
undersigned may be entitled to vote at the Annual Meeting of
Shareholders of Photonics
Corporation to be held of the Company's offices, 1222 Alderwood,
Sunnyvale, California 94089 on
Wednesday, September 27, 2000 at 10:00 a.m., P.D.T. and at any and
all continuations and
adjournments thereof, with all powers that the undersigned would
possess if personally present,
upon and in respect of the following matters and in accordance with
the following instructions,
with discretionary authority as to any and all other matters that
may properly come before the
meeting.
UNLESS A CONTRARY DIRECTION IS INDICATED, THIS PROXY WILL BE VOTED
IN
FAVOR OF ALL PROPOSALS AND NOMINEES AS SUCH ARE LISTED HEREIN, AND
AS
ARE MORE SPECIFICALLY DESCRIBED IN THE PROXY STATEMENT. IF SPECIFIC
INSTRUCTIONS ARE INDICATED, THIS PROXY WILL BE VOTED IN ACCORDANCE
THEREWITH.
___________________ __________________
________________________
CERTIFICATE NUMBERS SHARES REPRESENTED SHAREHOLDER NAME
PLEASE MARK YOUR CHOICES LIKE
THIS [X] IN BLUE OR BLACK INK
Proposal #1: To authorize an increase in the number of
authorized common shares of the
Company to 200,000,000 shares, and Preferred Shares to 50,000,000
shares for the purpose of
facilitating the acquisition of REP-T, Inc., a Texas corporation,
and for future acquisitions.
FOR AGAINST
ABSTAIN
[_] [_]
[_]
Shareholder Name__________________ Certificate No.____________
Proposal #2: To amend the Bylaws of Photonics Corporation to
provide for a minimum four
and maximum of seven members of the Board of Directors.
FOR AGAINST
ABSTAIN
[_] [_] [_]
Shareholder Name__________________ Certificate No.____________
Proposal #3: To elect four Board of Directors to serve until
the next annual meeting of the
shareholders. Nominees: T. James Vaughn, G. Thomas Bailey, Joseph
F.
Langston, Jr. and James T. Koo.
FOR all nominees listed below WITHHOLD AUTHORITY
except as marked to the contrary) to vote for all nominees
listed below
[_] [_]
Nominees: T. James Vaughn [Chairman](1 yr), G. Thomas Bailey
[CEO](1 yr),
Joseph F. Langston [CFO](1 yr) and James T. Koo (1 yr).
If you withheld authority to vote all nominee(s), please vote
individual Directors or write such
additional nominees(s) name(s) below: (see next page)
a. T. James Vaughan or ____________________ (Chairman, 1 yr.)
FOR AGAINST
ABSTAIN
[_] [_] [_]
b. G. Thomas Bailey or ____________________ (1 yr)
FOR AGAINST
ABSTAIN
[_] [_] [_]
d. Joseph F. Langston or ____________________ (1 yr)
FOR AGAINST
ABSTAIN
[_] [_] [_]
e. James T. Koo or ____________________ (1 yr)
FOR AGAINST
ABSTAIN
[_] [_] [_]
Shareholder Name__________________ Certificate No.____________
Proposal #4: To ratify the Conversion of approximately $3.5
million of corporate
indebtedness into common stock of Photonics.
FOR AGAINST
ABSTAIN
[_] [_] [_]
Shareholder Name__________________ Certificate No.____________
Proposal #5: To approve the proposal as set out in the Stock
Purchase Agreement dated as
of June 30, 2000 between Photonics Corporation (the "Company"),
REpipeline.com, Inc., a Delaware corporation and a wholly owned
subsidiary of the Company ("REP-D"}, REpipeline.com, Inc., a Texas
corporation ("REP-T") and the selling shareholders of REP-T (the
"Agreement") and to authorize the acquisition of REP-T, Inc. by
REP-D of
Photonics, through the issuance of a majority of the shares of
Common
Stock of Photonics.
FOR AGAINST
ABSTAIN
[_] [_] [_]
Shareholder Name__________________ Certificate No.____________
Proposal #6: To ratify of the actions of James T. Koo and
indemnification of James T. Koo
relating to the actions that he has taken in preparing and
consummating the
transactions set out in the Agreement.
FOR AGAINST
ABSTAIN
[_] [_]
[_]
Shareholder Name__________________ Certificate No.____________
Proposal #7: To ratify the incorporation of Sunnyvale
Technology Corporation as a
subsidiary of Photonics Corporation, Inc., the transfer of the
assets and
business of DTC Data Technology, a division of Photonics, to
Sunnyvale
Technology Corporation and the sale of 90% of the shares of
Sunnyvale
Technology Corporation to James T. Koo.
FOR AGAINST
ABSTAIN
[_] [_]
[_]
Shareholder Name__________________ Certificate No.____________
Proposal #8: To approve a stock dividend, consisting of the
remaining 10% shares of
Sunnyvale Technology Corporation, to all Record Date holders of
shares
of the Company.
FOR AGAINST
ABSTAIN
[_] [_] [_]
Shareholder Name__________________ Certificate No.____________
Proposal #9: To approve a Stock Option Plan for the
officers of the Corporation.
FOR AGAINST
ABSTAIN
[_] [_] [_]
Shareholder Name__________________ Certificate No.____________
Proposal #10: To approve a Stock Option Plan for the
outside directors of the
Corporation.
FOR AGAINST
ABSTAIN
[_] [_] [_]
Shareholder Name__________________ Certificate No.____________
Proposal #11: To ratify the employment of new Auditors,
Turner Stone & Company of
Dallas, Texas.
FOR AGAINST
ABSTAIN
[_] [_] [_]
Shareholder Name__________________ Certificate No.____________
Proposal #12: To approve the following business which
has properly come before the
meeting.
___________________________________________________________________
_________
___________________________________________________________________
_________
___________________________________________________________________
_________
_________________________________
FOR AGAINST
ABSTAIN
[_] [_] [_]
Shareholder Name__________________ Certificate No.____________
DATED:_________, 2000.
SIGNATURE(S)
Please sign exactly as your name appears herein. If the
certificates are registered in the
names of two or more persons each must sign.
Executor, administrators, trustees, guardians and attorney-in-fact
should add their titles. If signer is
a corporation, please give full corporate name and have a duly
authorized officer sign, stating title.
If signer is a partnership, please sign in partnership name by
authorized person.
Please vote, date and properly return this proxy in the enclosed
return envelope
which is postage prepaid if mailed in the United States.
_____________________________________
_____________________________________
Shareholder Signature Shareholder Signature (if
secondary owner)
Name (print)___________________________ Name
(print)___________________________
Address:______________________________
Address:______________________________
______________________________
______________________________
City:_________________ State:___ Zip:______
City:_________________ State:___ Zip:______
Attachment B to Proxy/Prospectus
NOTICE TO SHAREHOLDERS OF RIGHT TO DISSENT
PHOTONICS CORPORATION
THIS NOTICE TO SHAREHOLDERS OF RIGHT TO DISSENT is given this 20th
day of July,
2000 by Photonics Corporation, a California corporation (the
"Company") pursuant to Section
1300 et seq. of the General Corporation Law of California (the
"Act").
1. You are hereby notified that the Company and REpipeline.com.,
Inc., a Texas corporation
("REP-T") have negotiated, and propose and intend to consummate,
execute and deliver a Stock
Purchase Agreement to be effective as of June 30, 2000 or such
later date as may be required by
law (the "Stock Purchase Agreement"), whereby, upon satisfaction of
certain conditions stated
therein, the Company, through it's subsidiary, REpipeline.com,
Inc., a Delaware corporation, will
purchase all of the outstanding shares of capital stock of the REP-
T in exchange for newly issued
common stock of the Company. The Company's purchase of REP-T
includes as part of the
transaction the sale of 90% of the stock of Sunnyvale Technology
Corporation, also a subsidiary of
the Company. Such sale may constitute a sale of all or
substantially all of the Company's assets not
in the usual or regular course of business within the meaning of
the Act, thereby requiring
approval of the owners of a majority of the Company's voting shares
outstanding.
2. On September 27, 2000, at the Annual Meeting of the
shareholders, a proposal will be made to
ratify and approve the past actions of the Company and authorized
the consummation of the
acquisition transaction. Information relating to these actions has
been distributed to all
shareholders of record as of July 31, 2000 via a Proxy/Prospectus.
The distribution of this notice
and the consummation of certain other transactions (the
"Transactions") in connection therewith
(all as more fully described in the Proxy/Prospectus), subject to
the approval of shareholders
entitled to cast at least the minimum number of votes which would
be necessary to authorize such
actions at a meeting at which the shareholders entitled to vote
thereon were present in accordance
with the Act. A copy of the Proxy/Prospectus accompanies this
Notice to Shareholders of Right to
Dissent.
3. You are hereby notified that the effective date of the
announcement of the Transactions is July
11, 2000 and that you have certain rights as a non-consenting
shareholder, including the right to
dissent and be paid fair value ("Fair Value") for your shares.
4. To exercise your right to dissent and receive Fair Value for
your shares, you must provide,
within twenty days of the mailing hereof, which date is September
5, 2000, written notice to the
Company of your dissent and demand for Fair Value in the form
attached hereto and made a part
hereof ("Notice of Dissent and Demand"). Upon making such Notice of
Dissent and Demand, you
shall cease to have any of the rights of a shareholder except the
right to be paid Fair Value for your
shares and any other rights of a dissenting shareholder under the
Act. Fair value shall be
determined as of July 31, 2000, the last trading day prior to the
record date for the shareholders'
meeting.
5. Notice of Dissent and Demand may be supplied to:
Photonics Corporation.
1222 Alderwood Ave.
Sunnyvale, CA 94089
Attention: James T. Koo
6. Upon your written Notice of Dissent and Demand, you must submit
your share certificates or
certificates representing your shares (the "Certificates") in the
Company at the above address for
notation on such Certificate that such Notice of Dissent and Demand
has been made. The Company
must receive such Certificates no later than twenty days after your
Notice of Dissent and Demand
and such Certificates shall be returned to you with such notation.
7. Your rights as a dissenting shareholder shall cease if: (1) you
fail to present your certificates for
notation within twenty days of your Notice of Dissent and Demand;
(2) your Notice of Dissent and
Demand is withdrawn with the written consent of the Company; (3)
Fair Value is not agreed upon
and no action to determine the Fair Value is commenced within the
time periods provided below in
paragraphs 9, 10 and 11; (4) the appropriate court of competent
jurisdiction in the State of
California determines that you are not entitled to payment for your
shares; (5) the purchase of REP-
T and sale of Sunnyvale Technology Corporation is abandoned or
rescinded; or (6) a court of
competent having jurisdiction permanently enjoins or sets aside
such purchase and sale.
8. Not later than 10 days after the expiration of the period within
which you may provide a Notice
of Dissent and Demand to be paid the Fair Value of your shares, the
Company shall mail to you the
balance sheet and the surplus statement of the Company, as of the
latest available date (which shall
not be earlier than 12 months prior to the making of such offer)
and a profit and loss statement or
statements representing not less than a 12-month period ended on
the date of such balance sheet.
The Company may accompany such mailing with a written offer to pay
you for your shares at a
specified price deemed by the Company to be the Fair Value thereof.
Such offer shall be made at
the same price per share to all dissenting shareholders of the same
class, or, if shares are divided
into series, of the same series.
9. If, not later than 30 days after the expiration of the 10-day
period specified in paragraph 9 above,
Fair Value is agreed upon between you and the Company, payment
therefor shall be made upon
surrender of the Certificate to the Company.
10. If Fair Value is not agreed upon within the 30-day period
specified in paragraph 10 above, you
may serve upon the Company a written demand (a "Determination
Demand") that it commence an
action in the appropriate court of competent jurisdiction in
California for the determination of the
Fair Value of the shares. Such Determination Demand shall be served
not later than 30 days after
the expiration of the 30-day period for making the Determination
Demand and such action shall be
commenced by the Company not later than 30 days after receipt by
the Company of such
Determination Demand, but nothing herein shall prevent the Company
from commencing such
action at any earlier time.
11. If the Company fails to commence the action as provided in the
immediately preceding
paragraph, you may do so in the name of the Company, not later than
60 days after the expiration
of the time limited by the immediately preceding paragraph in which
the Company may commence
such an action.
12. In any action to determine the Fair Value of shares, the Court
shall (i) have jurisdiction to
proceed in a summary manner, (ii) make all dissenting shareholders
parties to the action, (iii) have
discretion to appoint an appraiser to receive evidence and report
to the court on the question of Fair
Value and (iv) have the power to render judgment against the
Company in the amount of the Fair
Value of the shares. A judgment in any such action shall be payable
upon surrender to the
corporation of the Certificate. The costs and expenses of bringing
any such action, including the
fees and expenses of any appraiser but excluding fees and expenses
of counsel and any experts you
may employ, will be determined by the court and apportioned among
the parties to the action.
NOTICE OF DISSENT AND DEMAND
The undersigned is the registered owner of ______________ shares
of common stock of
Photonics Corporation, a California corporation (the "Company")
bearing certificate
number(s) __________ (the "Shares").
The undersigned acknowledges receipt from the Company of a copy of
a Notice to Shareholders of
Right to Dissent dated September 5, 2000. In compliance with the
terms of Section 1300 et seq. of
the General Corporation law of California, the undersigned hereby
notifies the Company that such
shareholder wishes to dissent from the Transactions (as defined in
the Notice to Shareholders of
Right to Dissent) and demands Fair Value (as defined in the Notice
to Shareholders of Right to
Dissent) for the Shares.
Print Name of Registered Owner
__________________________________
Dated: ___________________________
Signature: ________________________
APPENDIX A
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Six Month period ended June 30, 2000
[ ] 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
(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 June 30, 2000 was 6,765,496 shares.
PHOTONICS CORPORATION
For the quarter ended June 30, 2000
INDEX
Page Number
PART I FINANCIAL INFORMATION
3
ITEM I Interim Financial Statements
Consolidated Balance Sheet as of
June 30, 2000 and June 30, 1999
4
Consolidated Statements of Operation
For the Three months and Six months
ending June 30, 2000 and June 30, 1999
5
Consolidated Statement of Cash Flows
For the Six months ending March 31, 2000 and June 30, 1999
6
Notes to Consolidated Financial Statements
7
ITEM 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations
8
PART II OTHER INFORMATION
ITEM 1 Legal Proceedings
9
ITEM 2 Changes in Securities
9
ITEM 3 Defaults Upon Senior Securities
9
ITEM 4 Submission of Matters of a Vote of Security Holders
9
ITEM 5 Other Information
9
ITEM 6 Exhibits and Reports on Form 8-K
10
SIGNATURE
10
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 disclosed 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, 1999.
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 a full
year.
PHOTONICS CORPORATION
Consolidated Balance Sheet
(Amounts in thousands)
June
30, June 30,
2000
1999
(Unaudited) (Unaudited)
Assets
Current Assets:
Cash and cash equivalents 16
6
Accounts Receivable less reserves 0
427
Other Receivables 0
0
Inventories, net 0
327
Prepaid expenses and other current assets 0 47
Total current assets 16
807
Furniture and equipment, net 0
18
Other Assets 0
15
Total Assets 16
840
Liabilities and shareholders equity (deficiency)
Current Liabilities:
Accounts payable 1,780
1,669
Accrued liabilities 362
328
Note Payable - AR Credit Line 0
125
Due to Related Parties 2,071
2,075
Other 0
0
Total current liabilities 4,213
4,197
Deferred Taxes 0
0
Total Liabilities 4,213
4,197
Minority interest in subsidiaries
125
Shareholders' equity (deficiency):
Common stock 46,344
44,096
Treasury stock 0
0
Capital subscription 0
2,339
Accumulated deficit (50,541)
(50,070)
Cumulative translation adjustment 0
154
Total shareholders' equity (deficiency) (4,197) (3,481)
Total liabilities and shareholders' equity $ 16 $ 840
The accompanying notes are an integral part of these consolidated
Financial statements.
PHOTONICS CORPORATION
Consolidated Statements of Operations
(Amounts in thousands, except per share data)
Three months ended June 30,
Six months ended June
30,
2000 1999
2000
1999
(Unaudited) (Unaudited)
(Unaudited)
(Unaudited)
REVENUES:
Net Product Sales $ 0 $ 0 $
0 $ 691
Cost of Revenues 0 0
0 152
---------- -------
---------- --------
--
Gross Profit 0
0 0 539
OPERATING EXPENSES:
Research and
development 0 104
0 116
Selling, general and
administration 57 396
59 424
------ -------
---------- ---------
-
Total operating
expense 57 500
59 540
Income (loss) from
operations (57) (89)
(59) (1)
OTHER INCOME (EXPENSE):
Interest income 0 0
0 0
Interest expense 0 (106)
(53) (131)
Other Income 0 54
0 48
Other expense (54) (197)
(110) (203)
-----
---------- ---------- --------
--
Total other
income (expense) (54) (338)
(222)
(285)
Provision for taxes 0 0
0
0
Net income (loss) $ (111) $ (338)
$ (222) $
(285)
Net income (loss) per
share (.02) (.05)
(.03)
(.04)
===== =========
==========
========
Shares used in
per share calculation 6,765,496 6,800,272
6,765,496
6,80,272
======= ==========
==========
=========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONSOLIDATED
FINANCIAL STATEMENTS
PHOTONICS CORPORATION
Consolidated Statement of Cash Flows
(Amounts in thousands)
(Unaudited)
Three months ended
June 30,
2000 1999
(Unaudited)
(Unaudited)
----------- -----------
Cash flows from operating activities:
Net income (loss) $ (111)
$ (201)
Adjustments to reconcile net cash
used in operating activities:
Depreciation
0 3
Changes in operating assets and liabilities:
Accounts Receivable
0 (62)
Inventories
0 23
Deposits and prepaid expenses
0 12
Accounts payable
54 219
Due to Related Parties
0 26
Accrued Liabilities
0 (44)
Other
0 0
Net Cash Provided by (used for) Operations $ (57)
$ (24)
======= =======
Cash flows from Investing Activities:
Sale (Purchase) of Property and Equipment
( 0) (0)
Net Cash used in Investing Activities $ (
0) $ (0)
======= =========
Cash Flows from Financing Activities:
Proceeds from Capital Stock Subscription 0
0
Net Borrowings (Repayments) under Bank Lines 0
(22)
Borrowing (repayments of other debt ), net 0
0
Other Equity Transactions, net
0 0
Net Cash provided by (used for) Financing 0
$ (22)
===== =========
Net increase (decr.) in Cash and Cash
Equivalents
(57) (46)
Cash and Cash Equivalents Beginning of Period 73
76
Cash and Cash Equivalents at end of Period $
16 $ 6
====== =========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONSOLIDATED
FINANCIAL STATEMENTS.
PHOTONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000
(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 Sunnyvale Technology Corporation, 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.
5. Due to Related Parties
All of the directors and officers of the Company have resigned as
of June 30, 2000. For
comparison purpose, the amount owed to the past directors and
officers or surviving
parties are shown here.
ITEM 2 MANAGEMENT'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.
The Company failed to file the 10K annual report for the period
ending December 31,
1999 with audited financials in a timely manner and was delisted
from the Bulletin Board
during the quarter. The Company changed the auditor to Turner,
Stone & Company and
filed an amended 10-K with audited financial on June 21, 2000. The
Company plans to
have its stock re-listed on the Bulletin Board. However there is
no assurance the Company
will succeed to have its stock re-listed.
During the quarter, the Company terminated the merger/acquisition
agreement with
Realestate4sale.com and signed a similar agreement with its
successor REPipeline.com,
Texas (REP-T) with essentially the same terms and conditions. The
Company also formed
a wholly owned subsidiary REPipeline.com, Delaware (REP-D), for
this
merger/acquisition purpose. Without the merger with REP-T, the
only choice of the
Company is filing bankruptcy with less than $0.01 per dollar for
all creditors, and debt
holders, and no money for shareholders. Therefore the Company has
put all its energy for
the pending merger acquisition.
The Company has all preferred shareholders converted their
preferred shares to common
shares and obtaining the consent of 85% of the Company's creditors
and debt holders to
settlements agreements that are acceptable to REP-T. Therefore the
Company has met the
financial terms set by REP-T for the pending merger/acquisition,
and will seek
shareholders approval in the coming shareholders meeting planned
for July 2000.
However, government agencies can disapprove this
merger/acquisition, and they often do,
either party of a merger/acquisition can withdraw and they often
do, shareholders or board
of directors of either of the companies can disapprove the pending
merger/ acquisition, and
they often do, there are no assurance the pending merger
acquisition will consummate.
Year 2000
To the Company's best knowledge, the Company has suffered no
adverse effect of Y2K
problems. 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.
Liquidity and Capital Resources
Liquidity and capital resources of the Company continue to decrease
during the quarter
mainly due to legal and auditing expenses associated with the
pending merger/acquisition.
The Company negotiated such that REP-T will pay the legal expenses
associated with the
merger/acquisition when Company's money, $16,000 at the end of the
quarter, is
exhausted.
PART II OTHER INFORMATION
ITEM 1 Legal Proceedings
No new legal claims were filed against the Company during this
quarter. ACI Electronics,
Bay Alarm, Danka Financial Services, Danka Office Image, Insight
Electronics, and
Innovative Vanguard, all creditors of the Company, have filed
claims against the
Company. All these claims have been acceptable by REP, and has
been or will be
negotiated by the current or future officers of the Company.
Two former employees of the company filed complains against the
Company for paying
the vacation pays a month after they were laid off June 1969. One
of the two employees, a
female, also filed sexual bias and harassment complains against the
Company. The
Company has settled both the vacation pay and sexual
bias/harassment claims by paying
the penalty of a month of salary to both employees.
ITEM 2 Changes in Securities
Cooley Godward has cancelled their subscription of 80,000 preferred
per agreement with
the Company due to failure of the Company to pay the balance owed
to them. All other
Preferred shares (2,248,134) have been converted to common as of
June 30, 2000.
ITEM 3 Defaults Upon Senior Securities
None
ITEM 4 Submission of Matters to a Vote of Security Holders
The Company has filed the Proxy Statement with SEC on July 14, 2000
for the coming
shareholders' meeting planned for July 31, 2000 for approving the
pending
merger/acquisition, issuance of additional stocks for acquiring
REP-T, conversion of
approximately $3.5MM debt to equity, sale of Sunnyvale Technology,
election of the new
board of directors, approval of stock options, approval of new
auditors, and other issues
may come to the attention of the Company.
ITEM 5 Other Information
Not applicable
ITEM 6 Exhibits and Reports on Form 8k
Exhibit 27.1 Financial Data Schedule
The Company filed a Form PRE 14A, a Preliminary Proxy Statement for
the annual
shareholders meeting.
The Company filed a Form 8-K on July 11, 2000 reporting a change in
Auditors, Sale of
Sunnyvale Technologies and change of location for The corporate
headquarters.
The Company filed a Form 8-K on June 5, 2000 for change auditor
containing the consent
letter from the former auditor.
The Company filed a Form 8-K/A on April 20, 2000 containing the
consent letter from the
former Auditors.
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
DATE: August 1, 2000
BY: /s/ James T. Koo
Acting Chief Financial Officer
APPENDIX B
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Three Month period ended March 31, 2000
[ ] 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
(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
March 31, 2000 was 4,396,271 shares.
PHOTONICS CORPORATION
For the quarter ended March 31, 2000
INDEX
Page
Number
INTRODUCTION PHOTONICS CORPORATION
Introduction
2
The Market
2
Products
2
Intellectual Property
2
Current Developments
3
PART I FINANCIAL INFORMATION
5
ITEM I Interim Financial Statements
Consolidated Balance Sheet as of
March 31, 2000 and March 31, 1999
6
Consolidated Statements of Operation
For the Three months and Six months
ending March 31, 2000 an March 31, 1999
7
Consolidated Statement of Cash Flows
For the Six months ending March 31, 2000 and March 31, 1999
8
Notes to Consolidated Financial Statements
9
ITEM 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations
10
PART II OTHER INFORMATION
ITEM 1 Legal Proceedings
11
ITEM 2 Changes in Securities
11
ITEM 3 Defaults Upon Senior Securities
11
ITEM 4 Submission of Matters of a Vote of Security Holders
11
ITEM 5 Other Information
11
ITEM 6 Exhibits and Reports on Form 8-K
11
SIGNATURE
12
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 resulted from the merger of Photonics Corporation and DTC
Data Technology
Corporation in 1996. The Company's focus was in the IDE
(Integrated Device
Electronics), SCSI (Small Computer System Interface), I/O (Input
and Output), and BIOS
(Basic Input and Output Systems) upgrades add on card business for
Personal Computers.
During the first quarter 2000, Photonics signed a letter of intent
for acquiring Real Estate 4
Sale.com (RE4S). RE4S is a Internet based commercial real-estate
listing service
provider. When the merger is completed, RE4S shareholders will own
85% of the
Photonics Corporation. Preparing for the pending acquisition, the
Company incorporated a
new company, Sunnyvale Technology Corp., a Texas corporation, and
transferred all the
tangible and intangible assets of the Company including the
trademark DTC, the name
DTC Data Technology, and associated business into Sunnyvale
Technology Corp. The
Company then sold 90% of Sunnyvale Technology to the former CEO of
Photonics
Corporation for $75,000 cash plus the assumption of certain
liabilities effective December
31, 1999 to raise needed money for auditing and other legal fees
relating to the pending
acquisition of RE4S. The transfer of assets into Sunnyvale
Technology Corp and
subsequent sale of 90% interest in Sunnyvale Technology Corp has
removed Photonics
Corporation from transacting any commercial business. The Company
intends to declare a
stock dividend to distribute it's 10% holding in Sunnyvale
Technology to its shareholders
following the election of a new board of directors and the approval
by the new board of
these actions.
The Market
The Company transacts no commercial business.
Products
The Company has disposed of all of its product and product rights
as part of the sale of
Sunnyvale Technology Corp. The Company is not developing any new
products.
Intellectual Property
The Company has sold all its intellectual properties as part of the
sale of Sunnyvale
Technology Corp.
Current Developments
On June 21, 1999, the Company's board of directors voted to
shutdown 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, 2000, Company's board of directors and officers
resigned.
The Company has been following the procedure outlined above in
order to avoid filing for
protection under bankruptcy and in order to maximize the return of
money to creditors.
Should the Company seek protection under bankruptcy, which, the
Company believes, will
cause all creditors to receive less than $0.02 per dollar debt, no
assurance can be given that
there will be funds available to pay any person. In this event,
the Company does not
expect its shareholders to obtain any monies.
During the month of Feb. 2000, the Company signed a letter of
intent to acquire RE4S, a
Internet listing and service provider to real-estate professionals.
When the acquisition is
completed, the shareholders of RE4S will own 85% of the resulting
company. As part of
agreement, the Company will seek to have all of its preferred
shareholders convert their
Series A preferred shares into common shares and to have a minimum
of 85% (dollar
amount) of creditors and debt holders convert their debt into
common shares at a rate of
.45 shares per dollar of debt or reach a cash settlement on terms
that are acceptable to
RE4S. The agreement further specifies the selling of the Company
DTC division's
business for $75,000 cash and the assumption of current liabilities
in order to meet the
merger/acquisition expenses, and requires a personal
indemnification for a year against
cash claims in excess of $500,000 from the current creditors who do
not reach a settlement
agreement that is acceptable to RE4S.
Since signing the letter of intent for acquiring RE4S, the Company
has been working
diligently towards this goal, including having the Company
financial statements audited,
obtaining agreements from all the preferred shareholders to convert
all the preferred shares
to common shares and obtaining settlement agreements from all the
debt holders.
The Company has incorporated Sunnyvale Technology Corp. in Texas,
transferred all the
tangible and intangible assets, including the trademark DTC into
this entity and has sold
90% of this company for $75,000 cash plus the assumption of certain
liabilities to James T.
Koo, the former CEO of the Company. The proceeds from the sale are
being used for the
payment of legal, accounting and other expenses relating to the
pending
merger/acquisition. The former CEO further agreed to indemnify the
Company for one
year following the acquisition against cash claims from former debt
holders who failed to
reach a settlement on terms acceptable to RE4S, for any total
amount that exceeds
$500,000. The security for such indemnity is limited to the amount
of Mr. Koo's stock
holdings in the Company (518,960 shares). In exchange for this
indemnification, the
Company will issue to James T. Koo approximately 194,353 shares of
the common stock
that would have been issued to one of the creditors who has not
agreed to convert its debt
to equity.
Starting March, the Company commenced converting DTC shares into
Photonics shares
preparing for the pending merger/acquisition. To reduce costs, and
in preparation for the
pending merger/acquisition, the Company changed it's auditor from
BDO Seidman to Hein
and Associates of Dallas, Texas. However, due to change of
personnel at the Company,
the relocation of the Company headquarters and the new auditor, the
auditing process has
been delayed. The resulting delay caused the Company to file it's
December 31,1999 10K
without audited financials. An amended 10K including audited
financial statements will be
filed soon.
During the month of April, all preferred shareholders have
converted their preferred shares
to common shares. Over 85% of the creditors and debt holders have
reached agreements
that are acceptable to RE4S. Thus, the Company has met all of the
major terms specified
in the merger/acquisition agreement with RE4S.
The Company is preparing the Proxy Statement for coming
shareholders' meeting planned
for June 2000.
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 disclosed 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, 1999.
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 a full year.
PHOTONICS CORPORATION
Consolidated Balance Sheet
(Amounts in thousands)
March 31,
March 31,
2000
1999
(Unaudited) (Unaudited)
Assets
Current Assets:
Cash and cash equivalents 73
6
Accounts Receivable less reserves 0
427
Other Receivables 0
0
Inventories, net 0
327
Prepaid expenses and other current assets 0
47
Total current assets 73
807
Furniture and equipment, net 0
18
Other Assets 0
15
Total Assets 73
840
Liabilities and shareholders equity (deficiency)
Current Liabilities:
Note Payable - AR Credit Line 0
125
Due to Related Parties 2347
2075
Accounts payable 1617
1669
Accrued liabilities 0
328
Other 157
0
Total current liabilities 4121
4197
Deferred Taxes 0
0
Total Liabilities 4121
4197
Minority interest in subsidiaries 125
125
Shareholders' equity (deficiency):
Common stock 44096
44096
Treasury stock 0
0
Capital subscription 2754
2339
Accumulated deficit (51023)
(50070)
Cumulative translation adjustment 0
154
Total shareholders' equity (deficiency) (4173)
(3481)
Total liabilities and shareholders' equity $ 73
$ 840
The accompanying notes are an integral part of these consolidated
financial statements.
PHOTONICS CORPORATION
Consolidated Statements of Operations
(Amounts in thousands, except per share data)
Three months ended
Sept. 30,
2000 1999
(Unaudited)
(Unaudited)
REVENUES:
Net Product Sales $ 0 $
446
Cost of Revenues 0
361
---------
- ----------
Gross Profit
0 85
OPERATING EXPENSES:
Research and development 0
54
Selling, general and admin 4
151
----------
----------
Total operating expense 4
205
Income (loss) from operations (4)
(121)
OTHER INCOME (EXPENSE):
Interest income
2 0
Interest expense (99)
(80)
Other Income 0
0
Other expense (58)
0
----------
----------
Total other income (expense) (155)
(80)
Provision for taxes 0
0
Net income (loss) $(159) $(201)
Net income (loss) per share (.04)
(.04)
==========
========
Shares used in per
share calculation 4,396,271
4,396,271
==========
==========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONSOLIDATED FINANCIAL STATEMENTS.
PHOTONICS CORPORATION
Consolidated Statement of Cash Flows
(Amounts in thousands)
(Unaudited)
Three months ended March 31,
2000
1999
(Unaudited)
(Unaudited)
-----------
-----------
Cash flows from operating activities:
Net income (loss) $ (159)
$(201)
Adjustments to reconcile net cash
used in operating activities:
Depreciation 0
3
Changes in operating assets and liabilities:
Accounts Receivable 0
(62)
Inventories 0
23
Deposits and prepaid expenses 0
12
Accounts payable 0
219
Due to Related Parties 0
26
Accrued Liabilities 0
(44)
Other 157
0
Net Cash Provided by (used for) Operations $ 157 $
(24)
=====
=========
Cash flows from Investing Activities:
Sale (Purchase) of Property
and Equipment ( 0)
(0)
Net Cash used in Investing Activities $ ( 0)
$ (0)
=====
=========
Cash Flows from Financing Activities:
Proceeds from Capital Stock Subscription 0
0
Net Borrowings (Repayments) under Bank Lines 0
(22)
Borrowing (repayments of other debt ), net 0
0
Other Equity Transactions, net 0
0
Net Cash provided by (used for) Financing 0
$ (22)
===== =========
Net increase (decr.) in Cash and Cash
Equivalents (2)
(46)
Cash and Cash Equivalents Beginning of
Period 75
76
Cash and Cash Equivalents at end of Period $ 73
$ 6
=====
=========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONSOLIDATED FINANCIAL STATEMENTS.
PHOTONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000
(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 Sunnyvale
Technology Corporation, 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.
5. Due to Related Parties. All of the directors and officers of
the Company have resigned.
For
comparison purpose, the amount owed to the past directors and
officers or surviving
parties are shown here.
ITEM 2 MANAGEMENT'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.
Without the merger with RE4S, the only choice of the Company is
filing bankruptcy with
less than $0.02 per dollar for all creditors, and debt holders, and
no money for
shareholders. Therefore the Company has put all its energy for the
pending merger
acquisition.
The Company has succeeded in having all of its preferred
shareholders convert to common
shares and obtaining the consent of 85% of the Company's creditors
and debt holders to
settlements agreements that are acceptable to RE4S. Therefore the
Company has met the
financial terms set by RE4S for the pending merger/acquisition, and
will seek shareholders
approval in the coming shareholders meeting planned for June 2000.
However, either
party of a merger/acquisition can withdraw and they often do,
shareholders or board of
directors of either of the companies can disapprove the pending
merger/acquisition, and
they often do, there are no assurance the pending merger
acquisition will consummate.
Year 2000
To the Company's best knowledge, the Company has suffered no
adverse effect of Y2K
problems. 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.
Liquidity and Capital Resources
Liquidity and capital resources of the Company continue to decrease
during the quarter.
After selling of Sunnyvale Technology Corp. the Company has $75,000
cash, and there are
no other expenses besides legal, auditing and other expenses
associated with the pending
merger/acquisition. The Company believes this $75,000 will be
adequate for the legal,
auditing and other needed funds for completing this
merger/acquisition. However, the
Company cannot make assurances that this small amount of cash will
be adequate,
especially since complications can and often do occur. Should the
pending
merger/acquisition fail, the only course for the company to follow
is to file bankruptcy.
PART II OTHER INFORMATION
ITEM 1 Legal Proceedings
No new legal claims were filed against the Company during this
quarter. Insight
Electronics, Innovative Vanguard, Danka Financial Services, and ACI
Electronics have
filed claims against the Company. The Company has reached
settlement agreements with
most of them acceptable by RE4S.
Two ex-employees of the Company filed complaints with State of
California, department
of Labor last year for not receiving the full wages due when
terminated. The Company has
settled both cases by paying salaries of up to 28 days to each of
the two employees.
An ex-employee of the Company has filed complaints with State of
California last year for
sexual bias and sexual harassment. The Company, although
considering the case without
merit, has settled the case with the payments of the salary penalty
described in the
paragraph above, with no additional cash outlay.
ITEM 2 Changes in Securities
None
ITEM 3 Defaults Upon Senior Securities
None
ITEM 4 Submission of Matters to a Vote of Security Holders
The Company is preparing the Proxy Statement for coming
shareholders' meeting planned
for June 2000 for approving the pending merger/acquisition,
issuance of additional stocks
for acquiring RE4S, sale of Sunnyvale Technology, election of the
new board of directors,
and other issues may come to the attention of the Company.
ITEM 5 Other Information
Not applicable
ITEM 6 Exhibits and Reports on Form 8k
Exhibit 27.1 Financial Data Schedule
The Company filed a Form 8-K on April 12, 2000 reporting a change
in Auditors, Sale of
Sunnyvale Technologies and change of location for the corporate
headquarters.
The Company filed a Form 8-K/A on April 20, 2000 containing the
consent letter from the
former Auditors.
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
DATE: May 15, 2000
BY: /s/ James T. Koo
Acting Chief Financial Officer
APPENDIX C
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FIRST AMENDMENT
10-KSB
[X] Annual Report under section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal
year ended 12/31/99.
Commission File Number ______________
Photonics Corporation
-------------------------------
(Name of Registrant as Specified In Its Charter)
California 77-0102343
--------- -------------
(State of Incorporation) (IRS Employer
Number)
1222 Alderwood Avenue, 408-745-9318
Sunnyvale, California 94089
(Address of principal executive offices) (Issuer's
telephone number)
Securities registered under Section 12(b) of the Act: none
Securities registered under Section 12 (g) of the Act: none
Check whether the issuer (1) filed all reports required to be filed
by Section 13 or 15 (d) of the
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 ( )
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B is not
contained in this form, and no disclosure will be contained, to the
best of registrant's knowledge, in
definitive proxy or information statements incorporated by
reference in Part III of this Form 10-
KSB or any amendment to this Form 10-KSB.
Yes [X] No ( )
State issuer's revenues for the most recent fiscal year:
The estimated aggregate market value of the voting stock held by
non-affiliates of the registrant as
of December 31, 1999 was $ 531,920. The market value is based upon
the average bid price of the
Common Stock of $ 0.14 per share on December 31, 1999.
The Company had 4,396,271 shares of common stock, par value of $
0.001 per share, outstanding
as of December 31, 1999.
INDEX
Part I
Item 1
Business ............................ 5
General ............................. 5
Products and the Market ........................ 5
The Competition ........................ 6
Intellectual Property ....................... 6
Manufacturing and Suppliers ..................... 6
Patents and Licenses ....................... 6
Significant Customer .................... 7
Backlog .......................... 7
Employees .........................7
Item 2
Properties ............................ 7
Item 3
Legal Proceedings ........................ 7
Item 4
Submission of Matters to a Vote of Security Holders .......... 8
Part II
Item 5
Market for Common Equity .................... 8
Item 6
Management's Discussion and Analysis .................
9
Liquidity and Capital Resources ...................
11
Other Matters ........................ 12
Item 7
Financial Statements ........................ 12
Item 8
Changes in and Disagreements with Accountants on
Accounting
And Financial Disclosures ..................... 12
Part III
Item 9
Director, Executive officers, Promoters and Control
Person:
Compliance with Section 16a of the Exchange Act
............. 12
Indemnification Agreement ...................... 13
Item 10
Executive Compensation ....................... 13
Board of Director's Report on Repricing of
Options/SARs ......... 14
Item 11
Security Ownership of Certain Beneficial Owners and Management
..... 14
Item 12
Certain Relationships and Related Transactions
............... 15
Item 13
Exhibits and Reports on Form 8K ....................
16
Signature Page ........................... 16
Quarter 4 Income Statement Comparison ................. 16
Financial Statements .......................F-1 through
F-19
Exhibits .............................. Appendix
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.
Part I
Item 1. Business
General
Photonics dba Data Technology resulted from the merger of Photonics
Corporation and DTC Data
Technology Corporation in 1996. Shortly after the merger, the
Company focused on IDE, SCSI,
I/O and BIOS upgrade business of IBM compatible personal computer.
As DTC is a well-known brand name and has established sales
channels, while the legal name of
the company is Photonics Corporation, the company is doing business
as DTC Data Technology.
For brevity sake, the Company is herein after referred to as DTC or
the Company.
The acquisition of DTC was consummated on March 5, 1996. The
agreement as ratified by DTC
Data Technology Corporation's Shareholders at their meeting held on
February 6, 1996, specifies
"The Board of Directors of DTC would file a Certificate of
Dissolution in the state of Delaware
after consummation of the Acquisition. Thereafter, DTC shall
continue for a term of three years or
longer". The dissolution is complete, the conversion of DTC stock
to Photonics stock is affected at
a conversion rate of 0.147853. All calculations of beneficial
ownership, exercise and conversion of
all outstanding options, warrants and other right to purchase
shares of common or preferred stock
uses this multiplier as though the dissolution had in fact
occurred. The Company started conversion
of DTC Data Technology shares to Photonics shares during March
2000, handled by Corporate
Stock Transfer of Denver, Colorado.
Products and the Market
The Company markets and sells IDE, I/O, BIOS upgrade, and SCSI
products for IBM compatible
PCs to Value Added Resellers (VARs), and System integrators through
distribution and retailers
for the upgrade after market.
Integrated Device Electronics ("IDE"), and Input and Output ("I/O")
adapters connect between a
PC's central processing unit and the storage devices such as floppy
and hard disks, CD-drives and
other peripheral devices such as printers, scanners, and digital
cameras. The IDE I/O add on card
business has declined to less than $50 million dollars per year as
newer PCs have these functions
built in on the mother boards and seldom need additional add on
cards.
The BIOS upgrade allows older machines to access large disks and/or
be Y2K compliant. While
the Y2K market was strong for 1999, it died after the New Year
2000.
Small Computer System Interface (SCSI) controller, due to its high
performance, and high
connectivity, is the controller of choice for high-end personal
computers, engineering work
stations, Internet and enterprise file servers. The market is
about $1 billion and is dominated by
Adaptec with over 70% of the market share. After a flat year in
1998, this market resumes its
growth at double digit rate.
During first half of 1999, the company introduced several new PCI
I/O products, and a family of
Y2K BIOS compliant upgrade products by adding Y2K BIOS firmware to
the older products.
However, due to financial difficulties, no new products were
introduced in the second half of 1999,
and those new products introduced were not adequately supported.
The Competition
As the IDE I/O market declined, many vendors have dropped out of
this market. Due to lack of
R&D funds, DTC plans to remain in that market place until an
alternative market is available.
Promise and SIIG compete with the Company's I/O and IDE family of
products. In the BIOS
upgrade market, main competitors are Unicore and AMI. In the SCSI
market, Adaptec is the main
competitor. The Company's low end Adaptec compatible products
sales has declined and level off
during 1999. Due to financial difficulties, DTC introduced no new
high end SCSI products during
1999.
Intellectual Property
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 any of its current or planned IDE, I/O, or SCSI products.
Manufacturers
Substantially all of DTC's products are manufactured by companies
located in the Far East. One
time up to 90% of the Company's products requirements were produced
in China by Broadsino
Computer Development, Ltd. Of Hong Kong. However, Broadsino filed
for bankruptcy during
1999. Company had found an alternative source, ActionMedia, that
was formed by a former
managing director of Broadsino, K. C. Yeung, who was also a former
board member and officer of
the Company.
Patents and Licenses
The Company holds various patents. DTC believes, however, that
much of its important
technology resides in its proprietary hardware, software and trade
secrets. Due to lack of funds, the
Company let several patents expired after failing to sell them and
did not have the funds to
maintain them.
Certain technologies are licensed to DTC from third parties. Those
licenses are generally
perpetual, worldwide and, DTC believes, on commercially reasonable
terms.
Significant Customer
During the fiscal year ended December 31, 1998 Ingram-Micro
accounted for approximately 47%
of net sales with D&H Distribution accounted for approximately 21%
of net sales. However,
Ingram Micro has indicated its intention to terminate its
relationship with the Company due to low
level of sales of the Company's products. Ingram-Micro has,
subsequent to the original filing of
the Company's 10-K Annual Report, terminated the relationship.
Backlog
DTC does not believe that its backlog is a meaningful indicator of
future sales. It is common
industry practice for purchasers of DTC's products to issue
purchase orders on a month to month
basis rather than contract for delivery of products over an
extended period of time. DTC's sales are
primarily made pursuant to purchase orders and contracts which are
consistent with common
industry practice, and may be canceled or modified by customers to
provide for delivery at a later
date with little or no penalties.
Employees
As of December 31, 1999 DTC employed 2 full time employees. One of
the employees works in
the warehouse, shipping and receiving area, and the second employee
performs the necessary task
of book keeping and other office work. James T. Koo, the former
CEO works as a non-paid
consultant for orderly winding down the business and selling of the
Company as well as technical
support of the current products sold.
Item 2. Properties
To reduce expenses, the Company has moved from a 15,000 square foot
facility in San Jose, Ca. to
a 2,200 square foot building in Sunnyvale, California in Aug 1998.
Most office furniture and non-
immediately sellable inventories were sold off. The current
monthly rental, including common
area maintenance, is approximately $2,800.
Item 3. Legal Proceedings
During 1999, two former employees filed claims against the company
involving claims whereby
the company did not have the money to pay the vacation pay earned,
when they were laid off. One
of the two employees also filed sexual harassment and
discrimination charges against the
Company. Company has settled both cases by paying their vacation
pay and a month salary
penalty in March 2000.
Insight Electronics Distribution, Danka Financial, Bay Alarm, and
Innovative Vanguard, are
former vendors and a sales representative of the Company, all have
filed legal claims against the
Company. Due to financial difficulties, the Company did not have
the legal resources to defend
itself. Several of these cases are pending, while two (Bay Alarm
and Innovative Vanguard) default
judgments have been issued against the Company.
At the end of Dec. 31, 1998, there was no further legal action
pending, however, due to the fact that
the Company was not able to meet the back payment to vendors,
additional suits may be filed
against the Company. However, all vendors and other debt holders
are being negotiated with at the
present time.
Because the Company no longer carries director and officers
insurance, all directors and officers
have resigned as of June 1999, except the Corporate Secretary.
Item 4. Submission of Matter to a Vote of Security Holders
No matters were submitted during the year of 1999 to a vote of
security holders through the
solicitation of proxies or otherwise.
PART II
Item 5. Market for Common Equity
The Company's Common Stock trades on the Over The Counter Bulletin
Board ("OTCBB") under
the symbol: PHOX for Photonics Corporation and under the symbol
DTEC for the pre-merger
DTC Data Technology Corporation. DTC Data Technology was legally
dissolved as a Delaware
corporation in March 1999. Its stock symbol has been taken over by
a new company, Delano
Technology in Feb. 2000. The Company is converting all the DTC
shares to Photonics shares in
March 2000.
Fiscal Yr. End 12/31/97 HIGH LOW
First Quarter .875 .050
Second Quarter .4375 .050
Third Quarter .4375 .027
Fourth Quarter .375 . 020
Fiscal Yr. End 12/31/98
First Quarter .75 .03
Second Quarter .75 .04
Third Quarter 1.125 .04
Fourth Quarter .625 .03
Fiscal Yr. End 12/31/99
First Quarter .3125 .03
Second Quarter .25 .03
Third Quarter .25 .03
Fourth Quarter .25 .03
The Company has not historically paid cash dividends. The Company
does not anticipate paying
any cash dividends in the foreseeable future. As of December 31,
1999, the Company had
preferred dividends in arrears greater than 12 months due of
$443,414. These dividends in arrears
are expected to be settled via the issuance of common stock. The
Company currently does not
anticipate paying any cash dividends in the foreseeable future.
Item 6. Management's Discussion and Analysis
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
1997 10-KSB contains detailed
risk factors that may contribute to the actual results for 1998 and
beyond which could materially
differ from forward-looking statements made by the Company.
The Company's revenues in fiscal 1999 decreased to $0.72 million, a
77% decline from 1998
revenues of $3.484 million. Massive inventory write off resulted
from the Company's move to a
much smaller headquarter space during the year. This move
negatively impacted the Gross Margin
and made it meaningless for detailed discussion.
Due to lack R&D in a rapidly changing market of Personal Computer,
the Company's products
quickly become non-competitive or obsolete. Approximately 34%
($0.263 million) sales during
1999 were derived from Company's Y2K solutions for PCs. The sales
for these products stopped
after January 1, 2000.
Also because lack of funds for needed inventory for sales, customer
orders have not been filled.
Combined with lower overall sales, Ingram Micro and Merisel, two
largest customers of the
Company representing approximately 47% and 9% of Company's 1999
sales, have informed the
Company of their intention to terminate their relationship with the
Company. Other small
customers also left the Company due to obsolete products and slow
or non-delivery.
Due to continued loss, failure to find additional funds, the
Company decided to cease its operations
and laid off most of its employees in June 1999. The Company has
retained Mr. James T. Koo, the
former CEO, as a non-paid consultant to an orderly shut down and
sell the business. Effective June
23, 1999, Registrant's board of directors and officers, except
Board Secretary, resigned.
The Registrant has been 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.
Since July, Coast Business Credit ("Coast"), the secured asset
lender has requested all customers of
Company to send payments directly to Coast, and then it advances
needed operating expenses to
the Company. The Registrant had approximately $ 531,817 of
Accounts Receivable,
approximately $22,760 of secured bank debt at the end of Oct.
However, in November 1999,
Coast questioned the quality, and determined the Accounts
Receivable of the Company will not be
able to pay back the bank debt, and had decided to stop advance to
the Company unless a personal
guarantee was in place. Consultant James T. Koo had to provided
needed personal guarantee for
the funds advanced the Company. This loan was finally paid off on
Nov. 31, 1999. However, in
Feb. 2000, Coast claimed the auditing fee and the legal expenses
involved in the personal guarantee
exceeded the $3,000 withholdings by $1,200 and refused to remove
the UCC claim. This claim has
been settled.
In July, a potential buyer of the Company was identified if all
creditors would accept $0.15 for
every dollar owed. However the Company failed to obtain an
affirmative answer from a major
creditor, CompUSA. After three months of waiting, several
creditors have since resumed legal
claims against the Company.
Starting November 1999, the Company decided to seek a buyer for the
Company after Chapter 11
reorganization. In December, an offshore potential buyer had been
identified who has offered
$200,000 for the Company, included in this the legal expenses
needed for reorganization, Mr. Koo
to stay on for an unspecified time and an investment of $50,000 or
more.
During February 2000, days before the Company plans to file Chapter
11, the Company was
contacted by and reached an initial, non-binding agreement to
acquire RealEstate4Sale.com(RE4S).
Subject to shareholders approval, when the acquisition is
completed, RE4S shareholders will own
85% of the Company on a fully diluted basis, including conversion
of a majority of the Company's
debt to stock through a convertible debenture. Other major terms
and conditions including all the
former Board Member, officers, and major shareholders will agree to
hold their stock holdings for
a minimum period of six months, and more than 85% (value of the
debt) of the current debt holders
will accept a discount payment of .45 shares of Company's common
stock for each $1.00 debt.
And the management of the Company will sell off the DTC business
with the proceeds benefiting
Debt Holders of the Company.
RealEstate4Sale.com started in May of 1999. It is an Internet
based company focusing on
business-to-business commercial real-estate listings and related
business advertising. James
Vaughn, Chairman of RE4S, Thomas Bailey, President, CEO of RE4S,
Joseph F. Langston, VP,
CFO, and director of RE4S, J. Doyle, Director of RE4S together with
James T, Koo, the former
CEO of Photonics will be recommended for forming the new Board of
Directors of the Company
after the acquisition. The current executive officers of RE4S to
expected to assume the executive
officer positions of the Company.
As part of this acquisition agreement, to allow the merged company
to focus on Internet and real-
estate business, at the request of RE4S, Mr. James T. Koo purchased
the remaining DTC business
with all associated tangible and intangible assets and current
liabilities for $75,000 in cash paid to
the Company plus the assumption of certain liabilities. The sale
was effective as of December 31,
1999, and provides the Company with funds for legal and auditing
fees relating to the acquisition
of RE4S. The Company is still actively soliciting other offers.
To avoid any failure resulting from a major creditor not accepting
the conversion of debt to
common shares and at the request of RE4S, Mr. James T. Koo agreed
to indemnify the Company,
conditioned upon and following the acquisition of RE4S, for cash
claims from existing creditors of
the Company above $500,000 for a period of one year. The indemnity
is limited to an amount
equal to and is secured only by Mr. Koo's holdings of stock in the
Company. Such holdings total
over 500,000 shares. In exchange for the indemnity, Mr. Koo will
receive approximately 193,000
shares of addition common stock of the Company as part of the
acquisition transaction.
Since this acquisition agreement is superior to the offer from the
offshore buyer, the company has
stopped purchase discussions with him, and the Chapter 11 filing;
but has been actively pursuing
the acquisition of RE4S. However, no assurance can be given that
the acquisition will complete.
Failure to consummate this acquisition, the only alternative for
the Company will be filing Chapter
7 for liquidation. The Company estimates after paying off the
priority employee payroll and
vacation debt, the unsecured debt holder will receive less than two
cents ($0.02) for every dollar of
debt. No assurance can be given that there will be funds generated
to pay any person. Registrant
does not expect its shareholders to obtain any monies if it is
required to file liquidation.
The proposed acquisition, sale of DTC, election of directors and
other matters will be in a forth
coming proxy for shareholders approval in a shareholder's meeting.
Subsequent Events
On May 31, 2000, Photonics Corporation and RealEsate4Sale.com, Inc.
terminated the agreement
with RealEstate4Sale.com pursuant to the terms and conditions of
the February 3, 2000 agreement.
The Company is currently negotiating a definitive agreement (the
"Agreement"), which
management believes ill be finalized, to merge with the successor
company to
RealEstate4Sale.com, Inc., REpipeline.com, Inc. ("REP-T") subject
to the fulfillment of the
following conditions:
(i) Photonics must have has received confirmation from eighty-five
percent (85%) of the
debt holders of record as of December 31, 1999 to convert their
respective debt into common stock
of Photonics at a ratio of .45 shares of Photonics common stock for
each $ 1 dollar of debt, such
debt to be a negotiated amount with each creditor. This condition
has been fulfilled by the
Company. A representative of REP-T has accepted these approvals
and exceptions, as noted in
Exhibit A attached to the Agreement. As part of this condition,
there exists an understanding
between the parties that any non-converted debt of Photonics,
including any litigation resulting
therefrom will be borne by the Trust account as further described
in the Agreement.
(ii) All Photonics Preferred Stock has converted into common stock
of Photonics on a 1 to
1 ratio. This condition has also been fulfilled by the Company.
The dividends that remain unpaid
for the fiscal year ends of 1998 and 1999 will be paid in the form
of common stock of the
Company at a price of $1 per share of Photonics common stock.
(iii) James Koo will set up a trust account (the "Trust Account")
for the purpose of
indemnifying REP-T against creditors of Photonics that had unpaid
debt as of December 31, 1999
that totaled greater than $500,000. The Trust Account will have a
term of one year and will be
funded with his holdings of Photonics shares. In addition, this
account will own shares of
Photonics allocated to accounts payable and debt holders of
Photonics which did not previous elect
to convert, or were subject to litigation that was unresolved at
the time of the acquisition. During
the term of the Trust Account, the shares in the Trust Account can
be sold pursuant to instructions
by Mr. James Koo, or his designated agent; but no distributions can
be made out of the account
until released or approved by the Board of REP-T.
(iv) Photonics shareholders must ratify the transfer of the assets
and business of the
division of Photonics, DTC Data Technology, to Sunnyvale Technology
Corporation and the
subsequent sale of 90% of Sunnyvale Technology Corporation to James
T. Koo for $75,000 plus
certain assumed liabilities as of December 31, 1999.
(v) Photonics issue a sufficient number of newly issued common
shares to provide such
issuance (85% of total issued shares after full dilution) for the
acquisition of all outstanding shares
of REP-T, Inc.
(vi) Both parties agree to abide by all local, state, federal and
securities laws in relationship
to the pending acquisition.
(vii) REpipeline to provide all required legal & securities work to
effect such acquisition
and meet all state, federal and securities filing requirements.
(viii) Photonics to provide a copy of the last audit of financials
and other necessary
documents and expenses of this merger at their expense.
(ix) Photonics initiate required filings, documents and notices to
hold a shareholders'
meeting to elect Directors, of which Photonics will recommend 3
Directors to be specified by REP-
T, Inc.
(x) The proxy notice of shareholder meeting shall be sent within 5
days of the SEC
approving such proxy statement.
(xi) The effective date of acquisition shall be the date of the
shareholders meeting, subject
to shareholder approval of such acquisition.
(xii) REpipeline is authorized to handle all public statements as
same are to be approved by
the President or Chief Financial Officer or Attorney or duly
authorized person of each respective
company. All news releases are to conform to all local, state,
federal and securities guidelines.
Year 2000
The Company did not suffer any internal Year 2000 issues from its
own information system,
databases, programs and communication equipment. Additionally, it
is our belief that the
Company's hardware and software are Year 2000 compliant.
The Company has not suffered any adverse effects on the Company's
operations for the year 2000
readiness of key distributors, suppliers, customers, vendors and
financial service organizations.
The Company introduced a line of new products of PC based Y2K BIOS
upgrade during 1999.
The sales of this product dropped significantly since the first of
the year 2000.
There can be no assurance, however, that there will not be a delay
in, or increased costs associated
issues related to Year 2000 still unknown to the Company at this
time, and potential impact and
related costs are unknown at this time.
Liquidity and Capital Resources
The Company has working capital of $.075 million and its current
liabilities exceed its current
assets by $4.3 million. During the first quarter of 1999, the
Company retained Hagerty Steward, an
investment banking firm, and Donald Yu, a financial adviser to
raise capital and arrange a new loan
for the Company. Both attempts failed. Liquidity and capital
resources of the Company became
non-existent at December 31, 1999. It is management's opinion that
unless the above discussed
acquisition is completed; the only alternative will be for the
Company to file either Chapter 11 for
reorganization or Chapter 7 liquidation.
Other Matters
To reduce cost, the Company decided to change Company's independent
public auditor from BDO
Seidman to Hein and Associates, LLC of Dallas Texas. Subsequent to
the filing of the Company's
10-K Annual Report, the Company decided to change it's independent
public auditor from Hein
and Associates, LLC to Turner Stone & Associates, Dallas, Texas.
The Company filed and 8-K
with the SEC relating to this change on June 6, 2000.
On Aug. 1, 1999, to reduce operating the expenses, the Company
moved to smaller quarters at
1222 Alderwood Av., Sunnyvale, CA. 94089. The Company is no longer
able to maintain the old
mainframe based MIS system and installed a PC based MIS system for
the Company's financials.
This together with change of financial personnel, and document
filing system may cause auditing
difficulties at the year-end.
The Asian financial crisis impacted the Company negatively as two
major vendors of the Company
went bankrupt in Asia, including Actionwell, which supplied 90% of
Company's products and
provided major share of business credit to the Company. Managing
Director of Actionwell, K. C.
Yeung was a board member and officer of the Company.
Item 2.1 Financial Statements
The financial statements and supplementary data provided pursuant
to this Item are included
herewith in pages F-1 through F-19.
Item 8. Changes in and Disagreements with Accountants of
Accounting and Financial Disclosure
No Change
PART III
Item 9. Directors, Executive Officers, Promoters and Control
Persons; Compliance with Section
16a of the Exchange Act
The following table sets forth certain information with respect to
the executive officers and
directors of the Company. All board member and officers of the
Company resigned on June 23,
1999. Before resignation, the Board appointed Mr. James T. Koo,
the former CEO of the Company
to an orderly shut down and sell the Company.
Name Age
Position with the Company
James T. Koo 59 Managing Consultant
Mr. Koo is an unpaid consultant of the Company. He served as the
President and member of the
Board of DTC since 1994. From 1992 to 1994 he was a Vice President
of Qume Corporation and
General Manager of DTC Data Technology Corporation, then a wholly
owned subsidiary of Qume
Corporation. Prior to joining DTC, Mr. Koo was with Mosel-Vitelic,
a developer and
manufacturer of memory integrated circuits, from 1984 until April
1992. There he held several
positions including Senior Vice President of Engineering,
Operations, Marketing, Marketing and
Sales of Taiwan Operations, and other management positions.
Indemnification Agreement
The Company's Articles of Incorporation and Bylaws provide for
indemnification of the officers
and directors of the Company to the full extent permitted by law.
The General Corporation Law of
the State of California permits a corporation to limit under
certain circumstances, a director's
liability for monetary damages in actions brought by or in the
light of the corporation. The
Company's Articles of Incorporation also provide for the
elimination of the liability of directors for
monetary damages to the full extent permitted by law.
However, as all the Board of Directors and Officers of the Company
have resigned, the Company
no longer carries director and officers' insurance. At present,
there is no pending litigation or
proceeding involving a director, officer or employee of the Company
as to which indemnification
is sought, nor is the Company aware of any threatened litigation or
proceeding that may result in
claims for indemnification.
The Company understands that the staff of the SEC is of the opinion
that statutory, charter, and
contractual provisions as those described above have no effect on
claims arising under the federal
securities laws. The Company is not aware of any material
threatened or ongoing litigation or
proceeding, which may result in a claim for such indemnification.
Item 10. Executive Compensation
Executive officers having cash compensation in excess of $100,000
paid or accrued for services
rendered during the years ending December 31,1998 and December 31,
1999 are as follows:
Compensation Long
Term Compensation
Name and Year Salary Bonus
Stock Option All Other
Prin. Position Ending $ (3) $
Award $ (2)
Shares (1)
James T. Koo, 12/31/99 0 0
0 0
Pres,CEO,Dir. 12/31/98 124,744 0
5,000 2,000
1. In fiscal 1998 an option to purchase 5,000 shares of
Photonics was awarded to Mr. Koo
and to each of the Directors who had served on the Board for a full
year. These options were
granted in appreciation of the time and effort afforded to the
Company by the Directors who serve
without remuneration. As of December 31, 1999, all outstanding
options of Mr. Koo have expired.
2. Mr. Koo was a participant in the DTC 401(k) shared savings
plan during 1998. The
Company, as provided for in the 'employer match' provision of the
plan, contributed $2,000.
3. The salary compensation reflected a temporary 10% salary
reduction instituted during the
year 1998. Starting Nov. 8, 1998, Mr. Koo has been working without
pay due to financial
difficulties of the Company.
4. Company Executive Officers exercised no stock options during
1999.
5. Board of Director's Report on Repricing of Options/SARs.
Item 10. There was no repricing of options/SARs during the year
ended Dec. 31, 1999. All
outstanding options of the Company, included those granted to all
employees, officers and board
directors have expired as of December 31, 1999.
Item 11. Security Ownership of Certain Beneficial Owners and
Management
The following table sets forth the shares of the Company's Common
Stock beneficially owned on
December 31, 1999, by (i) each person who is known by the Company
to be the beneficial owner
of more than five percent of the Common Stock, (ii) by each of the
former directors, (iii) by each of
the former executive officers listed in the Summary Compensation
Table for 1999, and (iv) by all
former directors and officers as a group. The options, warrants
and common and preferred stock
represented in this table reflect the 1 for 7 reverse split of
Photonics stock with became effective
February 9, 1996 prior to the finalization of the merger.
The acquisition of DTC was consummated on March 5, 1996. The
agreement as ratified by DTC
Data Technology Corporation's Shareholders at their meeting held on
February 6, 1996, specifies
"The Board of Directors of DTC would file a Certificate of
Dissolution in the state of Delaware
after consummation of the Acquisition. Thereafter, DTC shall
continue for a term of three years or
longer". The dissolution is complete, the conversion of DTC stock
to Photonics stock is affected at
a conversion rate of 0.147853. All calculations of beneficial
ownership, exercise and conversion of
all outstanding options, warrants and other right to purchase
shares of common or preferred stock
uses this multiplier as though the dissolution had in fact
occurred.
Shares
Beneficially Note #
Percent
Beneficial Owner Owned (1)
Owned
David S. Lee,
Chairman of the Board 1,106,521 17.5%
c/o Photonics Corporation
1222 Alderwood Avenue,
Sunnyvale, CA 94089
Broadsino Computer
Development, Ltd. (2) 891,412
13.7%
K.C. Yeung
Room 1101, 1103
and 1104 Star Center
443-451 Castle Peak Road
Kwai Chung NT, Hong Kong
Domex Technology
Corporation 779,612
11.7%
No. 2, Technology Rd. 1,
Science-Based Industrial Park
Hsinchu, Taiwan, ROC
James T. Koo, President 536,762
8.1%
c/o Photonics Corporation
1222 Alderwood Avenue,
Sunnyvale, CA 94089
Robert P. Dilworth,
Director 15,491
*
c/o Photonics Corporation
1222 Alderwood Avenue,
Sunnyvale, CA 94089
John Miao, Director 155,000
2.3 %
c/o Photonics Corporation
1222 Alderwood Avenue,
Sunnyvale, CA 94089
All Officers and Directors
as a group (5 persons) 2,710,288
40.6%
* Denotes less than 1%
1. Percentage calculations are based upon 4,336,186 shares of
Common Stock, 2,328,136
shares of Preferred stocks. All warrants or options have expired
as of December 31, 1999.
Beneficial Ownership is determined in accordance with the rules of
the Securities and Exchange
Commission and generally includes voting or investment power with
respect to securities. Except
as indicated by footnote, and subject to community property laws
where applicable, the persons
named in the table above have sole voting and investment power with
respect to all shares of
Common and Preferred Stock and options or warrants to purchase
stock.
2. Broadsino filed for bankruptcy at the end of 1999. UCO Bank
Hong Kong took over the
ownership of both common and preferred shares previously owned by
Broadsino in 2000.
Percentage calculations are based upon 4,396,271 shares of Common
Stock, 2,320,136 shares of
Preferred stocks. All warrants or options have expired as of
December 31, 1999.
Item 12. Certain Relationships and Related Transactions
A former member of the Board of Directors and Vice President of DTC
Hong Kong (See Item 11,
note 6) is also President of the Company's prime subcontractor,
ActionMedia, for the production of
the Company's storage controllers, which meets approximately 90% of
the Company's product
requirements. ActionMedia filed bankruptcy in 1999.
The Company entered into an agreement with CMC Industries ("CMCI"),
a company owned by
DTC's largest shareholder and Chairman of the Board, wherein CMCI
assumed and paid specific
vendor invoices of the related party who is the Company's prime
sub-contractor. This note bore
interest at 12% per annum, balance due upon demand. At December
31, 1996 the Company owed
a total in principle and interest of $431,894. In conjunction with
the private placement of the
Company's Series A Convertible Preferred Stock, this debt was
converted to said stock at $1.00 per
share.
Item 13. Exhibits and Reports on Form 8-K
EXHIBIT II
Computation of Earning per Common Share
December 31, December 31,
1999 1998
Weighted Average
Common Shares
Outstanding 4,396,271 4,485,595
Net <loss> income <$ 836,514> $<2,917,000>
Basic <loss> earnings
per common share $ <.19> $ <0.67>
Exhibit 2.1 Plan of Acquisition, Reorganization, etc.
The Company transferred all assets of its operating division, DTC
data technologies, to Sunnyvale
Technologies Corporation and sold 90% of Sunnyvale Technologies
Corporation. See
Management Discussion and Analysis above.
Exhibit 27.1 Financial Data Schedule
The Financial Data Schedule has been filed electronically in
accordance with the regulations of the
Securities and Exchange Commission.
Reports on Form 8-K
The Company filed a Form 8-K on June 25, 1999 reporting the
Company's decision of cease
operation and sale of the Company.
The Company filed a Form 8-K on April 12, 2000 reporting a change
in Auditors, Sale of
Sunnyvale Technologies and change of location for The corporate
headquarters.
The Company filed a Form 8-K on June 5, 2000 reporting a change in
Auditors to Turner Stone &
Associates, Dallas, Texas./
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
/s/ Koo
James T. Koo
Managing Consultant
Dated: June 16, 2000
Sunnyvale, California
INDEX TO FINANCIAL DOCUMENTS
AUDITOR' REPORT
F
-1
CONSOLIDATED BALANCE SHEET ......................F-2,
F-3
CONSOLIDATED STATEMENTS OF OPERATIONS
F
-4
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
F
-5
CONSOLIDATED STATEMENTS OF CASH FLOWS
F
-6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F
-7-17
Independent Auditor's Report
Board of Directors
Photonics Corporation
and Subsidiaries
San Jose, California
We have audited the accompanying consolidated balance sheet of
Photonics Corporation and
subsidiaries, as of December 31, 1999, and the related consolidated
statements of operations,
stockholders' deficit, and cash flows for the year then ended.
These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express
an opinion on these consolidated financial statements based on our
audit. The consolidated
financial statements of Photonics Corporation as of December 31,
1998 were audited by other
auditors whose report dated April 21, 1999 expressed an unqualified
opinion on those consolidated
financial statements and included an explanatory paragraph relating
to the Company's ability to
continue as a going concern.
We conducted our audit in accordance with generally auditing
standards. Those standards require
that we plan and perform the audit to obtain reasonable assurance
about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management,
as well as evaluating the overall financial statement presentation.
We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the 1999 consolidated financial statements referred
to above present fairly, in all
material respects, the financial position of Photonics Corporation
and subsidiaries, as of December
31, 1999, and the results of their operations and their cash flows
for the year then ended in
conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been
prepared assuming that the Company
will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, the
Company has suffered recurring losses from operations and has a net
capital deficiency that raise
substantial doubt about its ability to continue as a going concern.
Management's plans in regard to
these matters are also described in Note 1. The consolidated
financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
Turner Stone & Associates
Dallas, Texas
Certified Public Accountants
June 13, 2000
F-1
PHOTONICS CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
Assets
1999 1998
Current assets:
Cash $ - $ 42,000
Accounts receivables, trade net of
allowance for doubtful accounts
of $0 and $82,710, respectively -
313,000
Contract of sale receivable 75,000 -
Due from stockholder - 52,000
Inventories - 350,000
Prepaid expenses and other assets - 59,000
Total current assets 75,000 816,000
Property and equipment, at cost, net of
accumulated depreciation of $0
and $2,667,000, respectively - 21,000
Other assets - 15,000
$ 75,000 $ 852,000
The accompanying notes are an integral part of the consolidated
financial statements.
F-2
PHOTONICS CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
Liabilities and Stockholders' Deficit
1999 1998
Current liabilities:
Accounts payable, trade $ 2,097,523 $ 1,450,000
Accrued expenses 361,968 372,000
Due to ADL 497,070 1,115,000
Line of credit - 147,000
Notes payable, stockholder 1,013,000 934,000
Current portion of long-term notes payable -
-
Total current liabilities 3,969,561
4,018,000
Long-term debt payable, net of current portion - -
Commitments and contingencies - -
Minority interest in subsidiary - 125,000
Stockholders' deficit:
Preferred stock, $1.00 par and liquidation
value, 6,000,000 shares authorized,
2,328,136 and 2,328,136 issued and
outstanding, respectively, dividends in
arrears of 443,817 and $211,000, respectively
2,328,136 2,328,000
Common stock, $.001 par value, 20,000,000
shares authorized, 4,396,271 and 4,396,271
shares issued and outstanding, respectively
4,396 4,396
Paid in capital in excess of par 44,091,604
44,091,604
Accumulated deficit ( 50,318,697) ( 49,869,000)
Accumulated other comprehensive income -
154,000
( 3,894,561) ( 3,291,000)
$ 75,000 $ 852,000
The accompanying notes are an integral part of the consolidated
financial statements.
F-3
PHOTONICS CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1999 AND 1998
1999 1998
Revenues, net of returns and allowances $ 750,226 $
3,484,000
Cost of revenues 332,916 2,952,000
Gross profit 417,310 532,000
Operating expenses:
Product development - 376,000
General and administrative 857,648
2,461,000
Impairment of long lived assets - 303,000
857,648 3,140,000
Operating loss ( 440,338) ( 2,608,000)
Other income (expense):
Interest expense ( 339,770) ( 389,000)
Gain on sale of available for sale securities -
50,000
Gain on abandonment of minority interest 125,000
-
Other income 52,611 292,000
Other expenses - ( 50,000)
( 162,359) ( 97,000)
Loss before income taxes ( 602,697) ( 2,705,000)
Federal and state income taxes 1,000 1,000
Net loss $( 603,697) $( 2,706,000)
Preferred stock dividends $ 232,817 $ 211,000
Net loss available to common stockholders $( 836,514) $(
2,917,000)
Loss per share:
Basic $( .19) $( .67)
Diluted $( .19) $(
.67)
The accompanying notes are an integral part of the consolidated
financial statements.
F-4
PHOTONICS CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
YEARS ENDED DECEMBER 31, 1999 AND 1998
Additional Accumulated
Preferred Stock Common Stock Paid-In
Accumulated Other Comp.
Shares
Amount Shares Amount Capital
Deficit Income Total
Balance at January 31, 1998 2,106,009 $ 2,106,000
4,364,148 $ 4,396 $ 44,085,604 $( 47,163,000) $
154,000 $( 813,000)
Issuance of common stock
under stock option plans
32,123 6,000
6,000
Issuance of preferred stock
for cash 222,127 222,000
222,000
Net income (loss)
( 2,706,000) ( 2,706,000)
Balance at December 31, 1998 2,328,136 2,328,000
4,396,271 4,396 44,091,604 ( 49,869,000)
154,000 ( 3,291,000)
Rounding 136
136
Net income (loss)
( 603,697) ( 603,697)
Reclassification adjustment
for foreign currency
translation
154,000 ( 154,000) -
Balance at December 31, 1999 2,328,136 $ 2,328,136
4,396,271 $ 4,396 $ 44,091,604 $( 50,318,697) $
- $( 3,894,561)
The accompany notes are an integral part of the consolidated
financial statements.
F-5
PHOTONICS CORPORATION
AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1999 AND 1998
1999 1998
Cash flows from operating activities:
Net loss $( 603,697) $( 2,706,000)
Adjustments to reconcile net loss to net cash
used in operating activities:
Gain on sale of available for sale securities -
( 50,000)
Loss on impairment of long lived assets -
303,000
Issuance of preferred stock in exchange for debt
425,950 122,000
Depreciation 6,471 14,000
Net recovery of doubtful accounts - (
88,000)
Advances 52,000 -
Accounts receivable 255,235
1,003,000
Inventories 331,674 570,000
Prepaid expenses and other assets 53,469
( 1,000)
Accounts payable 647,523 24,000
Accrued expenses ( 1,104,032) ( 69,000)
Due to AMI - 514,000
Minority interest 125,000 -
543,290 2,342,000
Cash provided by operations ( 486,221)
( 364,000)
Cash flows from investing activities:
Cash sold to related corporation ( 10,393)
-
Proceeds from sale of investment -
221,000
Purchase of property and equipment 25,544
( 87,000)
Cash used in investing activities
15,151 134,000
Cash flows from financing activities:
Proceeds from line of credit -
2,167,000
Repayments of line of credit ( 147,000) (
2,020,000)
Proceeds from short-term debt - 230,000
Repayments of short-term debt - (
216,000)
Sale of preferred stock - 100,000
Issuance of common stock from options -
6,000
Shareholder loans proceeds 576,070 -
Cash used in financing activities 429,070
267,000
Net increase (decrease) in cash ( 42,000) 37,000
Cash at beginning of period 42,000 5,000
Cash at end of period $ - $ 42,000
The accompanying notes are an integral part of the consolidated
financial statements.
F-6
PHOTONICS CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business and operations
Photonics Corporation, dba DTC Data Technology (the Company,
Photonics, DTC), a California
corporation, resulted from merger of Photonics Corp. with DTC Data
Technology in March of
1996. The Company designs, develops, and markets Integrated Device
Electronics (IDE) and
Small Computer Systems Interface (SCSI) disk controller cards and
Input/Output (I/O) products for
personal computers.
During the first half of 1999, the Company introduced several new
PC projects and a family of
Y2K BIOS compliant upgrade products. However, due to financial
difficulties, no new products
were introduced in the second half of 1999 and the newly introduced
products were not adequately
supported. As a result, in June 1999, the board of directors voted
to shut down business operations
and attempt to sale the Company or its assets.
Principles of consolidation
The accompanying consolidated financial statements include the
general accounts of the Company
and its two subsidiaries, Qume Taiwan (QT) and DTC Hong Kong
(DTCHK). Through December
31, 1998, the Company owned a 99.4% interest in the QT subsidiary
with the remaining .6%
interest representing the minority stockholders' proportionate
share in the equity of QT. During
early 1999, the Company abandoned its interest in QT. All
intercompany transactions, accounts
and balances have been eliminated in the consolidation and there
were no material intervening
transactions.
Basis of presentation and going concern uncertainty
The consolidated financial statements of the Company have been
prepared assuming that the
Company will continue as a going concern. The Company has incurred
recurring losses and as of
December 31, 1999 has a working capital deficit of approximately
$3,900,000 and was in default
on its operating line of credit. These conditions, among others,
give rise to substantial doubt about
the Company's ability to continue as a going concern. Over the
past five years, the Company has
sold portions of its business considered to be outside the scope of
its strategic focus in order to
supplement working capital resources and reduce dependence on bank
financing, and is currently
in the process of negotiating a merger which management believes
will ultimately lead to the
Company being able to sell additional shares of its stock.
Additionally, the Company has ceased
operations and sold all assets for cash to prepare for a pending
merger/acquisition.
Management believes that these steps, as well as outside investment
participation, will provide the
Company with the opportunity to achieve its objectives of obtaining
certain value for the creditors
and shareholders alike. There is, however, no assurance that the
steps taken or programs in place
will meet all of the Company's needs to consummate the pending
merger/acquisition or that it will
continue as a going concern. The consolidated financial statements
do not include any adjustments
that might result from the outcome of this uncertainty.
F-7
PHOTONICS CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Management estimates
The preparation of financial statements in conformity with
generally accepted accounting principles
requires management to make estimates and assumptions that affect
the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements
and the reported amounts of revenues and expenses during the
reporting period. Actual results could
differ from those estimates.
Cash flows
For purposes of the consolidated statement of cash flows, the
Company considers all highly liquid
investments with original maturities of three months or less to be
cash equivalents. None of the
Company's cash is restricted.
Revenue recognition
Revenue is generally recognized upon shipment of product. Sales to
distributors are made pursuant
to agreements which provide the distributors certain rights of
return and price protection on unsold
merchandise. Revenues from such sales are recognized upon
shipment, with a provision for
estimated returns and allowances recorded at that time.
Property and equipment
Property and equipment is stated at cost less accumulated
depreciation. Depreciation of property
and equipment is being provided by the straight-line method over
estimated useful lives of three to
seven years. Assets held under capital lease obligations are
amortized by the straight-line method
over the shorter of the lease term or the estimated useful life of
the assets, generally three to seven
years. For the years ended December 31, 1999 and 1998,
depreciation expense totaled $17,015 and
$14,000, respectively.
At December 31, 1999 (prior to the DTC sale (Note 14)) and 1998,
property and equipment was
comprised of the following.
1999 1998
Equipment $ 2,317,000 $ 2,317,000
Furniture and fixtures 277,000 277,000
Leasehold improvements 94,000 94,000
2,688,000 2,688,000
Less accumulated depreciation ( 2,684,015) (
2,667,000)
$ 3,985 $ 21,000
F-8
PHOTONICS CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Inventories
Inventories are stated at the lower of cost or net realizable value
(market) and consists of raw
materials, work in process and finished goods that have not been
shipped to customers. The cost of
inventory is determined using the first-in, first-out method. At
December 31, 1999 (prior to the
DTC sale (Note 14)) and 1998, inventory consisted of the following
components.
1999 1998
Raw materials $ 5,327 $ 88,000
Work-in-process - 62,000
Finished goods 12,999 200,000
$ 18,326 $ 350,000
Foreign currency translation
The Company's foreign subsidiaries located outside the United
States use the local currency as its
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' deficit. For foreign
entities operating in U.S. dollars, net non-monetary assets are
translated at historical exchange
rates, and net monetary assets are translated at current exchange
rates. Translation gains and losses
are included in the determination of the results of operations.
Loss per share
Basic loss per share amounts are computed using the weighted-
average number of common stock
shares outstanding during the periods. Diluted loss per share
amounts are computed using the
weighted-average number of common and common equivalent shares
outstanding during the
periods.
As a result of the losses incurred in 1999 and 1998, common
equivalent shares relating to the
convertible preferred stock (Note 3) of 2,328,136 in 1999 and
2,447,545 in 1998 were antidilutive
and, accordingly, were excluded from the computation of loss per
share for those years.
Short-term investments
Short-term investments, consisting of publicly traded preferred and
common stock, are stated at fair
value. The Company has adopted SFAS No. 115, Accounting for
Certain Investments in Debt and
Equity Securities. SFAS No. 115 requires companies to classify
investments in debt and equity
securities with readily determinable fair values as "held-to-
maturity," "available-for-sale," or
"trading" and established accounting and reporting requirements for
each classification. The
Company classifies all short-term investments as "available-for-
sale." Securities classified as
available-for-sale are reported at their fair market value with
unrealized gains and losses reported
as a separate component of stockholders' deficit.
F-9
PHOTONICS CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Long-lived assets
The Company periodically reviews its long-lived assets and certain
identifiable intangibles for
impairment. When events or changes in circumstances indicate that
the carrying amount of an
asset may not be recoverable, the Company writes the asset down to
its net realizable value. In
1998, the Company determined that $216,000 of intangible assets
from the prior year and $87,000
of current year expenditures for intangible assets, no longer had
economic value to the Company as
part of a business plan restructuring. Accordingly, the Company
recognized a one time charge of
$303,000 for the impairment of the related assets. The company
incurred no substantial
impairment of long-lived assets charge during 1999.
Stock based incentive program
SFAS No. 123, "Accounting for Stock-Based Compensation," encourages
entities to recognize
compensation cost for stock-based employee compensation plans using
the fair value method of
accounting, as defined therein, but allows for the continued use of
the intrinsic value method of
accounting prescribed by Accounting Principles Board (APB) Opinion
No. 25, "Accounting for
Stock Issued to Employees." The Company has not granted options
since May 1998, and continues
to use the accounting prescribed by APB Opinion No. 25. As such,
the Company is required to
disclose pro forma net income and loss per share amounts as if the
fair value method of accounting
has been applied (Note 8).
2. ADOPTION OF NEW ACCOUNTING PRONOUNCEMENTS
In February 1998, the Financial Accounting Standards Board (FASB)
issued SFAS No. 132,
Employer's Disclosure about Pensions and Other Postretirement
Benefits, which standardizes the
disclosure requirements for pension and other postretirement
benefits. The adoption of SFAS No.
132 did not impact the Company's current disclosures.
In June 1998, the FASB issued SFAS No. 133, Accounting for
Derivative Instruments and Hedging
Activities. SFAS No. 133 requires companies to recognize all
derivatives contracts as either assets
or liabilities in the balance sheet and to measure them at fair
value. If certain conditions are met, a
derivative may be specifically designated as a hedge, the objective
of which is to match the timing
of gain or loss recognition on the hedging derivative with the
recognition of (i) the changes in the
fair value of the hedge asset or liability that are attributable to
the hedge risk or (ii) the earnings
effect of the hedged forecasted transaction. For a derivative not
designated as a hedging
instrument, the gain or loss is recognized in income in the period
of change. SFAS No. 133 is
effective for all fiscal quarters of fiscal years beginning after
June 15, 1999.
The Company has not entered into derivatives contracts either to
hedge existing risks or for
speculative purposes. Accordingly, the adoption of this new
standard on July 1999 did not affect
its financial statements.
F-10
PHOTONICS CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. PREFERRED STOCK
In December 1996, the Company entered into a Private Placement
Memorandum (PPM) for the
sale of up to 3,600,000 shares of Series A Convertible Preferred
Stock, at 1.00 per share, with
minimum lots being 25,000 shares. The Series A Convertible
Preferred Stock is convertible into
common stock on a 1 for 1 basis, and carries a provision for a 10%
cumulative dividend, with
dividends in arrears greater than 12 months being payable in the
form of common stock at the
equivalent rate of $1.00 per common share. The Series A shares
also have a liquidation preference
of $1.00 per share and voting rights. As of December 31, 1999 and
1998, the Company had issued
2,328,136 and 2,328,136 shares of preferred stock, respectively,
under the PPM agreement. In
addition, the preferred stock provides for the mandatory conversion
into an equal number of shares
of the Company's common stock, provided that the stock maintain a
closing bid price of $2.50 per
share for a period of twenty consecutive days.
As of December 31, 1999 and 1998, the Company had dividends in
arrears greater than 12 months
due of $443,817 and $211,000, respectively. As such, these
dividends in arrears will be paid
through the issuance of common stock.
4. INVESTMENT IN AVAILABLE-FOR-SALE SECURITIES
As of January 1, 1998, the Company held 22,500 shares of
outstanding common stock of CMC
Industries Corporation at a cost of $171,000 (Note 10). The
Company received the stock in
exchange for a note payable to David Lee, who was Chairman of Board
of both companies. In
March 1998, the Company sold the shares for cash proceeds of
$221,000.
5. SHORT AND LONG-TERM DEBT
Line of credit
In April 1998, the Company obtained a bank line of credit which
provides for borrowings up to
$2,000,000, expiring on April 30, 2000. The bank line is
collateralized by the Company's assets,
bearing interest at prime rate plus 3.0% (approximately 11.25% and
10.75% as of December 31,
1999 and 1998, respectively) on a minimum daily loan balance of
$1,000,000, with interest rate
reductions for meeting certain tangible net worth criteria. In
addition, the agreement contains
restrictive covenants regarding accounts receivable balances and
tangible net worth, as defined, of
at least $300,000. The Company was not in compliance with certain
restrictive covenants during
1999 and 1998. However in October 1999, the line of credit was
revoked and repaid from the
bank's direct collections of Company accounts receivable.
Notes payable
The Company's long-term debt consists of various notes payable
financing transportation and other
equipment. These notes are generally payable monthly over terms of
two to six years with interest
rates ranging from 8.0% to 15.0%, are secured by the items of
equipment being financed and
contain no significant restrictions or debt covenants. During the
year ended December 31, 1998,
all of these notes were repaid.
F-11
PHOTONICS CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. COMMITMENTS AND CONTINGENCIES
Leases
Through July 1999, the Company conducted its operations from
facilities leased under non-
cancelable operating lease agreements expiring through 2003. The
leases required the Company to
pay certain maintenance and operating expenses such as taxes,
insurance and utilities. In August
1999, the Company moved to a smaller facility in Sunnyvale,
California and negotiated with the
landlord a total rent obligation of $82,715 for the entire lease
term. For the years ended December
31, 1999 and 1998, rent expense approximated $119,000 and $189,000,
respectively.
At December 31, 1999, the Company has no future minimum rental
payments obligations under
capital or operating lease agreements.
Legal matters
The Company is subject to legal proceedings that arise in the
ordinary course of business.
Management does not believe that the outcome of any of these
matters will have a material adverse
effect on the Company's consolidated financial position, operating
results or cash flows.
7. EMPLOYEE BENEFIT PLANS
The Company maintains a Shared Savings Plan (the SSP) covering
substantially all of its U.S.
employees. The SSP allows employees to defer from 2% to 12% of
their compensation to the
maximum amount permitted by law. Employee and Company
contributions are considered tax
deferred under Section 401(k) of the Internal Revenue Code. Under
the terms of the SSP, the
Company will contribute, on a quarterly basis, shares of its common
stock to each employee's
account equal in value to 40% of the employee's contributions,
limited, however to $2,000 or 6%
of compensation per calendar year, whichever is less. The
Company's contributions vest at the rate
of 25% for each full year of service, as defined, but become 100%
vested upon normal retirement,
disability or death. During the years ended December 31, 1999 and
1998, the Company made no
contributions of common stock to the SSP.
8. STOCK OPTION PLAN
The Company's stock option plan (the 1997 Stock Option Plan) allows
for the issuance of incentive
and nonqualified stock options to employees and consultants of the
Company and authorizes the
issuance of up to 840,000 shares of the Company's common stock.
Options granted under the Plan
are generally for periods not to exceed ten years and generally
must be at prices not less than 100%
and 85%, for incentive and nonqualified stock options,
respectively, of the estimated fair value of
the stock on the date of grant as determined by the Board of
Directors. Options granted to
shareholders who own greater than 10% of the outstanding stock are
established at the estimated
fair value of the stock on the date of grant.
F-12
PHOTONICS CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A summary of the status of the Company's stock options is as
follows:
Weighted-Average
Share Exercise
Exercise Fair Remaining
Options Price
Price Value at Life
Grant
Balance,
December 31, 1997 448,091 $ 0.16- 1.69 $ 0.38
6.99
Granted 87,500 0.06- 0.66 0.52
0.35
Canceled ( 144,191) 0.16- 0.38 0.29
Exercised ( 32,123) 0.16- 0.25 0.17
Balance,
December 31, 1998 359,277 $ 0.06- 1.69 $ 0.47
8.12
Granted -
Canceled -
Expired ( 359,277) 0.06- 1.69 0.47
Balance,
December 31, 1999 -
FASB Statement 123, Accounting for Stock-Based Compensation,
requires the Company to
provide pro forma information regarding net income and earnings per
share as if compensation cost
for the Company's stock option plans had been determined in
accordance with the fair value
method prescribed in FASB Statement 123. The Company estimates the
fair value of the stock
options at the grant date by using the Black-Scholles option
pricing-model with the following
weighted-average assumptions used for grants in 1998: dividend
yield of 0; expected volatility of
167 percent; risk-free interest rates of 4.7; and expected lives of
5 to 10 years for the plan options.
Under the accounting provisions of FASB Statement 123, the
Company's net loss and loss per
share would have been changed to the pro forma amounts indicated
below.
1999 1998
Net loss attributed to common shareholders:
As reported $( 836,514) $( 2,917,000)
Pro forma ( 836,514) ( 2,970,000)
Basic and diluted loss per share:
As reported $( .23) $(
0.67)
Pro forma ( .23) (
0.68)
During 1999, no additional options were granted and all outstanding
options expired with
employee termination.
F-13
PHOTONICS CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. RELATED PARTY TRANSACTIONS
Actionwell Development, Ltd. (ADL)
A former member of the Board is President of the Company's prime
subcontractor for the
production of the Company's storage controllers, which met
approximately 90% of the Company's
requirements (Note 16). For the years ended December 31, 1999 and
1998, the Company
purchased approximately $2,481,000 and $1,025,000 from this prime
subcontractor, respectively.
As of December 31, 1999 and 1998, amounts due to this subcontractor
were approximately
$497,070 and $1,115,000, respectively. During the year ended
December 31, 1999, AWI filed for
bankruptcy protection.
Note receivable, stockholder
In March 1997, the Company received a non interest bearing
unsecured note totaling $300,000
from a shareholder in exchange for preferred stock. As of December
31, 1999 and 998, the
Company, at the direction of the shareholder, had offset $300,000
and $248,000, respectively of the
note against $819,000 accounts payable due to the shareholder.
Notes payable, stockholders
During 1999 and 1998, the Company entered into debt agreements with
shareholders for
approximately $79,000 and $934,000, respectively. A summary of
these debt agreements follows:
Years ended December 31,
1999 1998
Bridge loan to shareholder at the rate of 15%;
due on demand; convertible to preferred stock
at $1.00 per share $ 529,000
$ 450,000
Bridge loan to shareholder at the rate of 10%;
due on demand; convertible to preferred stock
at $1.00 per share 229,000
229,000
Bridge loan to shareholder at the rate of 15%;
due on demand; convertible to preferred stock
at $1.00 per share 255,000
255,000
Total $ 1,013,000 $
934,000
10. SEGMENT INFORMATION
The operations of the Company are in one industry segment and
include primarily the design,
development, manufacture and sales of controller boards. The
Company's customers consist
primarily of original equipment manufacturers, value-added
resellers, value-added distributors,
system integrators and dealers in this industry.
F-14
PHOTONICS CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the year ended December 31, 1998, three customers accounted for
46% of net revenues. At
December 31, 1998, these three customers accounted for 66% of
accounts receivable.
For the year ended December 31, 1999, five customers accounted for
46% of net revenues. At
December 31, 1999, these five customers accounted for 100% of
accounts receivable (prior to the
DTC sale (Note 14)).
11. INCOME TAXES
The Company accounts for corporate income taxes in accordance with
Statement of Financial
Accounting Standards (SFAS) No. 109. Under SFAS No. 109, deferred
tax assets and liabilities are
recognized for the estimated future tax consequences attributable
to differences between the financial
statement carrying amounts of existing assets and liabilities and
their respective tax bases. In
addition, future tax benefits, such as those from net operating
loss carry forwards, are recognized to
the extent that realization of such benefits is more likely than
not. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable
income in the years in which those
temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the
period that includes the enactment
date.
A reconciliation of income tax expense at the statutory federal
rate of 34% to income tax expense at
the Company's effective tax rate for the years ended December 31,
1999 and 1998 is as follows.
1999 1998
Tax benefits computed at statutory rate $(
205,257) $( 920,040)
Increase in valuation allowance 205,257
920,040
Permanent and other differences - -
State income taxes 1,000 1,000
$ 1,000 $ 1,000
Significant components of the Company's deferred tax assets
(benefits) and liabilities are
summarized below.
1999 1998
Depreciation $ 32,000 $ 32,000
Reserves not currently deductible -
318,000
Accrued liabilities - 77,000
Net operating losses 35,562,000
35,357,000
Tax credit carryovers 2,075,000
2,075,000
Valuation allowance ( 37,669,000) (
37,859,000)
$ - $ -
F-15
PHOTONICS CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 1999 and 1998 income tax expense
is comprised of the following
components.
Current tax expense $ 1,000 $ 1,000
Deferred tax expense - -
$ 1,000 $ 1,000
As of December 31, 1999, the Company has approximately $102 million
of regular net operating
losses to offset future Federal income tax. These carry forwards
expire in the years 2001 through
2018. In addition, the Company has approximately $2.1 million of
Federal tax credits expiring
2000 through 2010.
The Tax Reform Act of 1986 imposed substantial restrictions of the
utilization of net operating loss
and tax credit carry forwards in the event of an "ownership change"
as defined by the Internal
Revenue Code. If the Company has an "ownership change" as defined
by the Internal Revenue
Code (Note 14), the Company's ability to utilize the Federal and
California net operating losses
could be reduced. The Company has not made this determination as
of December 31, 1999.
12. OTHER STATEMENT OF CASH FLOWS DISCLOSURES
For the years ended December 31, 1999 and 1998, supplemental
disclosures of cash flow information is as follows:
1999 1998
Cash paid for interest $ 156,935 $ 156,000
Cash paid for income taxes 1,000 1,000
Non cash investing and financing activities:
Issuance of preferred stock in payment of
accounts payable - 122,000
Decrease note receivable, stockholder in payment
of accounts payable - 107,000
Sale of assets in exchange for contract receivable
75,000 -
13. FINANCIAL INSTRUMENTS
The Company's financial instruments, which potentially subject it
to credit and other risks, consists
of its cash, accounts receivable, short-term debt and notes
payable, stockholders.
Cash
The Company maintains its cash in bank deposit and other accounts,
which, at times, may exceed
federally insured limits. The Company has not experienced any
losses in such accounts and does
not believe it is exposed to any significant credit risks involving
its cash.
F-16
PHOTONICS CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Accounts receivable, trade
The Company accounts receivable result from granting credit to its
customers without collateral on
a net thirty day basis to its customers located primarily in the
United States and Taiwan (through
early 1999). The Company believes its customer acceptance, billings
and collections procedures
are adequate to protect the Company against any significant credit
risks involving its accounts
receivable. At December 31, 1999 and 1998, 100% and 66%,
respectively, of the Company's
accounts receivable were represented by five and three customers,
respectively (Note 10).
Management believes their accounts receivable are fairly stated at
estimated net realizable
amounts.
Short-term debt
Management believes the carrying value of the Company's short-term
debt, primarily accounts
payable and the line of credit arrangement, represent the fair
value of these financial instruments
because their terms are similar to those in the lending market for
comparable debt with comparable
risks.
Notes payable, stockholders
Management believes the carrying value of these notes represent the
fair value of these financial
instruments because their terms are similar to those in the lending
market for comparable loans
with comparable risks.
14. SUBSEQUENT EVENT
In March 2000, the Company entered into a purchase and sales
agreement with a corporation
owned by a stockholder and former officer of the Company. The
agreement was effective
December 31, 1999. Pursuant to the agreement, the acquiring
corporation purchased the remaining
assets of the Company by assuming $60,500 of liabilities and for
$75,000 cash, which was paid to
the Company in April 2000. This transaction has been reflected in
the accompanying consolidated
financial statements as occurring on the December 31, 1999
effective date. Below is a schedule of
the assets sold in the transaction for the above consideration
totaling $135,000.
Cash $ 10,393
Accounts receivable 102,796
Inventories 18,326
Other assets 3,985
$ 135,000
F-17
Exhibit 2.11
PURCHASE AND SALE AGREEMENT
for
DTC Data Technology Assets and Certain Liabilities
This agreement is made effective December 31, 1999, by and between
James Koo ("Buyer"), and
Photonics Corporation, 1222 Alderwood Ave., Sunnyvale, CA 94089, a
California corporation
("Seller").
Whereas, Seller is operating under an plan of liquidation for the
benefit of its debt holders and
shareholders: and
Whereas, DTC Data Technology ("DTC") is an operating division of
Seller, but is not a core asset
for reorganization; and
Whereas, Seller has received two offers to purchase the inventory
of DTC, consisting of two lots,
for $ 14,500 and $ 5,100 , respectively, both offers dated July 29,
1999, and attached hereto as
Exhibit "A"; and
Whereas the line of credit established by Seller against the
accounts receivable 's of DTC has been
reduced to the loan balance of $22,760 against an Accounts
Receivable of $531, 816 at end of
October 1999 after an auditing by the bank, without the guarantee
of Buyer but conditioned upon
an advance of $ 15,000 by Buyer as further described in Exhibit "B"
attached; and
Whereas, Seller has received one purchase offer for the name,
trademark and other intangible
assets of DTC in an amount equal to $ 50,000 which offer has
expired under its own terms , as
further described in Exhibit "C" attached; and
Whereas, Buyer is a major shareholder of Seller, the former CEO,
and has been a member of the
Board of Directors and now serves in the capacity of Liquidation
Trustee; and
Whereas, Seller has entered into an acquisition/merger agreement
with RealEsate4Sale.com
(RE4S) as of February 2, 2000; And
Whereas, after proper due diligence, the Board of Directors of
RealEstate4Sale.com has
determined that the DTC assets are not core assets for the purpose
of the merger and future
operations.
Now therefore, in consideration of the mutual promises and
conditions contained in this agreement
and for valuable consideration, the receipt and adequacy of which
are hereby acknowledged and
confessed, the parties hereto agree as follows:
1.0 Incorporation of DTC. Seller agrees to incorporate its
operating division, DTC as follows:
(a) Incorporate the business owned by Seller, being conducted
under the business name DTC,
located at 1222 Alderwood Av. Sunnyvale, California into a new
entity ("the Business");
(b) The Business shall include as its assets and liabilities the
following:
(i) all of the stock in trade, inventory, and merchandise of DTC
as described in Exhibit "D"
attached to this agreement;
(ii) all of the fixtures, equipment, and other tangible assets of
DTC as shown on attached Exhibit
"E";
(iii) any leasehold interest owned by Seller under the lease for
the premises where DTC is located;
(iv) all the accounts receivable, trade, business name, trademark,
patents, goodwill, and other
tangible or intangible assets of DTC; and
(v) all business operating liabilities incurred by DTC after
December 31, 1999 save and except
for any liabilities relating to any claim, lawsuit, judgment or
other civil action that was commenced
or relates to the time period prior to December 31, 1999. Such
liabilities are listed in Exhibit "F"
attached hereto.
(vi) All shares owned by Seller of DTC Hong Kong, a corporation
incorporated in the special
district of Hong Kong, China.
1.1 Stock Dividend. Following the incorporation of the Business,
Seller shall declare a stock
dividend to its shareholders, which shall be comprised of ten
percent (10%) of the shares of the
Business. Seller shall be responsible for the issuance of the
appropriate shares to its shareholders
and shall use the date of the incorporation of the Business as the
"record date" for the determination
of the recipients of the stock dividend.
2.0 Purchase Price. The total purchase price ("Purchase
Price") to be paid by Buyer to Seller
for ninety percent (90%) of the shares of the Business shall be $
75,000 cash.
3.0 Approval by the Shareholders of Seller. The obligations
of both the Buyer and Seller are
subject to the ratification and approval of the closing of this
Agreement by the shareholders and
board of directors of Seller. Such approval shall be obtained by
the calling of a special meeting of
the shareholders and a special meeting of the board of directors
of Seller. The ratification and
approval of this Agreement shall be listed as part of the agenda in
the "Notice and Call for a
Special Meeting of the Shareholder of Photonics Corporation". At
the Special meeting of the
shareholders, this Agreement shall be read into the minutes of the
meeting and its ratification and
approval shall be voted upon by the shareholders. The procedure
for such ratification and
approval of the closing of this agreement shall be in accordance
with the Articles and By-laws of
Photonics Corporation. The shareholders shall elect a board of
directors that shall then approve
this Agreement.
4.0 Closing. The closing of the sale and purchase of the Business
("the Closing") shall take place
at the law firm of Cecil Shelton Mathis, PC, on or before March 31,
2000, or at such other place
and date as the parties may agree to in writing.
At the closing the Seller shall:
(a) Transfer ninety percent (90%) of the shares of the Business
to Buyer;
(b) execute the Assignment of Assumed Name Certificate attached
as Exhibit "H" to this
agreement;
(c) execute any other documents necessary to finalize this
Agreement.
At the Closing the Buyer shall:
(a) pay the Purchase Price to Seller; and
(b) execute any other documents necessary to finalize this
Agreement.
The liabilities and obligations incurred by Seller in connection
with the Business prior to December
31, 2000 are assumed by Seller, except the lease obligation of the
office located at 1222 Alderwood
Av. Sunnyvale, Ca. Liabilities and obligations relating to DTC or
the Business incurred after
December 31, 1999 will be assumed by the Buyer, except those
derived from liabilities and
obligations incurred before December 31, 1999.
5.0 Conditional Agreement. In the event that the shareholders
and the board of directors of the
Seller fail to ratify and approve this agreement, this agreement
shall be null and void and the
Buyer will have a right of first refusal for any sale of the assets
of Photonics Corp. Seller shall
refund the $75,000, less any costs paid relating to the pending
sale, immediately upon any such
failure to ratify before June 30, 2000 and within three business
days thereafter, Buyer shall transfer
the 90% of the shares of the Business to Seller. Pending
shareholder and board of director
approval of Seller, Buyer shall continue to operate the Business as
he in his sole discretion deems
to be in the shareholders best interests, provided, Buyer shall
not incur any debt in the name of the
Business or distribute any assets of the Business.
6.0 Choice of Law. This Agreement shall be governed by the laws
of the State of California.
AGREED the first date stated above.
SELLER: BUYER:
Photonics Corporation James T. Koo
/s/ Steve Wurzburg
/s/ James T. Koo
By: Steve Wurzburg, Secretary
/s/ James T. Koo
By: James T. Koo, Consultant & Former CEO
APPENDIX D
FORM 10-KSB
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 Fiscal Year Ended December
31, 1998
[ ] 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)
606 Charcot Avenue (408)546-5600
San Jose, California 95131
(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 May 1,
1999 was 4,378,529 shares.
-1-
PHOTONICS CORPORATION
INDEX
PART I 148
Item 1. Business 148
General 148
Products and the Market 148
The Competition 149
Intellectual Property 149
Manufacturers 149
Patents and Licenses 150
Significant Customer 150
Backlog 150
Employees 150
Item 2 - Office 150
Item 3 - Legal Proceedings 150
Item 4 - Submission of Matters to a Vote of Security Holders.
150
PART II 151
Item 5 - Market Price for Registrant's Common Equity and Related
Stockholder Matters. 151
Item 6 - Selected Financial Data. 151
Item 7 - Management's Discussion and Analysis of Financial
Condition and Results of
Operations 152
Year 2000 153
Liquidity and Capital Resources 153
Other Matters 154
Item 7a. Qualitative and Quantitative Disclosures about Market
Risks 154
Item 8 - Financial Statements 154
Item 9 - Changes in and Disagreements with Accountants on
Accounting and Financial
Disclosure. 155
PART III 155
Item 10 - Directors and Executive Officers 155
Indemnification Agreement 156
Item 11 - Executive Compensation 156
Item 12 - Security Ownership of Management 157
Item 13. Related Transactions, Changes in Securities. 158
PART IV 158
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K. 159
SIGNATURES 159
EXHIBITS
PART I
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.
Item 1. Business
General
Photonics dba Data Technology resulted from the merger of Photonics
Corporation and DTC Data
Technology Corporation in 1996. Shortly after the merger, the
Company decided to focus on the
IDE, SCSI, I/O and BIOS upgrade business of DTC and ceased
activities in the infrared Wireless
LAN business of
Photonics.
DTC stockholders own a majority of the shares of the combined
entity, and the management and
control of the merged Company comes from DTC. The transaction was
accounted for as though
DTC was the acquirer. The historical results of operations of
Photonics Corporation dba DTC Data
Technology, as reported herein, are those of DTC Data Technology.
AS DTC has the name recognition and established sales channels, in
June of 1996 the Company
filed a fictitious name statement with the State of California and
conducts its business as DTC Data
Technology. The legal entity is Photonics Corporation dba DTC Data
Technology. For brevity
sake the Company is herein after referred to as DTC or the Company.
Products and the Market
The Company has exited the Infrared Wireless LAN market. The
Company then granted an
exclusive (except existing agreements for Apple related products)
license to Moldat Wireless
Technologies Ltd. ("Moldat") of Lod, Israel, during 1997. This
license has been revoked during
1998 for non-payment of royalties.
The Company markets Input and Output ("I/O"), Integrated Device
Electronics ("IDE"), BIOS
upgrade, and Small Computer Systems Interface ("SCSI") add on card
products and host adapters
for IBM compatible personal computers ("PC"). DTC's products
connect between a PC's central
processing unit and storage devices such as floppy and hard disks,
CD-ROMs, and other peripheral
devices such as printers, scanners, and digital cameras.
One time, DTC had dominated the IDE and Enhanced IDE ("EIDE") add-
on card market. Today,
most new PCs have the IDE function built-in on the mother board.
Sales have changed from
mainly OEM to VARs and system integrators through distribution and
retailers for the upgrade
after market.
The PC market has seen a dramatic growth of peripheral devices,
such as the removable storage
devices, scanners, and digital cameras, there exists a need for
additional I/O ports, or higher speed
I/O ports for the upgrade market for existing PCs. DTC markets a
variety of high performance
parallel, and serial port devices to satisfy this need through the
same distribution and retail
channels.
The BIOS upgrade allows older machines to access large disks and be
Y2K compliant. The rapid
increase in the size of Hard Disks opened up a BIOS upgrade market.
About 10% of new machines
and up to 90%+ machines two or more years old are not Y2K compliant
due to non-compliant
BIOS . The Company plans to introduce a family BIOS upgrade
products to address the Y2K issue
in 1999.
The SCSI controller, due to its high performance, and high
connectivity is the controller of choice
for high-end personal computers, engineering work stations,
Internet and enterprise file servers.
The market has been growing 30 to 40% per year for the past 4-5
years to over $1 billion. During
1998, the low end SCSI market saw the collapse of the scanner
market, the high end experienced
the demise of the desk top market due to the low cost PCs.
However, the growth is expected to
resume as the SCSI markets for Internet and Intranet servers
continue to grow.
The SCSI controller market is dominated by Adaptec with over 70% of
the market. It pursues a
premium pricing strategy with gross margin consistently around 60%.
AS compatibility is a key
issue for SCSI add on cards, the Company intents to re-enter the
SCSI market with a family of
Adaptec compatible PCI-SCSI products. When introduced, the Company
will be the first to offer
an Adaptec compatible SCSI cards. However, due to financial
limitations, this project has been put
on hold in Q4 1998.
The Competition
Many vendors have dropped out of IDE and I/O market. DTC plans to
remain in that market place
as long as demand remains viable. Promise and SIIG remain in the
upgrade and I/O add-on
markets and compete with the Company's I/O and IDE family of
products. DTC has broad sales
channels, strong name recognition along with access to low cost-
manufacturing when compared
with either of these competitors. In the BIOS upgrade market, main
competitors are Unicore and
AMI. Both of them have high operating cost and sell through direct
channels. In the SCSI market,
Adaptec is the main competitor. The Company's low end Adaptec
compatible products sales
declined as the low end SCSI market declined. DTC currently also
markets a family of non-
Adaptec compatible PCI-SCSI (high end). The Company plans to
improve the competitiveness of
the high end PCI-SCSI family during 1999.
The markets with which DTC operates are characterized by intense
competition, rapid
technological and product changes, changing market requirements,
dependence upon highly skilled
personnel, and significant expenditures for product and marketing
development. DTC has a
number of present and potential competitors, many of whom have
substantially greater financial,
marketing and other resources than DTC. If DTC's competitors
introduce new products which
offer improved performance and/or lower prices, DTC's revenue and
income could be adversely
affected.
DTC believes that the principal competitive factors in the storage
controller market are
compatibility, brand recognition, performance, sales support and
competitive pricing. DTC
believes it meets these important criteria.
Intellectual Property
Software and proprietary ASIC designs are important ingredients 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 and IDE ASICs, acquired the
design right to the ASIC used in
its low end DTC50c18 ISA-SCSI, and was 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 any of
its current or planned IDE, I/O, or SCSI products.
Manufacturers
Substantially all of DTC's products are manufactured by companies
located in the Far East. At the
present time over 90% of the Company's products requirements are
produced in China by
Broadsino Computer Development, Ltd. Of Hong Kong.
In order to achieve early market introductions, the Company uses
either ASICs developed or co-
developed by DTC, ASIC design subcontractors, and ASIC vendors, or
standard ICs marketed by
semiconductor vendors.
Patents and Licenses
The Company holds various patents and intends to apply for
additional patents when it believes it
is advantageous to do so. DTC believes, however, that much of its
important technology resides in
its proprietary hardware, software and trade secrets.
Certain technologies have in the past been licensed to DTC from
third parties. Those licenses are
generally perpetual, worldwide and, DTC believes, on commercially
reasonable terms.
Significant Customer
During the fiscal year ended December 31, 1998 Ingram-Micro
accounted for 21% of net sales,
Smart and Friendly accounted for 11% of net sales and Comp USA, a
retailer, accounting for 14%
of net sales.(See Notes to Financial Statements, note 9). However,
since April of 1998, Comp USA
has stopped ordering from the company due to a financial dispute.
Backlog
DTC does not believe that backlog is a meaningful indicator of
future sales. It is common industry
practice for purchasers of DTC's products to issue purchase orders
on a month to month basis
rather than contract for delivery of products over an extended
period of time. DTC's sales are
primarily made pursuant to purchase orders and contracts which are
consistent with common
industry practice, and may be canceled or modified by customers to
provide for delivery at a later
date with little or no penalties.
Employees
As of December 31, 1998 DTC employed 20 individuals, 19 who were on
a full-time basis and 1
who were considered part time or temporary employees. Nineteen of
these employees were located
in the United States. None of DTC's employees are represented by a
labor union and DTC
considers its employee relations to be good.
Item 2 - Office
The Company's principal executive and administrative office has
moved from Milpitas, Ca. to a
14,000 square foot facility in San Jose, California in July 1998
which the Company believes are
adequate for the Company's current plans. The current monthly
rental, including common area
maintenance, is approximately $15,000. This lease runs through the
year 2003.
Item 3 - Legal Proceedings
During Sept. 1998, Dynasales, a former sales representative of the
Company filed claim against
the Company for past commissions. The Company agreed to pay a
total amount equal to
approximately $14 thousand dollars. Dynasales agreed to suspend its
legal proceedings.
At the end of Dec. 31, 1998, there is no further legal action
pending, However, due to the financial
status of the Company not being able to meet the back payment to
vendors, several of them
threatened to file suit against the Company.
The Company believes it is diligent in protecting it's employees,
and fair in its treatment of them,
but cannot guarantee that such a claim will not be made in the
future.
From time-to-time DTC is involved in routine litigation as part of
is 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 4 - Submission of Matters to a Vote of Security Holders.
An annual Shareholder's meeting was held on May 22, 1998 at the
Corporate Office located at
1515 Centre Pointe Dr., Milpitas, California 95035. No matters were
submitted during the fourth
quarter of 1998 to a vote of security holders through the
solicitation of proxies or otherwise There
are no matters pending which will require the vote of the security
holders.
PART II
Item 5 - Market Price for Registrant's Common Equity and Related
Stockholder Matters.
The Company's Common Stock trades on the Over The Counter Bulletin
Board ("OTCBB") under
the symbol: PHOX for the original Photonics Corporation and under
the symbol DTEC for the pre-
merger DTC Data Technology Corporation. Such prices necessarily
reflect inter dealer prices,
without retail markup, mark down or commission and may not
necessarily represent actual
transactions.
PHOTONICS High Low
DTEC High Low
After 3/6/96 Merger
Fiscal YE 2/29/96
Second Quarter(6/30/96) 1.25 .25
First Qtr (5/30.95) .50 .19
Third Quarter(9/3096) 1.00 .25
Second Qtr (8/31/95) .38 .13
Fourth Quarter(12/31/96) 0.875 .375
Third Qtr (11/30/95) .19 .16
Fourth
Qtr.(2/29/96) .218 .062
Fiscal YE 12/31/97 Fiscal
YE 12/31/97
First Quarter 0.875
.375 .0625
.05
Second Quarter .4375 .25
.12
.05
Third Quarter .4375
.125 .09
.027
Fourth Quarter .375
.0625 . 0547
.02
Fiscal YE 12/31/98 Fiscal YE 12/31/98
First Quarter .75
.25 .05
.03
Second Quarter .75 .50
.12
.04
Third Quarter 1.125 .50
.125
.04
Fourth Quarter .625 .25
.05
.03
Neither Photonics Corporation nor DTC Data Technology has
historically paid cash dividends on
its common stock. As of December 31, 1998, the Company had
preferred dividends in arrears
greater than 12 months due of $211,000. These dividends in arrears
will be settled via the issuance
of common stock. The
Company currently intends to retain all future earnings for use in
its business and does not
anticipate paying any cash dividends in the foreseeable future.
Item 6 - Selected Financial Data.
The following table sets forth certain selected financial data with
respect to the Company and is
qualified in its entirety by reference to the financial statements
filed herewith:
BALANCE SHEET DATA
(000)
12/31/98 12/31/97 12/31/96
2/29/96
-------------------------------------------------------------
----
-----------
Total Assets 852 2,807
2,113 2,443
Total Liabilities 4,018 3,495
4,437 7,078
Long Term Debt 0 477
0 0
Stockholders Equity (3,291) (813)
(2,449) (4,770)
STATEMENT OF OPERATIONS
For the period 01/01/98 01/01/97 03/01/96
03/31/95
12/31/98 -12/31/97 -12/31/96 -02/29/96
------------------------------------------------------------
Sales 3,484 5,662 5,184
11,310
Loss from Operations (2,608) ( 759) (1,932)
(2,986)
Net Income (Loss) (2,706) (459) 876
(2,581)
Basic and diluted
income(loss) per share (.62) ( .11) .19
(.89)
Item 7 - Management'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
1997 10-KSB contains detailed
risk factors that may contribute to the actual results for 1998 and
beyond which could materially
differ from forward-looking statements made by the Company.
The Company's revenues in fiscal 1998 decreased to $3.484 million
or 38% under 1997 revenues
of $5.622 million. The Company suffered a major setback in the
second quarter due to an
unexpectedly large promotional expense associated with a rebate
program of a major retailer.
Afterwards, the Company no longer has adequate cash to purchase
needed inventory for sales or
meet the cash needs to pay all the vendors. The sales of the
Company declined quarter by quarter
as the result.
The gross margin was 15% for 1998, a decrease from 38% of 1997.
This decrease is due to the
Company having a smaller percentage of sales to the retail channel
(higher margin), and smaller
sales being spread over the Company's fixed manufacturing expenses,
and the Company failed to
introduce new products.
Product development expenses were $376 thousand or 11% of the total
sales during the current
year compared with $438 thousand or 8% of fiscal year of 1997.
Because of the financial
difficulties, the SCSI R&D program was put on hold for lack of
funds. The R&D efforts for
additional I/O devices and Y2K BIOS upgrades were continuing and
should result in new products
introduction in 1999. The Company remains firmly committed to new
product development and
believes this is essential for revitalizing the Company.
Selling, general and administrative expenses were $2.461 million,
or 71% of the net sales for the
year 1998 compared to $2.456 million reported in 1997. The slight
decrease is due to the fact that
the Company moved to a smaller building in July of 1998, reduced
the administrative and
marketing and sales staff, and an across board 10% reduction of
salaries of senior management, but
offset by the higher than expected promotional cost with the rebate
program.
Interest expenses in 1997 were $389 compared with $98 thousand of
1997. Per agreement with
Coast Business Credit ("Coast"), interest is approximately $10
thousand per month as it is based on
a minimum $1 million line of credit. At the end of year, Coast has
informed the Company that the
Company is no longer in compliance with the basic covenants with
the loan agreement, but will
give the Company an extension for resolving this violation.
The management realized the need for an equity infusion or a merger
acquisition partner to reverse
the financial status of the Company. In the third quarter, the
Company received a letter of intent to
merge with Broadsino Company Development Ltd., of Hong Kong, the
Company's major supplier.
Broadsino had sales approximately $45 million dollar sales in 1998
and $1.5 million dollars of
after tax profit and with a net asset of $6 million dollars.
During the fourth quarter, the Board of Directors of both companies
approved the merger. The
Company will issue approximately 6 million shares of Preferred A in
exchange for all the shares of
Broadsino shares. However, the major bank of Broadsino objected
the merger, and the merger is
delayed. At the time of writing, both companies are still seeking
ways to merge. The Company's
net loss (before foreign taxes) for fiscal 1998 was $2,706 thousand
compared to $459 thousand of
1997. There was no gain or loss on disposal of assets or
divestiture of business units for the fiscal
year ending December 31, 1998.
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 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 operations and financial
results. As the Company identifies the non-compliant vendors and
service providers, it will then
determine appropriate contingency plans. During the second quarter
of 1999, the Company intends
to develop contingency plans to address potential Year 2000 induced
failures. Because the
Company has no control over third party assessment and remediation
efforts, the Company expects
to focus most of its contingency planning on externally caused
disruptions. In addition, the
Company will develop its plans on its belief that the consequences
of Year 2000 induced failures
will be local in nature. However, the potential impact and related
costs are not known at this time.
Liquidity and Capital Resources
Liquidity and capital resources of the Company significantly
worsened during 1998. At the
Company's 1998 level of revenue, margin, and expenses, it incurred
a substantial cash drain from
the operations. For the year, the cash outflow from operating
activities was $364 thousand, which
is $748 thousand less than that of 1997. To help partially fund
its operation, the Company obtained
a revolving accounts receivable line of credit from Coast in April,
1998. The Company is able to
borrow up to 70% of certain receivables. All customer remittances
are routed to Coast and the
Company is subject to daily reporting. Coast has filed a UCC claim
on all Company's accounts
receivables and assets. Additionally, certain debts of the Company
have been subordinated to
Coast. 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. The Company's source of working
capital during the year has been,
in addition to the credit line from Coast, its accounts payable and
the sale of 100,000 shares of
Series A Convertible Preferred Stock at $1.00 per share.
The Company's accounts payable has increased from $1,426,000 as of
the year ended Dec. 31,
1997 to $1,450,000 as of Dec. 31, 1998. Accounts payable to Action
Well (a subsidiary of
Broadsino) is included in Due to related parties in both years.
The majority of these accounts
payable are over 90 days old and a substantial number of them are
over 180 days. The Company
has been and continues to be threatened with litigation by some of
its trade creditors.
The Company plans a major reduction in work force if the sales do
not recover, and plans to retain
a financial advisor and an investment banking firm to help the
Company to raise the needed capital
in the form of a bridge loan for completing the merger. The
Company further plans to ask vendors
for forbearance for the past due payments until the Company has
raised the needed equity. With
reduced expenses, and introduction of new I/O and Y2K products, the
Company hopes it can
achieve breakeven financially if the market condition is favorable.
However, the Company cannot
assure it can find an investment banker willing to raise the
capital for the Company, the vendors
will agree to forbear with the Company, new products will be
successful in the market place, or the
sales of the new products can make the Company achieve breakeven
financially.
The Company has a shareholders' deficiency of $3.29 million and its
current liabilities exceed its
current assets by $3.20 million. The Company needs to raise
capital in the near term or be faced
with selling itself or bankruptcy. The Company's best prospect for
raising cash in the next few
months is the prior described bridge loan and merger with
Broadsino. No assurance can be given
either one will occur.
The Company's independent certified public accountants modified
their opinion to include an
explanatory paragraph relative to a going concern uncertainty.
At December 31, 1998 there were 2,328,136 share of Series A
Convertible Preferred Stock issued.
The Company's Series A Convertible Preferred Stock ("Preferred
Stock") carries a 10% cumulative
dividend, payable twelve months in arrears in the form of Common
Stock. The Preferred Stock is
convertible at any time at the option of the holder into an equal
number of shares of the Company's
Common Stock and will also have a liquidation preference and voting
rights. At the option of the
Company, the Preferred Stock will be subject to mandatory
conversion into an equal number of
shares of the Company's Common Stock provided that the closing bid
price for the Company's
Common Stock equals or exceeds $2.50 per share (as adjusted for any
subsequent stock dividends,
splits, or combinations of the like) for twenty consecutive trading
days and the Company has a
currently effective registration statement on file with the
Securities and Exchange Commission
covering the underlying Common Stock to be issued upon conversion.
At the time of its sale, the
Preferred Stock, and Common Stock issuable upon conversion thereof,
is not and will not be,
registered under the Securities Act of 1933, as amended (the "Act")
and may not be offered or sold
in the United States absent registration or an applicable exemption
from the registration
requirements. This offering has targeted only sophisticated
investors who meet the definition of
accredited investors as set for in
Rule 501 of Regulation D under the Act.
Except the UCC filing by Coast described above, there are no other
letters of credit, financing
arrangements, indentures or other such credit agreements with
restrictive covenants that will effect
the Company.
Other Matters
Inflation did not have a significant impact upon the results of
operations of the Company during the
two fiscal years ended December 31, 1997 and December 31, 1998.
The Asian financial crisis
impacted the Company negatively as the vendor credits from Asia,
where the Company obtains
most of its products for sale, are more difficult to obtain.
Item 7a. Qualitative and Quantitative Disclosures about Market
Risks
See Item 7 regarding Combined Liquidity and Capital Resources --
see pages 10-11.
Item 8 - Financial Statements
The independent auditors' reports, financial statements and
financial statement schedules listed in
the accompanying index are filed as part of this report. See Index
to Financial Statements and
Financial Statement Schedules on page F-1.
Item 9 - Changes in and Disagreements with Accountants on
Accounting and Financial
Disclosure.
There have been no disagreements between the Registrant and its
independent accountants on any
matter of accounting principles or practices or financial statement
disclosure.
PART III
Item 10 - Directors and Executive Officers
The following table sets forth certain information with respect to
the executive officers and
directors of the Company.
Name Age Position with the
Company
David S. Lee 61 Chairman of the Board
and Director
James T. Koo 57 President, CEO and Director
Wen-Wai Huang 39 Acting Chief Financial Officer
Ki Ching Yeung 37 Vice President and Director
Robert Dilworth 56 Director
John Miao 46 Director
During the year ending December 31, 1998 JoAn Hughes retired from
the Company as Chief
Financial Officer. Wen-Wai Huang has been appointed as the acting
Chief Financial Officer. In
March 1999, John Miao resigned from the Board of Directors. No
replacement is planned at this
time. The plan is to amend the bylaws of the Company to reduce the
minimum number of Board of
Director from five to four.
The following is certain information regarding the persons listed
in the table above:
Mr. Lee has been a member of the Board of DTC since 1986 and the
Chairman of the Board since
1987. From 1985 to 1993 he was the President and Chief Executive
Officer of DTC. Currently,
Mr. Lee is also the Chairman of the Board of Cortelco Systems
Holding Corporation, a company in
the telecommunications business. Mr. Is also a member of the Board
of Directors of CMC
Industries, Inc., Plexsys International Corporation, Linear
Technology Corporation, Synnex
Information Technologies, Inc., California Chamber of Commerce,
National Committee on United
States-China Relations, Inc. and the Tech Museum of Innovation. In
addition, Mr. Lee is a
member of the Board of Regents for the University of California.
Mr. Koo has served as the President and member of the Board of DTC
since 1994. From 1992 to
1994 he was a Vice President of Qume Corporation and General
Manager of DTC Data
Technology Corporation, then a wholly owned subsidiary of Qume
Corporation. Prior to joining
DTC, Mr. Koo was with Mosel Vitelic, a developer and manufacturer
of memory integrated
circuits, from 1984 until April 1992. There he held several
positions including Senior Vice
President of Engineering, Operations, Marketing and Sales of Tai
wan Operations, and Vice
President for the Static Random Access Memory ("SRAM") group.
Ms. Huang was appointed as Acting Chief Financial Officer in Dec.
1998. Prior joining the
Company, Ms. Huang was Senior Accounting manager of Akon, Inc. and
Cardexpert Technology
Inc. in 1998, and 1997 respectively. For years 1990 to 1997, Ms.
Huang was CFO, and Controller
of Focus Information Systems, Inc.
Mr. Yeung has been a member of the Board of Directors, has served
as Vice President of DTC and
President of Data Technology Hong Kong Limited since November of
1994. Since January of
1992 Mr. Yeung has served as President of Broadsino Development
Ltd., Great Concept
Development Ltd., Actionwell Development Ltd., First Alpha Ltd.,
and Unique Computer GmbH.
From 1982 to 1992 he was the President of Unicorn Electronic
Company Ltd., a manufacturer of
electronic components.
Mr. Dilworth has served as a director of DTC since 1987. He is
with VLSI technology. Prior to
that he was the President and Chief Executive Officer of Metricom,
Inc., a manufacturer of RF
pocket radio communications networks and electronic meters. Prior
to joining Metricom, from
1985 to 1987 Mr. Dilworth served as President of Zenith Data
Systems, a microcomputer supplier
and a wholly owned subsidiary of Zenith Electronics Corporation.
Mr. Dilworth is also a director
of VLSI Technology, Inc.
Mr. Miao has served as a director since July of 1997. In 1981 as
founder and President, Mr. Miao
established US operations and management team of American Mitac
Corporation in San Jose,
California. Mr. Miao was active in the capacity until 1989. Mr.
Miao is currently President of
BOC Leinhwa Industrial Gases Co., Ltd. in Taiwan and President of
Hantech Venture Capital
Corporation in Taiwan.
Indemnification Agreement
The Company's Articles of Incorporation and Bylaws provide for
indemnification of the officers
and directors of the Company to the full extent permitted by law.
The General Corporation Law of
the State of California permits a corporation to limit under
certain circumstances, a director's
liability for monetary damages in actions brought by or in the
right of the corporation. The
Company's Articles of Incorporation also provide for the
elimination of the liability of directors for
monetary damages to the full extent permitted by law.
The Company has entered into agreements to indemnify its directors
and officers in addition to the
indemnification provided for in the Articles of Incorporation and
Bylaws. These agreements
provide that the Company will indemnify its directors and officers
for certain expenses (including
attorneys' fees), judgments, fines, and settlement amounts incurred
in any action or proceeding,
including an action by or in the right of the Company, on account
of services rendered as a director
or officer of the Company, as a director or officer of any
subsidiary of the Company, or as a
director officer of any other enterprise to which the person
provides services at the request of the
Company. The Company believes that these provisions and agreements
are necessary to attract and
retain qualified persons as directors and officers. The Company
carries director and officers'
insurance. At present, there is no pending litigation or
proceeding involving a director, officer or
employee of the Company as to which indemnification is sought, nor
is the Company aware of any
threatened litigation or proceeding that may result in claims for
indemnification.
The Company understands that the staff of the SEC is of the opinion
that statutory, charter, and
contractual provisions as those described above have no effect on
claims arising under the federal
securities laws. The Company is not aware of any material
threatened or ongoing litigation or
proceeding which may result in a claim for such indemnification.
Item 11 - Executive Compensation
Executive officers having cash compensation in excess of $100,000
paid or accrued for services
rendered during the years ending December 31,1998 and December 31,
1997 are as follows:
Compensation
Long Term
Compensation
Name and Year Salary Bonus Stock
Option All Other
Principal Position Ending $ (3) $ Award
$ (2)
Shares (1)
James T. Koo, Pres. 12/31/98 124,744 5,000
2,000
CEO & Director 12/31/97 141,015
30,000 2,000
12/31/96 93,472
62,212 2,000
1. In fiscal 1998 an option to purchase 5,000 shares of Photonics
was awarded to Mr. Koo and to
each of the Directors who had served on the Board for a full year.
These options were granted in
appreciation of the time and effort afforded to the Company by the
Directors who serve without
remuneration.
2. Mr. Koo was a participant in the DTC 401(k) shared savings plan.
The Company, as provided
for in the 'employer match' provision of the plan, contributed
$2,000.
3. The salary compensation reflected a temporary 10% salary
reduction instituted during the year.
Starting Nov. 8, 1998, Mr. Koo has been working without pay due to
financial difficulties of the
Company.
Aggregated Option Exercises in Last Fiscal Year And FY-End Option
Values
Securities Value
of
Underlying
Unexercised in the
Unexercised Options Money Options
Value At
FY End # at FY end $
Realized
Exercisable/ Exercisable/
Name # $
Unexercisable Unexercisable
-------------------------------------------------------------------
----------
James T. Koo 0
43,210/36,660 $5,000/$3,000
-------------------------------------------------------------------
----------
No options were exercised by any of the Company's executive
officers.
Board of Director's Report on Repricing of Options/SARs There was
no repricing of options/SARs
during the year ended Dec. 31, 1998.
Item 12 - Security Ownership of Management
The following table sets forth the shares of the Company's Common
Stock beneficially owned at
December 31, 1998, by (I) each person who is known by the Company
to be the beneficial owner
of more than five percent of the Common Stock, (ii) by each of the
directors, (iii) by each of the
executive officers listed in the Summary Compensation Table for
1997, and (iv) by all directors
and officers as a group. The options, warrants and common and
preferred stock represented in this
table reflect the 1 for 5 reverse split of Photonics stock with
became effective February 9, 1996
prior to the finalization of the merger.
The acquisition of DTC was consummated on March 5, 1996. The
agreement as ratified by DTC
Data Technology Corporation's Shareholders at their meeting held on
February 6, 1996, specifies
"The Board of Directors of DTC would file a Certificate of
Dissolution in the state of Delaware
after consummation of the Acquisition. Thereafter, DTC shall
continue for a term of three years or
longer...". After the dissolution is complete, the conversion of
DTC stock to Photonics stock will
be affected at a conversion rate, which is at a
multiplier of 0.147853. All calculations of beneficial ownership,
exercise and conversion of all
outstanding options, warrants and other right to purchase shares of
common or preferred stock uses
this multiplier as though the dissolution had in fact occurred.
Shares
Beneficially Note #
Percent
Beneficial Owner Owned (1)
Owned
David S. Lee 1,168,483
16.9%
Chairman of the Board
c/o Photonics/DTC Data Technology
606 Charcot Ave.
San Jose, CA 95131
Broadsino Computer 916,412 (6)
13.2%
Development, Ltd.
K.C. Yeung
Room 1101, 1103 and 1104 Star Center
443-451 Castle Peak Road
Kwai Chung NT, Hong Kong
Domex Technology 779,612 (5)
11.3%
Corporation
No. 2, Technology Rd. 1,
Science-Based Industrial Park
Hsinchu, Taiwan, ROC
James T. Koo 616,734 (8)
8.9%
President
c/o Photonics/DTC Data Technology
606 Charcot Ave.
San Jose, CA 95131
Robert P. Dilworth 50,373
*
Director
John Miao, Director 155,000 (9)
2.2%
All Officers and 2,917,002 (5 persons)
52.5%
Directors as a group
* Denotes less than 1%
1. Beneficial Ownership is determined in accordance with the rules
of the Securities and Exchange
Commission and generally includes voting or investment power with
respect to securities. Except
as indicated by footnote, and subject to community property laws
where applicable, the persons
named in the table above have sole voting and investment power with
respect to all shares of
Common and Preferred Stock and options or warrants to purchase
stock.
2. Percentage calculations are based upon December 31, 1998
figures of 4,336,186 shares of
Common Stock, 2,328,136 shares of Preferred stock and 243,709
options to purchase stock,
pursuant to the Company's 1997 Stock Option Plan, held by the
beneficial owners.
Item 13. Related Transactions, Changes in Securities.
A member of the Board of Directors and President of Broadsino (See
Item 11, note 6) is also
President of the Company's prime subcontractor for the production
of the Company's storage
controllers, which meets approximately 90% of the Company's
product requirements.
The Company entered into an agreement with CMC Industries ("CMCI"),
a company owned by
DTC's largest shareholder and Chairman of the Board, wherein CMCI
assumed and paid specific
vendor invoices of the related party who is the Company's prime
sub-contractor. This note bore
interest at 12% per annum, balance due upon demand. At December
31, 1996 the Company owed
a total in principle and interest of $431,894. In conjunction with
the private placement of the
Company's Series A Convertible Preferred Stock, this debt was
converted to said stock at $1.00 per
share.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K.
(a) The index to the audited financial statements and financial
statement schedules is included on
page F-1 of this report. The financial statements are included
herein at pages F-3 through F-18. The
following financial statement schedules are included herein at page
16.
Schedule II - Valuation and Qualifying Accounts
(b) Reports on Form 8-K.
None.
(c) Exhibits.
Exhibit 23.1 Consent of Independent Auditors
Exhibit 27.1 Financial Data Schedule
Schedule II - Valuation and Qualifying Accounts
Balance Charged to
Charged Balance
At Beginning Costs and
to Other at End
Description of Period Expenses
Accounts Deductions of Period
---------------------------
--------------------------------------------------
December 31, 1997
Allowances for:
Doubtful Accounts $ 420,000 0
26,000 219,000 $227,000
Inventory Reserve $1,186,000 0
100,000 421,000 $865,000
December 31, 1998
Allowances for:
Doubtful Accounts $ 227,000 0
0 88,000 $139,000
Inventory Reserve $ 865,000 125,000
0 192,000 $798,000
----------------------------
-------------------------------------------------
See accompanying notes to financial statements
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
PHOTONICS CORPORATION
By:/s/
Wen-Wai Huang
Chief Financial Officer
Date: May 17, 1999
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND CONSOLIDATED FINANCIAL STATEMENT
SCHEDULES
Consolidated Financial Statements
Page
------------------------------
----
Report of Independent Certified Public Accountants
F-2
Report of Independent Certified Public Accountants
(Relating to 1997 Financial Statement Numbers)
F-2A
Consolidated Financial Statements
Balance Sheets
F-3, F-4
Statements of Operations
F-5
Statements of Shareholders' Deficiency
F-6
Statements of Cash Flows
F-7
Notes to Financial Statements
F-8 - F-
19
F-1
Report of Independent Certified Public Accountants
The Board of Directors and Shareholders of
Photonics Corporation (dba DTC Data Technology)
We have audited the accompanying consolidated balance sheets of
Photonics Corporation (dba
DTC Data Technology) and subsidiaries as of December 31, 1998 and
the related statements of
operations, shareholders deficiency and cash flows for the year
then ended. In connection with our
audit of the consolidated financial statements, we also have
audited the consolidated financial
statement schedule as listed in the accompanying index. These
consolidated financial statements
and consolidated financial statement schedule are the
responsibility of the Company's management.
Our responsibility is to express an opinion on these consolidated
financial statements and
consolidated financial statement schedule based on our audit. The
consolidated financial statements
of Photonics Corporation and subsidiaries as of December 31, 1997
and for the year then ended,
were audited by Meredith, Cardozo, Lanz & Chiu LLP, whose practice
has been combined with
our Firm and whose report dated February 6, 1998 included an
explanatory paragraph that
described conditions that raised substantial doubt about the
Company's ability to continue as a
going concern.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards
require that we plan and perform our audit to obtain reasonable
assurance about whether the
consolidated financial statements are free of material
misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in
the consolidated financial
statements. An audit also includes assessing the accounting
principles used and significant
estimates made by management, as well as evaluating the overall
consolidated financial statement
presentation. We believe that our audit provides a reasonable
basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material
respects, the consolidated financial position of Photonics
Corporation (dba DTC Data Technology)
and subsidiaries as of December 31, 1998, and the results of their
operations and cash flows for the
year then ended, in conformity with generally accepted accounting
principles. Also in our opinion,
the related consolidated financial statement schedule, when
considered in relation to the basic
consolidated financial statements taken as a whole, presents
fairly, in all material respects, the
information set forth therein.
The accompanying consolidated financial statements have been
prepared assuming that Photonics
Corporation (dba DTC Data Technology) will continue as a going
concern. As discussed in Note 1
to the consolidated financial statements, the Company has incurred
recurring losses from
operations and as of December 31,1998 has a net capital deficiency
and negative working capital.
Additionally, as of December 31, 1998, the Company was in default
on its operating line of credit.
These factors raise substantial doubt about its ability to continue
as a going concern.
Management's plans in regard to these matters are also described in
Note 1. The consolidated
financial statements do not include any adjustments relating to the
recoverability and classification
of reported asset amounts or the amount and classification of
liabilities that might result from the
outcome of this uncertainty.
San Jose, California, April 21, 1999
MEREDITH, CARDOZO, LANZ & CHIU LLP
----------------------------------
Certified Public Accountants
INDEPENDENT AUDITORS' REPORT
----------------------------
To the Board of Directors and Shareholders
Photonics Corporation (dba DTC Data Technology)
We have audited the consolidated financial statements of Photonics
Corporation (dba DTC Data
Technology) and subsidiaries as listed in the accompanying index.
In connection with our audits of
the consolidated financial statements, we also have audited the
consolidated financial statement
schedules as listed in the accompanying index. These consolidated
financial statements and
consolidated financial statement schedules are the responsibility
of the Company's management.
Our responsibility is to express an opinion on these consolidated
financial statements and
consolidated financial statement schedules based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those
standards require that we plan and perform our audits to obtain
reasonable assurance about whether
the consolidated financial statements are free of material
misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material
respects, the consolidated financial position of Photonics
Corporation (dba DTC Data Technology)
and subsidiaries as of December 31, 1997 and 1996, and the results
of their operations and their
cash flows for the fiscal year ended December 31, 1997 and the ten
months ended December 31,
1996, in conformity with generally accepted accounting principles.
Also in our opinion, the related
consolidated financial statement schedules, when considered in
relation to the basic consolidated
financial statements taken as a whole, present fairly, in all
material respects, the information set
forth therein.
The accompanying consolidated financial statements have been
prepared assuming that Photonics
Corporation (dba DTC Data Technology) will continue as a going
concern.. As discussed in Note 1
to the financial statements, the Company's recurring losses from
operations and net capital
deficiency raise substantial doubt about its ability to continue as
a going concern. Management's
plans in regard to these matters are also described in Note 1. The
consolidated financial statements
do not include any adjustments that might result from the outcome
of this uncertainty.
/s/ Meredith, Cardozo, Lanz & Chiu LLP
San Jose, California
February 6, 1998
PHOTONICS CORPORATION
(DBA DTC DATA TECHNOLOGY)
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
December 31,
1998 1997
--------- -------
ASSETS (Note 5)
Current assets:
Cash and cash equivalents
$ 42,000 5,000
Available-for-sale securities (Note 2)
-- 171,000
Due from related parties (Note 10 & 16)
52,000 159,000
Accounts receivable, net of allowance for doubtful
accounts of $139,000 and $227,000,
respectively (Note 14)
313,000 939,000
Other receivables
-- 289,000
Inventories (Note 3)
350,000 920,000
Prepaid expenses and other current assets
59,000 58,000
--------- ---------
Total current assets
816,000 2,541,000
Property and equipment, net (Note 4)
21,000 35,000
Other assets
15,000 231,000
--------- ---------
$ 852,000 2,807,000
========= =========
F-3
PHOTONICS CORPORATION
(DBA DTC DATA TECHNOLOGY)
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
December 31,
1998 1997
--------- --------
LIABILITIES AND SHAREHOLDERS DEFICIENCY
Current liabilities:
Line of credit (Note 5)
$ 147,000 --
Accounts payable
1,450,000 1,426,000
Due to related parties (Notes 10 & 16)
2,049,000 1,105,000
Accrued expenses (Note 11)
372,000 441,000
Other current liabilities
-- 46,000
----------- ---------
Total current liabilities
4,018,000 3,018,000
Due to related parties (Notes 10 & 16)
-- 477,000
----------- --------
Total liabilities
4,018,000 3,495,000
----------- --------
Minority interest in subsidiaries
125,000 125,000
Commitments and contingent liabilities
(Notes 7, 8, 13 and 16)
Shareholders' deficiency (Note 8):
Preferred stock, $1.00 par and liquidation value,
3,600,000 shares authorized; 2,328,136 and
2,106,009 shares issued as of December 31, 1998
and 1997, respectively, dividends in arrears of
$211,000 in 1998
2,328,000 2,106,000
Common stock, $.001 par value, 20,000,000 shares
authorized; 4,378,529 and 4,346,406 issued as of
December 31, 1998 and 1997, respectively
44,085,000 44,079,000
Capital subscription
11,000 11,000
Accumulated deficit
(49,869,000)(47,163,000)
Accumulated other comprehensive income 154,000
154,000
----------- ----------
Total shareholders' deficiency
(3,291,000) (813,000)
---------- ----------
$ 852,000 2,807,000
=========== ===========
See accompanying Notes to Consolidated Financial
Statements.
F-4
PHOTONICS CORPORATION
(DBA DTC DATA TECHNOLOGY)
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
AND THE YEAR ENDED DECEMBER 31, 1997
Year ended December 31, 1998
1997
---- ----
Net revenues (Note 9) $ 3,484,000
5,662,000
Cost of revenues (Notes 10 & 16) 2,952,000
3,487,000
Gross profit
532,000 2,135,000
Operating expenses:
Product development 376,000
438,000
Selling, general and administrative 2,461,000
2,456,000
Impairment of long-lived asset 303,000
--
--------- ----------
Total operating expenses 3,140,000
2,894,000
--------- ----------
Loss from operations (2,608,000)
( 759,000)
Other income (expense):
Interest income
1,000 --
Interest expense
(389,000) (98,000)
Gain on sale of available-for-sale
securities (Note 2)
50,000 --
Other income (Note 12) 291,000
552,000
Other expense
(50,000) (94,000)
--------- ----------
Total other income (expense ) (97,000)
360,000
--------- ----------
Loss before income taxes (2,705,000)
(399,000)
Income taxes (Note 6) 1,000
60,000
--------- ----------
Net Loss
(2,706,000) (459,000)
========= ==========
Preferred Stock Dividend (211,000)
-
Net Loss Attributed to
Common Shareholders (2,917,000)
(459,000)
Basic and diluted loss per common share $ (0.67)
(0.11)
========= ==========
Weighed average common shares
outstanding 4,336,186
4,331,859
========= ==========
See accompanying Notes to Consolidated Financial
Statements.
F-5
PHOTONICS CORPORATION
(dba DTC DATA TECHNOLOGY)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIENCY
FOR THE YEAR ENDED DECEMBER 31, 1998 AND
THE YEAR ENDED DECEMBER 31, 1997
(Dollars in thousands)
PREF STOCK COM STOCK
----------- ----------
CAP ACCUM
SHARES AMOUNT SHARES AMOUNT SUB DEFICIT (A)
(B) TOTAL
-------- ---------- --------- -------------
---- -------- ---- ---- -------
--
(1) -- $ -- 4,323,560 $44,075 $26
$(46,704) $154 $(46,550)
$(2,449)
(2) -- -- 22,846 4
- - - --
4
(3) 2,091,020 2,091 -- -
- - - --
2,091
(4) 14,989 15 -- -
(15) - - --
--
(5) -- -- --
- - (459) - (459)
(459)
-------------------------------------------------------------------
----------
(6) 2,106,009 2,106 4,346,406 44,079 11
(47,163) 15 (47,009)
(813)
(7) -- -- 32,123 6
- -- -- --
6
(8) 222,127 222 -- -
- -- -- --
222
(9) -- -- --
- - (2,706) -- (2,706)
(2,706)
-------------------------------------------------------------------
----------
(10) 2,328,136 $2,328 4,378,529 $44,085 $11
$(49,869) $154 $(46,715)
$(3,291)
========= ====== ========= ======= == ========
==== =======
=======
KEY TO ABOVE TABLE
(A) Accumulated Other Comprehensive Income
(B) Total Comprehensive Loss
(1) Balances as of 1/1/97
(2) Issuance of common stock under the stock option plans
(3) Issuance of Preferred Stock (Note 8)
(4) Capital subscriptions, net
(5) Net loss
(6) Balances as of 12/31/97
(7) Issuance of common stock under the stock option plans
8) Issuance of preferred stock (Note 8)
(9) Net loss
(10) Balances as of 12/31/98
F-6
PHOTONICS CORPORATION
(DBA DTC DATA TECHNOLOGY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1998
AND THE YEAR ENDED DECEMBER 31, 1997
(NOTE 15)
For the Years ended December 31, 1997
1996
Cash flows from operating activities:
Net (loss) income $
(2,706,000) (459,000)
Adjustments to reconcile net (loss)
income to net cash used in operating activities:
Gain on sale of available-for-sale securities
(50,000) --
Loss on impairment of long-lived asset
303,000 --
Issuance of preferred stock for
forgiveness of debt
122,000 59,000
Depreciation and amortization
14,000 82,000
Net recovery of doubtful accounts
(88,000) (193,000)
Changes in operating assets and liabilities:
Accounts receivable
1,003,000 (196,000)
Inventories
570,000 30,000
Prepaid expenses and other current assets
(1,000) 36,000
Accounts payable
24,000 259,000
Due to related parties
514,000 (247,000)
Accrued liabilities
(69,000) (483,000)
---------- ----------
Net cash used in operating activities
(364,000) (1,112,000)
---------- ----------
Cash flows from investing activities:
Proceeds from sale of investment
221,000 57,000
Capital Expenditures
(87,000) (222,000)
---------- ---------
Net cash provided by (used in)
investing activities
134,000 (165,000)
---------- ----------
Cash flows from financing activities:
Proceeds from line of credit
2,167,000 --
Repayment of line of credit
(2,020,000) --
Proceeds from short-term debt
230,000 691,000
Repayments of short-term debt
(216,000) (74,000)
Sale of preferred stock
100,000 557,000
Issuance of common stock through
exercise of options
6,000 4,000
---------- ----------
Net cash provided by financing activities
267,000 1,178,000
---------- ----------
Net (decrease) in cash and cash equivalents
37,000 (99,000)
Cash and cash equivalents, beginning of year
5,000 104,000
---------- ----------
Cash and cash equivalents, end of year $
42,000 5,000
========== ==========
See accompanying Notes to Consolidated Financial
Statements.
F-7
1. Summary of Significant Accounting Policies
The Company
Photonics Corporation, dba DTC Data Technology (the Company,
Photonics), a California
corporation, designs, develops, and markets Integrated Device
Electronics (IDE) and Small
Computer Systems Interface (SCSI) disk controller cards and
Input/Output (I/O) products for
personal computers. In June 1995, Photonics suspended the further
development and production of
products using its technology, ceased all marketing activities
related to those products and
terminated substantially all of its employees. In March 1996,
Photonics Corporation acquired DTC
Data Technology (DTC), a Delaware corporation. Following the
merger, the Company formally
discontinued the marketing of all networking products previously
sold by Photonics, with DTC
being the surviving business unit.
DTC was founded in 1979 as an independent designer, developer and
marketer of intelligent
storage controllers and chip sets used primarily in connection with
IBM-compatible personal
computers. DTC designs proprietary integrated circuits for use in
its storage controllers and chip
sets. These circuits are fabricated by semiconductor manufacturers
based on DTC's specifications.
Final assembly and test of controller boards are performed by
approved vendors both in the United
States and abroad.
Basis of Presentation and Going Concern Uncertainty
The consolidated financial statements of the Company have been
prepared assuming that the
Company will continue as a going concern. The Company has incurred
recurring losses and as of
December 31, 1998 has a working capital deficit of approximately
$3,202,000 and was in default
on its operating line of credit. These conditions, among others,
give rise to substantial doubt about
the Company's ability to continue as a going concern. Over the past
five years, the Company has
sold portions of its business considered to be outside the scope of
its strategic focus in order to
supplement working capital resources and reduce dependence on bank
financing, and is currently
in the process of negotiating a merger which management believes
will ultimately lead to the
Company being able to sell additional shares of its stock.
Additionally, the Company has made
major reductions in workforce and plans to retain a financial
advisor and an investment banking
firm to help the Company raise capital in he form of a bridge loan
for completing the
aforementioned merger.
Management believes that these steps, as well as outside investment
participation and improved
results of operations, will provide the Company with the
opportunity to achieve its objectives.
There is, however, no assurance that the steps taken or programs in
place will meet all of the
Company's needs or that it will continue as a going concern. The
consolidated financial statements
do not include any adjustments that might result from the outcome
of this uncertainty.
Principles of Consolidation
The accompanying consolidated financial statements include the
accounts of the Company and its
majority-owned subsidiaries after elimination of inter company
accounts and transactions.
As of December 31, 1998 and 1997, the minority interest represents
the minority stockholders'
proportionate share of the equity of the subsidiaries, Qume Taiwan
and Data Technology Hong
Kong, Ltd., which was 0.6% and 0.6%, 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 shareholders' deficiency. For foreign
entities operating in U.S. dollars, net
non-monetary assets are translated at historical exchange rates,
and net monetary assets are
translated at current exchange rates. Translation gains and losses
are included in the determination
of the results of operations.
F-8
Cash Equivalents
The Company considers all highly liquid investments with original
maturities of three months or
less to be cash equivalents.
Inventories
Inventories are stated at the lower of cost (first-in, first-out)
or market (net realizable value).
Equipment and Leasehold Improvements
Equipment and leasehold improvements are stated at cost.
Depreciation on equipment and
leasehold improvements is calculated on the straight-line method
over the estimated useful lives of
the assets, generally three to seven years. Assets held under
capital leases are amortized on a
straight-line basis over the shorter of the lease term or the
estimated useful life of the asset.
Revenue Recognition
Revenue is generally recognized upon shipment of product. Sales to
distributors are made pursuant
to agreements which provide the distributors certain rights of
return and price protection on unsold
merchandise. Revenues from such sales are recognized upon shipment,
with a provision for
estimated
returns and allowances recorded at that time.
Advertising Costs
The cost of advertising is expensed as incurred. Advertising costs
for the years ended December
31, 1998 and 1997 were approximately $0 and $74,000, respectively.
Income Taxes
The Company accounts for corporate income taxes in accordance with
Statement of Financial
Accounting Standards (SFAS) No. 109. Under SFAS No. 109, deferred
tax liabilities or assets at
the end of each period are determined using the tax rate expected
to be in effect when taxes are
actually paid or recovered. Deferred income taxes as of December
31, 1998 and 1997, primarily
result from certain expenses that are not currently deductible for
tax purposes.
Earnings Per Common Share
The Company has adopted SFAS No. 128, Earnings Per Share, and has
restated all periods. Basic
earnings per share is computed using the weighted-average number of
common shares outstanding
during the period. Diluted earnings per share is computed using the
weighted-average number of
common and common equivalent shares outstanding during the period.
As a result of the losses incurred in fiscal 1998 and 1997, common
equivalent shares of 2,447,545
in 1998 and 2,226,084 in 1997 were anti-dilutive and, accordingly,
were excluded from the
computation of loss per share for those years.
Short-Term Investments
Short-term investments, consisting of publicly traded preferred and
common stocks, are stated at
fair value. The Company has adopted SFAS NO. 115, Accounting for
Certain Investments in Debt
and Equity Securities. SFAS No. 115 requires companies to classify
investments in debt and equity
securities with
F-9
readily determinable fair values as "held-to-maturity", "available-
for-sale", or "trading" and
established accounting and reporting requirements for each
classification. The Company classifies
all short-term investments as "available-for-sale". Securities
classified as available-for-sale are
reported at their fair market value with unrealized gains and
losses reported as a separate
component of shareholders' deficiency.
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting
principles requires management to make estimates and assumptions
that affect the reported
amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the
financial statements and the reported amounts of revenue and
expenses during the reporting period.
Actual results could differ from those estimates.
Long-Lived Assets
The Company periodically reviews its long-lived assets and certain
identifiable intangibles for
impairment. When events or changes in circumstances indicate that
the carrying amount of an asset
may not be recoverable, the Company writes the asset down to its
net realizable value. In 1998, the
Company determined that $216,000 of intangible assets from the
prior year and $87,000 of current
year expenditures for intangible assets, no longer had economic
value to the Company as part of a
business plan restructuring. Accordingly, the Company recognized a
one time charge of $303,000
for the impairment of the related assets.
Stock-Based Incentive Program
SFAS No. 123, "Accounting for Stock-Based Compensation," encourages
entities to recognize
compensation cost for stock-based employee compensation plans using
the fair value based method
of accounting defined in SFAS No.123, but allows for the continued
use of the intrinsic value
based method of
accounting prescribed by Accounting Principles Board (APB) Opinion
No. 25, "Accounting for
Stock Issued to Employees." The Company has not granted options
since May 1995, and continues
to use the accounting prescribed by APB Opinion No. 25. As such,
the Company is required to
disclose pro forma net income and earnings per share as if the fair
value based method of
accounting has been applied (Note 8).
Fair Values of Financial Instruments
The following methods and assumptions were used by the Company in
estimating its fair value
disclosures for financial instruments:
Cash and cash equivalents:
The carrying amount reported in the balance sheet for cash and cash
equivalents approximates fair
value.
Investment securities:
The fair values for marketable debt and equity securities are based
on quoted market prices.
Short-term debt:
The fair value of short-term debt (principally accounts payable)
approximates cost because of the
short period of time to maturity.
Long-term and related party debt:
The fair value of long-term debt is estimated based on current
interest rates available to the
Company for debt instruments with similar terms and remaining
maturities.
As of December 31, 1998, the fair values of the Company's financial
instruments approximate their
historical carrying amounts.
F-10
Adoption of New Accounting Pronouncements
In February 1998, the Financial Accounting Standards Board (FASB)
issued SFAS No. 132,
Employer's Disclosure about Pensions and Other Postretirement
Benefits, which standardizes the
disclosure requirements for pension and other postretirement
benefits. The adoption of SFAS No.
132 did not impact the Company's current disclosures.
In June 1998, the FASB issued SFAS No. 133, Accounting for
Derivative Instruments and Hedging
Activities. SFAS No. 133 requires companies to recognize all
derivatives contracts as either assets
or liabilities in the balance sheet and to measure them at fair
value. If certain conditions are met, a
derivative may be specifically designated as a hedge, the objective
of which is to match the timing
of gain or loss recognition on the hedging derivative with the
recognition of (i) the changes in the
fair value of the hedged asset or liability that are attributable
to the hedged risk or (ii) the earnings
effect of the hedged forecasted transaction. For a derivative not
designated as a hedging instrument,
the gain or loss is recognized in income in the period of change.
SFAS No. 133 is effective for all
fiscal quarters of fiscal years beginning after June 15, 1999.
Historically, the Company has not entered into derivatives
contracts either to hedge existing risks
or for speculative purposes. Accordingly, the Company does not
expect adoption of the new
standard on July 1, 1999 to affect its financial statements.
Reclassifications
Certain amounts in the 1997 financial statements have been
reclassified to conform with the 1998
presentation.
2. Available-For-Sale Securities
As of December 31, 1997, the Company held 22,500 shares of
outstanding common stock of CMC
Industries Corporation (Note 10). The Company received the stock in
exchange for a note payable
to David Lee, who is Chairman of Board of both companies. In March
1998, the Company sold the
shares for cash proceeds of $221,000.
A summary of available-for-sale securities follows:
1998
1997
-------------------------------------------------------------------
----------
Cost of securities --
$171,000
Unrealized gain (loss) - -
-------------------------------------------------------------------
----------
Total $ --
$171,000
3. Inventories
A summary of inventories follows:
1998
1997
-------------------------------------------------------------------
----------
Raw material $ 88,000
$148,000
Work-in-process 62,000
190,000
Finished goods 200,000
582,000
-------------------------------------------------------------------
----------
Total $350,000
$920,000
F-11
4. Property and Equipment
A summary of property and equipment follows:
1998
1997
-------------------------------------------------------------------
----------
Equipment $ 2,317,000
$2,317,000
Furniture and fixtures 277,000 277,000
Leasehold improvements 94,000 94,000
Sub total 2,688,000
2,688,000
Less accumulated depreciation and
Amortization 2,667,000
2,653,000
-------------------------------------------------------------------
----------
Total $ 21,000
35,000
5. Line of Credit
In April 1998, the Company obtained a bank line of credit which
provides for borrowings up to
$2,000,000, expiring on April 30, 2000. The bank line is
collateralized by the Company's assets,
bearing interest at prime
rate plus 3.0% (10.75% as of December 31, 1998) on a minimum daily
loan balance of $1,000,000,
with interest rate reductions for meeting certain tangible net
worth criteria. In addition, the
agreement contains restrictive covenants regarding accounts
receivable balances and tangible net
worth, as defined, of at least $300,000. The Company was not in
compliance with certain
restrictive covenants during fiscal 1998 and as of December 31,
1998, had not repaid the
outstanding balance as of April 21, 1999 and, therefore, was in
default under the terms of the line
of credit. As of December 31, 1998, the Company had borrowings
outstanding of $147,000.
6. Income Taxes
During 1997, Photonics incurred foreign taxes of approximately
$58,000, relating to income earned
during prior years by the Company's subsidiary in Hong Kong. Income
tax expense for the years
ended December 31, 1998 and 1997 was $1,000 and $60,000,
respectively.
Deferred tax asset (liabilities) comprises the following:
1998 1997
-------------------------------------------------------------------
----------
Depreciation $ 32,000
251,000
Reserves not currently deductible 318,000 371,000
Accrued liabilities 77,000
135,000
Net operating losses 35,357,000
34,275,000
Tax credit carryovers 2,075,000
2,075,000
Valuation allowance
(37,859,000)(37,107,000)
-------------------------------------------------------------------
----------
Net deferred taxes $ - $
-
The Company's effective tax rate differs from the statutory federal
income tax principally as a
result of Federal and state net operating losses for which a full
valuation allowance has been
provided.
As of December 31, 1998, the Company has approximately $101 million
of regular net operating
losses to offset future Federal income tax. These carry-forwards
expire in the years 2001 through
2018. In addition, the Company has approximately $2.1 million of
Federal tax credits expiring
1999 through 2010.
The Tax Reform Act of 1986 imposed substantial restrictions of the
utilization of net operating loss
and tax
F-12
credit carry-forwards in the event of an "ownership change" as
defined by the Internal Revenue
Code. If the Company has an "ownership" change as defined by the
Internal Revenue Code, the
Company's ability to utilize the Federal and California net
operating losses could be reduced. The
Company has not made this determination as of December 31, 1998.
7. Lease Commitments
The Company leases its facilities under non-cancelable lease
agreements expiring through 2003.
The facility leases require the Company to pay certain maintenance
and operating expenses such as
taxes, insurance, and
utilities. Rent expense related to these operating leases was
$189,000 and $177,000 for the years
ended December 31, 1998 and 1997, respectively.
Future minimum annual lease payments for these leases are as
follows:
Year ending December 31.
1999 $182,000
2000 191,000
2001 201,000
2002 211,000
2003 108,000
--------
Total $893,000
8. Capital Stock
Preferred Stock
In December 1996, the Company entered into a Private Placement
Memorandum (PPM) for the
sale of up to 3,600,000 shares of Series A Convertible Preferred
Stock, at $1.00 per share, with
minimum lots being 25,000 shares. The Series A Convertible
Preferred Stock is convertible into
common stock on a 1 for 1 basis, carries a provision for a 10%
cumulative dividend, with dividends
in arrears greater than 12 months being payable in the form of
common stock, the Series A shares
also have a liquidation preference of $1.00 per share and voting
rights. As of December 31, 1998
and 1997, the Company had issued 2,328,136 and 2,106,009 shares of
preferred stock, respectively,
under the PPM agreement. In addition, the preferred stock provides
for the mandatory conversion
into an equal number of shares of the Company's common stock,
provided that the stock maintain a
closing bid price of $2.50 per share for a period of twenty
consecutive days.
As of December 31, 1998, the Company had dividends in arrears
greater than 12 months due of
$211,000. As such, these dividends in arrears will be settled via
the issuance of common stock.
Stock Warrants
As of December 31, 1997, the Company had outstanding warrants for
46,250 shares of common
stock, exercisable at prices from $38.75 per share to $54.00 per
share, relating to a bridge loan
financing and underwriting of the Company's initial public
offering. In November 1998, these
warrants expired without having been exercised.
Stock Option Plans
During 1997, the Company terminated its Photonics and DTC stock
option plans and rolled them
into a new stock option plan (The 1997 Plan). FASB Statement 123,
Accounting for Stock-Based
Compensation, requires the Company to provide pro forma information
regarding net income and
earnings per share as if
F-13
compensation cost for the Company's stock option plans had been
determined in accordance with
the fair value based method prescribed in FASB Statement 123. The
Company estimates the fair
value of the stock options at the grant date by using the Black-
Scholes option pricing-model with
the following weighted-average assumptions used for grants in 1998
and 1997: dividend yield of 0;
expected volatility of 167 and 202 percent; risk-free interest
rates of 4.7% and 5.9%; and expected
lives of 5 to 10 years for the plan options. Under the accounting
provisions of FASB Statement
123, the Company's net loss and loss per share would have been
changed to the pro forma amounts
indicated below:
1998 1997
-------------------------------------------------------------------
----------
Net loss attributed to common shareholders:
As reported $(2,917,000)
$(459,000)
Pro forma $ (2,970,000)
$(506,000)
Basic and diluted loss per share:
As reported $ (0.67) $
(0.11)
Pro forma $ (0.68) $
(0.12)
-------------------------------------------------------------------
---------
1997 Stock Option Plan
The 1997 Plan allows for the issuance of incentive and nonqualified
stock options to employees
and consultants of the Company and authorizes the issuance of up to
840,000 shares of the
Company's common stock. Options granted under the 1997 Plan are
generally for periods not to
exceed ten years and generally must be at prices not less than 100%
and 85%, for incentive and
nonqualified stock options, respectively, of the estimated fair
value of the stock on the date of grant
as determined by the Board of Directors. Options granted to
shareholders who own greater than
10% of the outstanding stock are established at the estimated fair
value of the stock on the date of
grant.
A summary of the status of the Company's 1997 Plan is as follows:
Weighted-Average
-------------------------------
-
Share Exercise Exercise Fair Remaining
Options Price Price Value at Life
Grant
------------
-----------------------------------------------------------------
Balance, January 1, 1997 - $
- $ - - -
Transferred from other plans 255,575 0.16-1.69
0.40
Granted 320,587
0.19-0.38 0.32 0.28
Canceled (110,400)
0.16-1.69 0.28
Exercised (17,671)
0.16 0.16
-----------
------------------------------------------------------------------
Balance, December 31, 1997 448,091 $ 0.16-1.69 $
0.38 6.99
Granted 87,500
0.06-0.66 0.52 0.35
Canceled (144,191)
0.16-0.38 0.29
Exercised (32,123)
0.16-0.25 0.17
----------
-------------------------------------------------------------------
Balance, December 31, 1998 359,277 $0.06-1.69 $
0.47 8.12
---------
-------------------------------------------------------------------
-
In addition to the shares exercised above, 5,175 shares were
exercised in 1997 from the DTC stock
option plan prior to that plan's termination.
F-14
The options outstanding and currently exercisable by exercise price
as of December 31, 1998 are
as follows:
Options Outstanding Options
Currently Exercisable
-------------------------------------------------------------------
----------------------------------------------------
--
Exercise Price (A) (B) (C)
(D) (E)
$0.06 - $0.50 268,611 8.17 $0.27 122,616
$0.24
$0.51 - $1.00 57,500 9.33 $0.66
- $ -
$1.01 - $2.00 33,166 5.58 $1.69
33,166 $1.69
------------------------------------------------------ -------
----------------------------------------------------------
---
KEY TO TABLE
(A) Number Outstanding
(B) Weighted-Average Remaining Contractual Life (Years)
(C) Weighted-Average Exercise Price
(D) Number Exercisable
(E) Weighted-Average Exercise Price
Shared Savings Plan
The Company maintains a Shared Savings Plan (the SSP) covering
substantially all of its U.S.
employees. The SSP allows employees to defer from 2% to 12% of
their compensation to the
maximum amount permitted by law. Employee and Company contributions
are considered tax
deferred under Section 401(k) of the Internal Revenue Code. Under
the terms of the SSP, the
Company will contribute, on a quarterly basis, shares of its common
stock to each employee's
account equal in value to 40% of the employee's contributions,
limited, however to $2,000 or 6% of
compensation per calendar year, whichever is less. The Company's
contributions vest at the rate of
25% for each full year of service, as defined, but become 100%
vested upon normal retirement,
disability or death. The Company made no contributions of common
stock to the SSP during the
years ended December 31, 1998 and 1997.
9. Major Customers
The operations of the Company are in one industry segment and
include primarily the design,
development, manufacture and sales of controller boards. The
Company's customers consist
primarily of original equipment manufacturers, value-added
resellers, value-added distributors,
system integrators and dealers in this industry.
For the year ended December 31, 1998, three customers accounted for
21%, 14%, and 11% of net
revenues, respectively. As of December 31, 1998, three customers
accounted for 35%, 16%, and
15% of accounts receivable, respectively.
For the year ended December 31, 1997, three customers accounted for
22%, 15% and 12% of net
revenues, respectively. As of December 31,1997, two customers
accounted for 25% and 10% of
accounts receivable, respectively.
10. Related Party Transactions
A member of the Board of Directors is President of the Company's
prime subcontractor for the
production of the Company's storage controllers, which meets
approximately 90% of the
Company's requirements (Note 16). For the years ended December 31,
1998 and 1997, the
Company purchased approximately $1,025,000 and $1,072,000 from this
prime subcontractor,
respectively. As of December 31, 1998 and 1997, amounts due to this
subcontractor were
approximately $1,115,000 and $678,000, respectively.
F-15
Notes Receivable
In March 1997, the Company received a note from a shareholder for
$300,000 in exchange for
preferred stock. As of December 31, 1998 and 1997, the Company, at
the direction of the
shareholder, had offset $248,000 and $141,000 of the note against
the then $819,000 accounts
payable due to the shareholder.
Notes Payable
During 1996, the Company entered into debt agreements with
shareholders for approximately
$602,000. These debt agreements bore interest from 10% to 12% and
were convertible to preferred
stock on demand. During the first quarter of 1997, these loans were
converted into preferred stock.
The Company also entered into an agreement with CMC California,
Inc. (CMC), a company owned
by a major shareholder and Chairman of the Board of Directors where
CMC assumed and paid
specific vendor invoices of the related party who is the Company's
prime subcontractor. This note
payable bears interest at 12%, with the balance due on demand. As
of December 31, 1996, the
Company owed approximately $391,000 to CMC. During the first
quarter of 1997, this amount was
converted into preferred stock.
During 1998 and 1997, the Company entered into debt agreements with
shareholders for
approximately $934,000. A summary of these debt agreements follows:
Years ended December 31,
1998 1997
-------------------------------------------------------------------
--------------------------------
Bridge loan to shareholder at the rate of 15%;
due on demand; convertible to preferred stock
at $1.00 per share
$450,000 $295,000
Bridge loan to shareholder at the rate of 10%;
due on demand; convertible to preferred stock
at $1.00 per share
229,000 229,000
Bridge loan to shareholder at the rate of 15%;
due on demand; convertible to preferred stock
at $1.00 per share
255,000 350,000
-------------------------------------------------------------------
------------------------------------
Total
$934,000 $874,000
11. Accrued Expenses
A summary of accrued expenses follows:
1998 1997
-------------------------------------------------------------------
------------------------------------------
Accrued allowances for sales to distributors
$147,000 $221,000
Accrued professional fees
87,000 102,000
Accrued payroll and related expenses
102,000 91,000
Other accrued expenses
36,000 27,000
-------------------------------------------------------------------
-------------------------------------------
Total
$372,000 $441,000
F-16
12. Other Income
A summary of other income follows:
1998 1997
-------------------------------------------------------------------
--------------------------------------------
Debt forgiveness
$252,000 $225,000
Royalty income
1,000 189,000
Miscellaneous other income
38,000 138,000
-------------------------------------------------------------------
--------------------------------------------
Total
$291,000 $552,000
13. Litigation
The Company is involved in litigation arising in the ordinary
course of business. The Company has
been and continues to be threatened with litigation by some of its
trade creditors. In the opinion of
management, after consulting with legal counsel, these matters will
be resolved without material
adverse effect on the Company's financial position, results of
operations or cash flows.
14. Concentration of Credit Risk
Financial instruments which potentially subject the Company to
concentration of credit risk consist
principally of cash and cash equivalents and trade receivables. The
Company places its cash and
cash equivalents with high quality financial institutions and, by
policy, limits the amounts of credit
exposure to any one financial institution.
A significant portion of the Company's accounts receivable are
derived from one major class of
customer (distributors) with the remainder spread across many other
customers in various
electronics industries. The Company believes any risk of accounting
loss is significantly reduced
due to provision being made at the date of the sale for returns and
allowances, diversity of its
products, end-customer, geographic sales areas and insurance on
foreign distributor sales. The
Company performs credit evaluations of its customers' financial
condition whenever necessary.
The Company generally does not require cash collateral or other
security to support customer
receivables.
15. Statements of Cash Flows
Supplemental disclosure of cash flow information:
1998 1997
-------------------------------------------------------------------
------------------------------------------
Cash paid for interest
$156,000 $ 37,000
Cash paid for income taxes
$ 1,000 $ 60,000
Non cash investing and financing activities:
Issuance of preferred stock in payment of note payable
$ - $993,000
Issuance of preferred stock in payment of accounts payable
$122,000 $241,000
Issuance of preferred stock in exchange for note receivable
$ - $300,000
Issuance of note payable for available-for- sale securities
$ - $229,000
Issuance of note payable in payment of accounts payable
$ - $477,000
Decrease note receivable balance in payment of accts payable
$107,000 $141,000
Issuance of preferred stock subscribed
$ - $15,000
-------------------------------------------------------------------
---------------------------------------------
16. Subsequent Events
The Company has entered into discussions with its prime
subcontractor, a related party, for the
possible merger of the two companies. The Company is anticipating
issuing shares of Series A
Preferred Stock in exchange for all the net assets of the related
party, estimated to be $6.5 million.
F-17
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation of our report dated June 3, 1999,
with respect to the consolidated
financial statements and schedules of Photonics Corporation
included in this Form 10-K for the
year ended December 31, 1998.
BDO Seidman, LLP
Accountants and Consultants
San Jose, California
June 4, 1999
APPENDIX E
STOCK PURCHASE AGREEMENT
AND PLAN OF REORGANIZATION
THIS AGREEMENT is entered into as of the 30th day of June,
2000, by and among
PHOTONICS CORPORATION, a California corporation ("the
Corporation"), REPipeline.com, Inc. a
Delaware corporation, a wholly owned subsidiary of Corporation
("Purchaser"), Chip Langston,
individually and agent for all shareholders of REPipeline.com, Inc.
("Selling Shareholders") and
REPipeline.com, Inc., a Texas Corporation ("REP-T")
W I T N E S S E T H :
WHEREAS, Corporation is a publicly held corporation that
desires to combine with a
business which has growth potential (the "Transaction");
WHEREAS, the Corporation entered into a letter purchase
agreement dated February 1, 2000
with RealEsate4Sale.com, Inc., a Texas corporation ("RE4Sale") and
such letter agreement has been
jointly terminated by Corporation and RE4Sale; and
WHEREAS, the Corporation, Purchaser and REP-T each announced
the agreement in
principal for REP-T to acquire the assets and certain liabilities
of RE4Sale and for the Purchaser to
purchase all the outstanding shares of REP-T in exchange for shares
of the Corporation's common
stock; and
WHEREAS, the Corporation will adopt, implement and carry out
certain corporate
resolutions in connections with the closing of the Transaction
including: (a) the conversion of certain
corporate indebtedness to common stock, (b) the Amendment to the
Articles of Incorporation and By-
Laws of Corporation as appropriate and necessary to increase the
number of common shares as stated
hereinbelow and (c) the election of new directors and the
appointment of new officers of the
Corporation and Purchaser; and
WHEREAS, REP-T is a privately held businesses with 10,000,000
shares of common stock
authorized and 5,458,752 shares issued and outstanding that is
engaged in the Internet industry and
appears to have growth potential; and
WHEREAS, Purchaser desires to acquire one hundred percent
(100%) of the issued and
outstanding shares of common stock, $.01 par value, of REP-T (the
"REP-T Common Stock") owned
by the Selling Shareholders in exchange for that number of shares
of common stock, $.001 par value,
of Corporation (the "PHOTONICS Common Stock") that results in the
Selling Shareholders owning
approximately 85% of the total authorized and outstanding shares of
the Corporation at the closing in a
tax-free transaction pursuant to the provisions of Section
368(a)(1)(B) of the Internal Revenue Code of
1986;
NOW, THEREFORE, for and in consideration of the mutual
representations, warranties and
covenants herein contained, and on the terms and subject to the
conditions set forth herein, the parties
hereto agree as follows:
ARTICLE I
PURCHASE AND SALE
1.01 Sale and Purchase of Stock. Subject to and upon the
terms and conditions contained
herein, at the Closing (as hereinafter defined), the Selling
Shareholders shall sell, assign, transfer,
convey and deliver to Purchaser and Purchaser shall purchase,
accept and acquire from the Selling
Shareholders the REP-T Common Stock owned by them.
1.02 Closing. The closing of the transaction contemplated
hereby (the "Closing") shall
occur on or before fifteen (15) days following the approval of the
transactions set out herein in the
Annual Meeting of the shareholders of the Corporation. The
Closing shall occur in the offices of
Purchaser or at such other place as shall be mutually agreed to in
writing by the parties hereto.
1.03 Purchase Price. In consideration of the shares of REP-
T Common Stock to be
purchased from the Selling Shareholders, Purchaser at the Closing
shall deliver to Selling
Shareholders and to the Photonics Trust (defined hereinbelow)
together certificates representing an
aggregate of approximately 50,284,917 shares of PHOTONICS Common
Stock, representing
approximately eighty-five percent [85%] of the then issued and
outstanding shares of Corporation
including the number of shares that the Company will reserve for
the conversion of debt, held by
creditors of the Company, to common stock. Such stock shall be
free and clear of any liens,
encumbrances or charges whatsoever.
1.04 Instruments of Transfer; Further Assurances. In order
to consummate the
transaction contemplated hereby, the following documents and
instruments shall be delivered:
(a) Documents from Selling Shareholders. Selling
Shareholders shall deliver to
Purchaser at the Closing one or more stock certificates
representing in the aggregate the
number of shares of REP-T Common Stock owned by them plus a duly
executed stock power
or other instrument of transfer for each such stock certificate.
(b) Documents from Purchaser. Corporation and
Purchaser shall deliver to
Selling Shareholders at the closing one or more stock certificates
representing in the aggregate
the number of shares of PHOTONICS Common Stock to which such
Selling Shareholders are
entitled, to be in such denominations as shall be requested by
Selling Shareholders not less
than three (3) business days prior to the Closing Date.
(c) Further Documents. At the Closing, and at all
times thereafter as may be
necessary (i) Selling Shareholders shall execute and deliver to
Corporation and Purchaser such
other instruments of transfer as shall be reasonably necessary or
appropriate to vest in
Purchaser good and indefeasible title to the shares the REP-T
Common Stock owned by them
and to comply with the purposes and intent of this Agreement, and
(ii) Corporation and
Purchaser shall execute and deliver to Selling Shareholders such
other instruments as shall be
reasonably necessary or appropriate to comply with the purposes and
intent of this Agreement.
1.05 Registration. As of the date hereof, neither the
stock of the Corporation nor of
REP-T to be delivered pursuant to this Agreement has been
registered under the Securities Act of
1933, as amended (the "Act"), and may not be resold unless these
securities are registered under such
Act or an exemption from such registration is available.
ARTICLE II
CORPORATION'S AND PURCHASER'S REPRESENTATIONS AND WARRANTIES
The Corporation and Purchaser represent and warrant that the
following are true and correct as
of the Date of Closing .
2.01 Organization and Good Standing. The Corporation and
Purchaser are corporations
duly organized, validly existing and in good standing under the
laws of the state of their incorporation,
with all requisite power and authority to carry on the business in
which it is engaged, to own the
properties it owns and to execute and deliver this Agreement and to
consummate the transactions
contemplated hereby subject to the ratification of this agreement
and the approval of the Transaction
contemplated hereunder by Corporation's shareholders and the board
of directors to be elected at the
annual meeting of the shareholders.
Purchaser is a wholly owned subsidiary of the Corporation.
The Corporation owns ten percent
(10%) of all of the shares of Sunnyvale Technology Corporation, a
Texas corporation. As part of this
transaction, the parties hereto agree that such ten percent (10%)
ownership shall be distributed as a
stock dividend to the shareholders of the Corporation who are
owners of record on June 1, 2000, the
record date for the annual meeting of the Corporation. Such
distribution shall be effective as of the
date of it's approval at the Annual Meeting of the shareholders of
the Corporation.
2.02 Authorization and Validity. The execution, delivery
and performance of this
Agreement and the consummation of the transactions contemplated
hereby have been or will be prior
to Closing duly authorized by Corporation and Purchaser. This
Agreement constitutes or will
constitute the legal, valid and binding obligations of Corporation
and Purchaser, enforceable against
Corporation and Purchaser in accordance with its terms.
2.03 No Violation. Except as disclosed on Exhibit 2.03,
neither the execution and
performance of this Agreement nor the consummation of the
transactions contemplated hereby will
(a) conflict with, or result in a violation or breach of the terms,
conditions and provisions of, or
constitute a default under, the Articles of Incorporation or Bylaws
of Corporation and Purchaser or any
agreement, indenture or other instrument under which Corporation
and Purchaser is bound or to which
the assets of Corporation and Purchaser are subject, or result in
the creation or imposition of any lien,
charge or encumbrance upon any of such assets, or (b) violate or
conflict with any judgment, decree,
order, statute, rule or regulation of any court or any public,
governmental or regulatory agency or body
having jurisdiction over Corporation and Purchaser or the
properties or assets of Corporation and
Purchaser. Corporation and Purchaser has complied in all material
respects with all applicable laws,
regulations and licensing requirements, and has filed with the
proper authorities all necessary
statements and reports. Corporation and Purchaser possesses all
necessary licenses, franchises,
permits and governmental authorizations to conduct its business as
now conducted.
The Corporation hereby discloses that it has been delisted from the
NASDAQ national
quotation system. The Corporation is current with it's filing
requirements with the Securities
and Exchange Commission. However, the Corporation has not been re-
listed for trading on the
NASDAQ national quotation system. Further, the actions
contemplated in this agreement must
be approved by the shareholders of the Corporation and by a newly
formed board of Directors
in order to comply with the requirements of California State law.
2.04 Disclosure. No representation or warranty by
Corporation and Purchaser in this
Agreement nor any statement or certificate furnished or to be
furnished by it pursuant hereto or in
connection with the transactions contemplated hereby contains or
will contain any untrue statement of
a material fact or omits or will omit to state a material fact
necessary to make the statements contained
therein not misleading or necessary in order to provide REP-T and
the Selling Shareholders with
complete and accurate information.
2.05 Consents. Except as set forth in this Section 2 and in
Exhibit 2.05, there is no
authorization, consent, approval, permit or license of, or filing
with, any governmental or public body
or authority, any lender or lessor or any other person or entity is
required to authorize, or is required in
connection with, the execution, delivery and performance of this
Agreement or the agreements
contemplated hereby on the part of Corporation and Purchaser.
2.06 Compliance with Laws. There are no existing violations
of any applicable federal,
state or local law or regulation that could materially adversely
affect the property or business of
Corporation and Purchaser and there are no known, noticed or
threatened violations of any zoning,
building, fire, safety or wage and hour laws or regulations.
2.07 Litigation. Except as described in Exhibit 2.07 and
except as scheduled by the
Corporation in its 10-K/A annual report file with the SEC,
Corporation and Purchaser has not had any
legal action or administrative proceeding or investigation
instituted or, to the best of the knowledge of
Corporation and Purchaser, threatened against or affecting any of
the assets or business of Corporation
and Purchaser. Corporation and Purchaser are not (a) subject to
any continuing court or administrative
order, writ, injunction or decree applicable specifically to
Corporation and Purchaser or to its business,
assets, operations or employees, or (b) in default with respect to
any such order, writ, injunction or
decree. Corporation and Purchaser knows of no basis for any other
such action, proceeding or
investigation.
2.08 Tax Returns. Except as listed in Exhibit 2.08,
Corporation and Purchaser has
prepared and filed, or has caused to be prepared and filed, with
the appropriate United States, state and
local government agencies, and all political subdivisions thereof,
all tax returns required to be filed by,
on behalf of or on account of the operations of Corporation and
Purchaser and has paid or caused to be
paid all assessments shown to be due and claimed to be due on such
tax returns.
2.09 Contracts. All contracts and agreements to which
Corporation and Purchaser is a
party are described in Exhibit 2.09. Such contracts and agreements
have not been amended and
remain in full force and effect in accordance with their respective
terms.
2.10 Corporation's Financial Statements. The Corporation
has filed it's 10-K/A Annual
Report with the SEC and has made such report available to Selling
Shareholders and REP-T including
therein the audited balance sheet and related statements of income
and changes in financial position for
the 12 month period through December 31, 1999 ("Corporation
Financial Statements"). The
Corporation Financial Statements (defined in Section 7 hereinbelow)
fairly present the financial
condition and results of operations of Corporation as of the dates
and for the periods indicated and
have been prepared in conformity with generally accepted accounting
principles.
2.11 Absence of Certain Changes. Except as set forth in
Exhibit 2.11 hereto, since the
date of the end of the Corporation's fiscal quarter ended June 30,
2000, the Corporation has not:
(a) suffered any material adverse change in its financial
condition, assets, liabilities or business;
(b) contracted for or paid any capital expenditures in excess of
$20,000.00; (c) incurred any
indebtedness for borrowed money, issued or sold any debt securities
or discharged any liabilities or
obligations; (d) mortgaged, pledged or subjected to any lien,
lease, security interest or other charge or
encumbrance any of their properties or assets; (e) paid any
material amount on any indebtedness prior
to the due date, forgiven or canceled any material debts or claims
or released or waived any material
rights of claims; (f) suffered any damage or destruction to or loss
of any assets (whether or not covered
by insurance) that materially and adversely affects its business;
(g) acquired or disposed of any
material assets or incurred any material liabilities or
obligations; (h) made any payments to or loaned
any money to its affiliates or associates; (i) formed or acquired
or disposed of any interest in any
corporation, partnership, joint venture or other entity; (j)
entered into any material employment,
compensation, consulting or collective bargaining agreement with
any person or group, or modified or
amended in any material respect the terms of any such existing
agreement; or (k) entered into any
other commitment or transaction or experienced any other event that
is material to this Agreement or
to the transactions contemplated hereby, or that has affected, or
may adversely affect Corporation and
Purchaser business, operations, assets, liabilities or financial
condition.
2.12 Title; Leased Assets. Except as described in Exhibit
2.12 hereto,
Corporation and Purchaser owns its assets, and its real and
personal property leaseholds, free and clear
of all liens, claims and encumbrances, except for (i) liens for
non-delinquent ad valorem taxes or
non-delinquent statutory liens arising other than by reason of its
default, and (ii) such liens, minor
imperfections of title or easements on real property, leasehold
estates or personalty as do not in any
material respect detract from the value thereof and do not
interfere with the present use of the
properties subject thereof. Such assets and leaseholds are the
only ones necessary for the conduct of
Corporation and Purchaser business as now being conducted.
2.13 Corporation's Capitalization, Subsidiaries. The
Corporation is authorized to issue
20,000,000 common shares, par value $0.001, of which 6,765,496 are
fully paid and non assessable,
and are presently outstanding. In addition to such outstanding
shares, Corporation intends to issue up
to 1,519,090 shares of common stock to existing creditors of the
Corporation in exchange for the
forgiveness of debt owed by the Corporation to such creditors.
Corporation is authorized to issue
6,000,000 preferred shares, par value $0.001, of which none are
outstanding. Except as described in
Exhibit 2.13, there are no options, warrants or other securities or
rights outstanding which are
convertible into or exercisable for any shares of capital stock of
Corporation. Except as described on
Exhibit 2.13, Corporation does not own, directly or indirectly, any
of the capital stock of any other
corporation or any equity, profit sharing, participation, or other
interest in any corporation, partnership,
joint venture or other entity.
2.14 Corporation's Prior Letter of Intent. The Corporation
and RE4Sale have properly
and effectively terminated any and all letters of intent and/or
agreements to purchase shares of
RealEstate4Sale.com, Inc., a Colorado corporation.
2.15 Survival of Representations and Warranties. All
the representations and warranties
in this Article II shall survive the closing. The truth and
veracity of the representations and warranties
contained in this Article II shall be secured for a period of one
year by the establishment of a trust (the
"Koo Trust"). The Koo Trust shall be established with a third
party escrow agent by depositing all the
shares of Photonics currently owned by Mr. James T. Koo. Under the
terms of the Koo Trust, the
Corporation's shares that are held in the Koo Trust may be sold at
the direction of James T. Koo or his
designated agent. Prior to the termination of the Koo Trust, the
proceeds of such sales may distributed
out of the Koo Trust only at the direction of the post closing
Board of Directors of the Corporation and
Purchaser.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF REP-T AND
THE AGENT FOR THE SELLING SHAREHOLDERS
.
REP-T and the Selling Shareholders, jointly and severally,
represent and warrant that the following are
true and correct as of this date and will be true and correct
through the Closing Date as if made on that
date:
3.01 Organization, Capitalization and Good Standing. REP-T
is a corporation duly
organized, validly existing and in good standing under the laws of
its state of incorporation with all
requisite power and authority to carry on the business in which it
is engaged and to own the properties
it owns. REP-T is authorized to issue 12,000,000 total shares
divided into: 10,000,000 common shares,
par value $0.0001, of which 5,458,752 are fully paid and non
assessable, and are presently outstanding
and 2,000,000 preferred shares, par value $0.0001 of which none are
issued. REP-T is authorized to
issue no preferred shares REP-T is duly qualified and licensed
to do business and is in good standing
in all jurisdictions where the nature of its business makes such
qualification necessary. Except as
described on Exhibit 3.01, REP-T does not own, directly or
indirectly, any of the capital stock of any
other corporation or any equity, profit sharing, participation, or
other interest in any corporation,
partnership, joint venture or other entity.
3.02 Authorization and Validity. The execution, delivery
and performance of this
Agreement by REP-T and the consummation of the transactions
contemplated hereby have been or
will be prior to Closing duly authorized by REP-T. This Agreement
constitutes or will constitute legal,
valid and binding obligations of REP-T, enforceable against REP-T
in accordance with its terms. This
Agreement constitutes the valid and binding agreement of the
Selling Shareholders, enforceable in
accordance with its terms, and neither the execution nor delivery
of this Agreement nor the
consummation by the Selling Shareholders of the transactions
contemplated hereby (i) violates any
statute or law or any rule, regulation or order of any court or any
governmental authority, or (ii)
violates or conflicts with, or constitutes a default under or will
constitute a default under, any contract,
commitment, agreement, understanding, arrangement, or restriction
of any kind to which the Selling
Shareholders are a party or by which the Selling Shareholders are
bound. REP-T has or will deliver to
Corporation and Purchaser copies of it's Articles of Incorporation,
By-Laws, asset acquisition
documents relating to RealEstate4Sale.com and the board of
directors and shareholders resolutions
authorizing the entering into this Agreement and the consummation
of the Transaction including the
authorization of the signatories to this Agreement.
3.03 Financial Statements. REP-T has furnished to
Corporation and Purchaser REP-T's
audited balance sheet and related statements of income and changes
in financial position as of June 15,
2000 (the "REP-T Financial Statements"). The REP-T Financial
Statements fairly present the financial
condition and results of operations of REP-T as of the dates and
for the periods indicated and have
been prepared in conformity with generally accepted accounting
principles.
3.04 Absence of Certain Changes. Except as set forth in
Exhibit 3.04 hereto, since June
15, 2000, REP-T has not: (a) suffered any material adverse change
in its financial condition, assets,
liabilities or business; (b) contracted for or paid any capital
expenditures in excess of $20,000.00;
(c) incurred any indebtedness or borrowed money, issued or sold any
debt securities or discharged any
liabilities or obligations; (d) mortgaged, pledged or subjected to
any lien, lease, security interest or
other charge or encumbrance any of their properties or assets; (e)
paid any material amount on any
indebtedness prior to the due date, forgiven or canceled any
material debts or claims or released or
waived any material rights or claims; (f) suffered any damage or
destruction to or loss of any assets
(whether or not covered by insurance) that materially and adversely
affects its business; (g) acquired or
disposed of any material assets or incurred any material
liabilities or obligations; (h) made any
payments to or loaned any money to its affiliates or associates;
(i) formed or acquired or disposed of
any interest in any corporation, partnership, joint venture or
other entity; (j) entered into any material
employment, compensation, consulting or collective bargaining
agreement with any person or group,
or modified or amended in any material respect the terms of any
such existing agreement; or
(k) entered into any other commitment or transaction or experienced
any other event that is material to
this Agreement or to the transactions contemplated hereby, or that
has affected, or may adversely
affect REP-T's business, operations, assets, liabilities or
financial condition.
3.05 Title; Leased Assets. Except as described in
Exhibit 3.05 hereto, REP-T owns its
assets, and its real and personal property leaseholds, free and
clear of all liens, claims and
encumbrances, except for (i) liens for non-delinquent ad valorem
taxes or non-delinquent statutory
liens arising other than by reason of its default, and (ii) such
liens, minor imperfections of title or
easements on real property, leasehold estates or personalty as do
not in any material respect detract
from the value thereof and do not interfere with the present use of
the properties subject thereof. Such
assets and leaseholds are the only ones necessary for the conduct
of REP-T's business as now being
conducted.
3.06 Insurance. All of the insurable properties of REP-T
are insured for its benefit under
valid and enforceable policies, issued by insurers of recognized
responsibility in amounts and against
such risks and losses as is customary in REP-T's industry. True,
complete and correct copies of all
such policies will be provided to Corporation and Purchaser prior
to the Closing.
3.07 No Violation. Neither the execution and performance of
this Agreement nor the
consummation of the transactions contemplated hereby will (a)
conflict with, or result in a violation or
breach of the terms, conditions and provisions of, or constitute a
default under, the Articles of
Incorporation or Bylaws of REP-T or any agreement, indenture or
other instrument under which REP-
T is bound or to which any of the assets of REP-T are subject, or
result in the creation or imposition of
any lien, charge or encumbrance upon any of such assets, or (b)
violate or conflict with any judgment,
decree, order, statute, rule or regulation of any court or any
public, governmental or regulatory agency
or body having jurisdiction over REP-T or the properties or assets
of REP-T. REP -T has complied in
all material respects with all applicable laws, regulations and
licensing requirements, and has filed with
the proper authorities all necessary statements and reports. REP-T
possesses all necessary licenses,
franchises, permits and governmental authorizations to conduct its
business as now conducted.
3.08 Consents. Except as set forth in Exhibit 3.08, no
authorization, consent, approval,
permit or license of, or filing with, any governmental or public
body or authority, any lender or lessor
or any other person or entity is required to authorize, or is
required in connection with, the execution,
delivery and performance of this Agreement or the agreements
contemplated hereby on the part of
REP-T.
3.09 Compliance with Laws. There are no existing violations
of any applicable federal,
state or local law or regulation that could materially adversely
affect the property or business of REP-T
and there are no known, noticed or threatened violations of any
zoning, building, fire, safety or wage
and hour laws or regulations.
3.10 Litigation. Except as described in Exhibit 3.10, REP-T
has not had any legal action or
administrative proceeding or investigation instituted or, to the
best of the knowledge of REP-T,
threatened against or affecting any of the assets or business of
REP-T. REP-T is not (a) subject to any
continuing court or administrative order, writ, injunction or
decree applicable specifically to REP-T or
to its business, assets, operations or employees, or (b) in default
with respect to any such order, writ,
injunction or decree. REP-T knows of no basis for any such action,
proceeding or investigation. REP-
T and the Selling Shareholders agree to indemnify and hold
Corporation and Purchaser harmless from
any asserted rights, claim, proceeding, litigation or other action
relating to RealEstate4Sale.com and its
current and former officers, directors and shareholders including
any asserted rights, action, claim,
proceeding or litigation arising from the prior negotiations
between Corporation, James T. Koo, Doug
Fonteno or RealEstate4Sale.com relating to the acquisition
contemplated herein.
3.11 Disclosure. No representation or warranty by REP-T or
the Selling Shareholders in
this Agreement nor any statement or certificate furnished or to be
furnished by it or them pursuant
hereto or in connection with the transactions contemplated hereby
contains or will contain any untrue
statement of a material fact or omits or will omit to state a
material fact necessary to make the
statements contained therein not misleading or necessary in order
to provide Corporation and
Purchaser with complete and accurate information.
3.12 Tax Returns. REP-T has prepared and filed, or has
caused to be prepared and filed,
with the appropriate United States, state and local government
agencies, and all political subdivisions
thereof, all tax returns required to be filed by, on behalf of or
on account of, the operations of REP-T
and has paid or caused to be paid all assessments shown to be due
and claimed to be due on such tax
returns.
3.13 Contracts. All contracts and agreements to which REP-T
is a party are described in
Exhibit 3.13. Such contracts and agreements have not been amended
and remain in full force and
effect in accordance with their respective terms.
3.14 Agency Authorized The Agent for the Selling
Shareholders has been duly authorized
by the Selling Shareholders (a list of whom have been delivered by
him to Corporation and Purchaser
upon execution of this agreement) to enter into this agreement on
their behalf and that when this
agreement is executed by him to shall bind all of the Selling
Shareholders with the same force and
effect as if all of the Selling Shareholders had individually
executed this agreement.
3.15 All the representations and warranties in this Article
III shall survive the closing
ARTICLE IV
REP-T'S COVENANTS
REP-T agrees that on or prior to the Closing:
4.01 Business Operations. REP-T shall operate its business
only in the ordinary course
and REP shall use its best efforts to preserve the business of REP-
T intact, to retain its present
customers and suppliers so that they will be available to
Corporation and Purchaser after the Closing
and to cause the consummation of the transactions contemplated by
this Agreement in accordance with
its terms and conditions. REP-T shall not take any action that
might impair the business or assets of
REP-T without the prior consent of Corporation and Purchaser or
take or fail to take any action that
would cause or permit the representations made in Article III
hereof to be inaccurate at the time of
Closing or preclude REP-T from making such representations and
warranties at the Closing.
4.02 Access. REP-T shall permit Corporation and Purchaser
and its authorized
representatives full access to, and make available for inspection,
all of the assets and business of REP-
T , including REP-T 's employees, customers and suppliers, and REP-
T shall furnish Corporation and
Purchaser all documents, records and information with respect to
the affairs of REP-T, as Corporation
and Purchaser and its representatives may reasonably request.
4.03 Material Change. Prior to the Closing, REP-T shall
promptly inform Corporation
and Purchaser in writing of any material adverse change in the
condition of the business of REP-T .
Notwithstanding the disclosure to Corporation and Purchaser of any
such material adverse change,
REP-T shall not be relieved of any liability for, nor shall the
providing of such information by REP-T
to Corporation and Purchaser be deemed a waiver by Corporation and
Purchaser of, the breach of any
representations or warranty of REP-T contained in this Agreement.
4.04 Approvals of Third Parties. As soon as practicable
after the execution of this
Agreement, but in any event prior to the Closing Date, REP-T will
use its best efforts to secure all
necessary approvals and consents of third parties to the
consummation of the transactions
contemplated by this Agreement.
4.05 Contracts. Except with Corporation and Purchaser's
prior written consent, REP-T
shall not waive any material right or cancel any material contract,
debt or claim nor with it assume or
enter into any contract, lease, license obligation, indebtedness,
commitment purchase or sale involving
more than $ 5,000.00, each.
4.06 Capital Assets; Payments of Liabilities. Except with
Corporation and Purchaser's
prior written consent, REP-T will not acquire or dispose of any
capital asset having an initial cost of $
5,000.00 or more, nor will REP-T discharge or satisfy any lien or
encumbrance or pay or perform any
obligation or liability other than (i) liabilities and obligation
reflected in the REP-T Financial
Statements, and (ii) current liabilities and obligations incurred
in the usual and ordinary course of
business since June 15, 2000, and, in either such case only as
required by the express terms of the
agreement or other instrument pursuant to which the obligation or
liability was incurred.
4.07 Mortgages, Liens. Except with Corporation and
Purchaser's prior written consent,
REP-T will not enter into or assume any mortgage, pledge,
conditional sale or other title retention
agreement, permit any lien, encumbrance or claim of any kind to
attach to any of its assets, whether
nor owned or hereafter acquired, or guarantee or otherwise become
contingently liable for any
obligations of another or make any capital contributions or
investments in any corporation, business or
other person.
4.08 Sales of Stock. Except with Corporation and
Purchaser's prior written consent, REP-
T will not, after the date hereof, issue any shares of its common
stock or preferred stock nor will it
issue or enter into an agreement to issue any securities, rights,
subscriptions, warranties or options to
purchase shares of its common stock or preferred stock or which are
convertible into shares of its
common stock or preferred stock in whole or in part.
ARTICLE V
CORPORATION'S AND PURCHASER'S COVENANTS
The Corporation and Purchaser agree that on or prior to the
Closing:
5.01 Access. Corporation and Purchaser shall permit REP-T
and its authorized
representatives full access to, and make available for inspection,
all of the assets and business of
Corporation and Purchaser, and Corporation and Purchaser shall
furnish REP-T all documents, records
and information with respect to the affairs of Corporation and
Purchaser as REP-T and its
representatives may reasonably request.
5.02 Sales of Stock. Except for the issuance to common
stock to creditors in exchange for
the forgiveness of such creditors debt or except with REP-T 's
prior written consent Corporation and
Purchaser will not, after the date hereof, issue any shares of its
common stock nor will it issue or enter
into an agreement to issue any securities, rights, subscriptions,
warranty or options to purchase shares
of its common stock or preferred stock or which are convertible
into shares of its common stock or
preferred stock in whole or in part.
5.03 Material Change. Prior to the Closing, Corporation and
Purchaser shall promptly
inform REP-T in writing of any material adverse change in the
condition of the business of
Corporation and Purchaser. Notwithstanding the disclosure to REP-T
of any such material adverse
change, Corporation and Purchaser shall not be relieved of any
liability for, nor shall the providing of
such information by Corporation and Purchaser to REP-T be deemed a
waiver by REP-T of, the
breach of any representation or warranty of Corporation and
Purchaser contained in this Agreement.
5.04 Approvals of Third Parties. As soon as practicable
after the execution of this
Agreement, but in any event prior to the Closing Date, Corporation
and Purchaser will use its best
efforts to secure all necessary approvals and consents of third
parties to the consummation of the
transactions contemplated by this Agreement.
ARTICLE VI
CORPORATION'S AND PURCHASER'S CONDITIONS PRECEDENT
Except as may be waived in writing by the Corporation and
Purchaser, the obligations of the
Corporation and Purchaser hereunder are subject to the fulfillment
at or prior to the Closing of each of
the following conditions:
6.01 Representations and Warranties. The representations
and warranties of Selling
Shareholders and REP-T contained herein shall be true and correct
in all material respects as of the
Closing, and Corporation and Purchaser shall not have discovered
any material error, misstatement or
omission therein. At the Closing, Corporation and Purchaser shall
have received a certificate, dated
the date of the Closing, and executed by the President of REP and
Selling Stockholders, certifying in
such detail as Corporation and Purchaser may reasonably request as
to the accuracy of such
representations and warranties and the fulfillment of the
obligations and compliance with the
covenants referred to in Section 6.02 below as of the Closing.
6.02 Covenants. REP-T shall have performed and complied
with all covenants or
conditions required by this Agreement to be performed and complied
with by it prior to or at the
Closing.
6.03 Opinion. Counsel to REP-T shall have delivered to
Corporation and Purchaser its
opinion, dated the Closing Date, in form and substance reasonably
satisfactory to counsel for
Corporation and Purchaser, to the effect that (a) REP-T is a
corporation duly organized, validly
existing and in good standing under the laws of its state of
incorporation and has duly qualified to do
business and is in good standing in the states where the nature of
its business makes such qualification
necessary, (b) REP-T has full corporate power and authority to
execute and perform this Agreement,
(c) this Agreement has been duly authorized by all necessary
corporate action on the part of REP-T,
and has been duly executed and delivered to REP-T and constitutes
the legal, valid and binding
obligation of REP-T, enforceable in accordance with its terms,
except as may be limited by
bankruptcy, insolvency or other similar laws affecting creditors'
rights generally or the availability of
equitable remedies, (d) neither the execution and performance of
this Agreement nor the
consummation of the transactions contemplated hereby will conflict
with, or result in a breach of the
terms, conditions and provisions of, or constitute a default under,
the Articles of Incorporation or
Bylaws of REP-T or, to the best of such counsel's knowledge, any
agreement, indenture or other
instrument of which such counsel has knowledge under which REP-T is
bound or to which any of the
assets of REP-T is subject, or result in the creation or imposition
of any lien, charge or encumbrance
upon any such assets, and (e) to the best of such counsel's
knowledge, there are no options, warrants or
other securities or rights outstanding which are convertible into
or exercisable for any shares of capital
stock of REP-T.
6.04 Proceedings. No action, proceeding or order by any
court or governmental body or
agency shall have been threatened in writing, asserted, instituted
or entered to restrain or prohibit the
carrying out of the transactions contemplated by this Agreement.
6.05 Consents and Approvals. REP-T shall have obtained, and
delivered to Corporation
and Purchaser evidence thereof, all consents and approvals required
to be obtained in connection with
the consummation of the transactions contemplated hereby.
6.06 No Material Adverse Change. No material, adverse
change in the assets, business
operations or financial conditions of REP-T shall have occurred
after the date hereof and prior to the
Closing. Corporation and Purchaser shall have received a letter
from the chief financial officer of
REP-T dated the date of the Closing, stating that on the basis of a
limited review (not an audit) of the
latest available accounting records of REP-T, consultations with
responsible officers of REP-T, and
other pertinent inquiries that they may deem necessary, they have
no reason to believe that during the
period from June 15, 2000 to a specific date not more than five
business days before the Closing, there
is any change in the financial condition or results of operations
of REP-T, except for changes incurred
in the ordinary and usual course of business during that period
that in the aggregate are not materially
adverse, and except for other changes or transactions, if any,
contemplated by this Agreement. The
audit of the REP-T Financial Statements shall be completed within
sixty (60) days from the Closing in
compliance with the applicable Rules and Regulations of the
Securities and Exchange Commission
(the "SEC") in order to enable the Corporation to file with the SEC
the requisite financial statements as
an exhibit to the Report on Form 8-K of Corporation regarding the
closing of this Agreement.
6.07 Representation Letters. On or before the date of the
Closing, Corporation and
Purchaser shall have received a representation of investment intent
letter from Selling Shareholders
confirming their understanding that the PHOTONICS Common Stock to
be received by them is
restricted and may not be freely resold unless the shares are
registered or an exemption from
registration is available, as well as such other representations as
are reasonably required by
Corporation and Purchaser.
6.08 Approval of REP-T Shareholders. This Agreement shall
have been approved by
the Board of Directors and by the holders of a majority of the
outstanding capital stock of REP-T
ARTICLE VII
CONDITIONS PRECEDENT OF SELLING SHAREHOLDERS AND REP-T
Except as may be waived in writing by the Selling
Shareholders and REP-T, the obligations of
the Selling Shareholders and REP-T hereunder are subject to
fulfillment at or prior to the Closing of
each of the following conditions:
7.01 Representations and Warranties. The representations
and warranties of the
Corporation and Purchaser contained herein shall be true and
correct in all material respects as of the
Closing, and the Selling Shareholders shall not have discovered any
material error, misstatement or
omission therein. At the Closing, Selling Shareholders shall have
received a certificate, dated the date
of the Closing, and executed by the authorized person of the
Corporation and Purchaser, certifying in
such detail as Selling Shareholders may reasonably request as to
the accuracy of such representations
and warranties and the fulfillment of the obligations and
compliance with covenants referred to in
Section 7.02 as of the Closing.
7.02 Covenants. Corporation and Purchaser shall have
performed and complied in all
material respects with all covenants or conditions required by this
Agreement to be performed and
complied with by it prior to or at the Closing.
7.03 Opinion. Counsel to Corporation and Purchaser shall
deliver to REP-T its opinion,
dated the Closing Date, in form and substance reasonably
satisfactory to counsel for REP-T, to the
effect that (a) the Corporation and Purchaser are each
corporations duly organized, validly existing in
good standing under the laws of the state of their respective
incorporation, (b) Corporation and
Purchaser have full corporate power and authority to execute and
perform this Agreement, (c) this
Agreement has been duly authorized by all necessary corporate
action on the part of the Corporation
and Purchaser, and has been duly executed and delivered by the
Corporation and Purchaser and
constitutes the legal, valid and binding obligation of the
Corporation and Purchaser enforceable in
accordance with its terms, except as may be limited by bankruptcy,
insolvency or other similar laws
affecting creditors' rights generally or the availability of
equitable remedies, (d) immediately prior to
the Closing, the authorized, issued and outstanding capital stock
of Corporation was as set forth in
Section 2.13, (e) neither the execution and performance of this
Agreement nor the consummation of
the transactions contemplated hereby will conflict with, or result
in a breach of the terms, conditions
and provisions of, or constitute a default under the Articles of
Incorporation or Bylaws of the
Corporation or Purchaser or, to the best of such counsel's
knowledge, any agreement, indenture or
other instrument of which such counsel has knowledge under which
Corporation and Purchaser is
bound or to which any of the assets of the Corporation or Purchaser
is subject, or result in the creation
or imposition of any lien, charge or encumbrance upon any such
assets, and (f) to the best of such
counsel's knowledge, except as set forth in Section 2.13 and
Exhibit 2.13, there are no options,
warrants or other securities or rights outstanding which are
convertible into or exercisable for any
shares of capital stock of the Corporation or Purchaser.
7.04 Proceedings. No action, proceeding or order by any
court or governmental body or
agency shall have been threatened in writing, asserted, instituted
or entered to restrain or prohibit the
carrying out of the transactions contemplated by this Agreement.
7.05 Consents and Approvals. The Corporation and Purchaser
shall have obtained, and
delivered to REP-T evidence thereof, all consents and approvals
required to be obtained in connection
with the consummation of the transactions contemplated hereby.
7.06 No Material Adverse Change. No material, adverse
change in the assets, business
operations or financial condition of the Corporation or Purchaser
shall have occurred after the date
hereof and prior to the Closing. The Selling Shareholders shall
have received a letter from the
consultant to the Corporation, James T. Koo, dated the date of the
Closing, stating that on the basis of a
limited review (not an audit) of the latest available accounting
records of the Corporation and
Purchaser, consultations with responsible officers of the
Corporation and Purchaser, and other
pertinent inquiries that the Selling Shareholders and REP-T may
deem necessary, he has no reason to
believe that during the period from the date of this agreement to
a specific date not more than five
business days before the Closing, there is any change in the
financial condition or results of operations
of Corporation and Purchaser, except for changes incurred in the
ordinary and usual course of business
of Corporation and Purchaser, during that period that in the
aggregate are not materially adverse, and
except for other changes or transactions, if any, contemplated by
this Agreement.
7.07 Approval by the Shareholders and Board of Directors
of the Corporation and
Purchaser. The obligations of the Corporation and Purchaser
hereunder are subject to this Agreement
and the Transaction contemplated herein, including but not limited
to the conversion of the
Corporation's corporate debt to shares of the Corporation, the
conversion of the Series "A" preferred
stock to common stock and the sale of 90% interest in Sunnyvale
Technology Corporation to James T.
Koo, being approved by the shareholders of the Corporation in
accordance with the procedures set out
in the Articles of Incorporation and the By-Laws of the corporation
and pursuant to a duly called
meeting of the shareholders. The obligations of the Corporation and
Purchaser hereunder are further
subject to the boards of directors, which shall be elected at the
foregoing meeting by the Corporation
and Purchaser, approving this Agreement and the Transactions
contemplated herein.
Included in the approvals set out in this Section 7.07 shall be the
following:
(i) The approval the incorporation and sale of 90% Sunnyvale
Technology Corp. after transfer all
the corporate assets and business of the Photonics Corporation
division, DTC Data
Technology, to Sunnyvale Technology Corporation, for $ 75,000 cash
plus certain assumed
liabilities as of December 31, 1999 including the covenant that
Photonics Corporation will
distribute the remaining 10% of Sunnyvale Technology Corp. as a
stock dividend to
Photonics shareholders, as of the record date of the meeting in
which this Agreement and the
Transaction are approved, after election of a new board of
directors.
(ii) The approval for Corporation to issue a sufficient number
of common shares so that the
Selling Shareholders will own approximately 85% of total issued
shares of the
Corporation, after full dilution, upon the completion of the
Transaction and for issuing the
shares of the Corporation allocated to accounts payable and debt
holders of the Corporation
which did not previous elect to convert, or were subject to
litigation that was unresolved at
the time of the merger.
7.08 Audited Financial Statements. Corporation's Form
10K/A shall have been filed with
the Securities and Exchange Commission which shall contain audited
financial statements for the
period ended December 31, 1999 ("Corporation Financial Statements")
.
7.09 Indemnity for Excess Liabilities. A trust (the
"Photonics Trust") shall have been
established by the Corporation for the purpose of indemnifying the
Corporation, and the Purchaser
against liabilities, claims or debts that are either disclosed or
undisclosed on Corporation Financial
Statements that remain unresolved or remain unconverted into
common stock at the time of the
purchase of REP-T. The Photonics Trust shall have a term for a
period of three years after the closing
date. The Photonics Trust shall be established with a third party
escrow agent by depositing all the
shares of Photonics set out on Attachment 2 to Exhibit 2.11. Under
the terms of the Photonics Trust,
the Corporation's shares that are held in the Photonics Trust may
be sold at the direction of the Trustee
or his designated agent. Prior to the termination of the Photonics
Trust, the proceeds of such sales may
distributed out of the Photonics Trust only at the direction of the
post closing Board of Directors of the
Corporation and Purchaser.
ARTICLE VIII
MISCELLANEOUS
8.01 Amendment. This Agreement may be amended, modified or
supplemented only by
an instrument in writing executed by the party against which
enforcement of the amendment,
modification or supplement is sought.
8.02 Parties in Interest. This Agreement shall be binding
on and inure to the benefit of
and be enforceable by Selling Shareholders, REP-T, the Corporation
and the Purchaser, their
respective heirs, executors, administrators, legal representatives,
successors and assigns, except as
otherwise expressly provided herein.
8.03 Assignment. Neither this Agreement nor any right
created hereby shall be assignable
by either party hereto.
8.04 Notice. Any notice or communication must be in writing
and given by depositing the
same in the United States mail, addressed to the party to be
notified, postage prepaid and registered or
certified with return receipt requested or by delivering the same
in person. Such notice shall be
deemed received on the date on which it is hand-delivered or on the
third business day following the
date on which it is so mailed. For purposes of notice, the
addresses of the parties shall be:
If to REP-T:
REPIPELINE.COM, Inc., a Texas Corporation
12377 Merit Drive
Dallas, TX 75251
If to the Selling Shareholders:
At the address set forth above.
If to Corporation and Purchaser:
Photonics. Corp.
REPIPELINE.COM, Inc.
1222 Alderwood Ave.
Sunnyvale, CA 94089
With a copy to:
Richard J. Hockert, Esq.
PO Box 797664
Dallas, TX 75379
Any party may change its address for notice by written notice given
to the other parties.
8.05 Entire Agreement. This Agreement and the exhibits
hereto supersede all prior
agreements and understandings relating to the subject matter
hereof, except that the obligations of any
party under any agreement executed pursuant to this Agreement shall
not be affected by this Section.
8.06 Costs, Expenses and Legal Fees. Whether or not the
transactions contemplated
hereby are consummated, Corporation shall bear and pay for all
costs and expenses (including
attorneys' fees) up to and including a maximum of $75,000 and above
$75,000, REP-T shall bear all
costs and expenses (including attorneys' fees) except that each
party hereto agrees to pay the costs and
expenses, including reasonable attorneys' fees, incurred by the
other party in successfully (i) enforcing
any of the terms of this Agreement, or (ii) proving that the other
parties breached any of the terms of
this Agreement in any
material respect.
8.07 Severability. If any provision of this Agreement is
held to be illegal, invalid or
unenforceable under present or future laws effective during the
term hereof, such provision shall be
fully severable and this Agreement shall be construed and enforced
as if such illegal, invalid or
unenforceable provision never comprised a part hereof; and the
remaining provisions hereof shall
remain in full force and effect and shall not be affected by the
illegal, invalid or unenforceable
provision or by its severance here from. Furthermore, in lieu of
such illegal, invalid or unenforceable
provision, there shall be added automatically as part of this
Agreement, a provision as similar in its
terms to such illegal, invalid or unenforceable provision as may be
possible and be legal, valid and
enforceable.
8.08 Governing Law. This Agreement and the rights and
obligations of the parties hereto
shall be governed, construed and enforced in accordance with the
laws of the State of Texas. The
parties agree that any litigation relating directly or indirectly
to this Agreement must be brought before
and determined by a court of competent jurisdiction with the State
of Texas.
8.09 Captions. The captions in this Agreement are for
convenience of reference only and
shall not limit or otherwise affect any of the terms or provisions
hereof.
8.10 Counterparts. This Agreement may be executed in
multiple counterparts, each of
which shall be deemed an original, and all of which together shall
constitute one and the same
instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement
effective as of the date first
written above.
SELLING SHAREHOLDERS:
___________________________
Chip Langston, individually and as
agent for all shareholders
REP-T:
REPipeline.com, Inc., a Texas corporation
___________________________
Tom Bailey, President
PURCHASER:
REPIPELINE.COM, Inc. a Delaware corporation
By Photonics Corporation, sole shareholder
___________________________
By: James T. Koo, Managing Consultant
CORPORATION:
Photonics Corporation
___________________________
James T. Koo, Managing Consultant
EXHIBIT 2.03
To Stock Purchase Agreement and Plan of Reorganization
Conflicts or Violations as of June 15, 2000
1. Upon approval of the Agreement and Transaction by the
shareholders of the Corporation,
there will be no conflicts or violations at Closing.
EXHIBIT 2.05
To Stock Purchase Agreement and Plan of Reorganization
Consents as of June 15, 2000
1. Upon approval of the Agreement and Transaction by the
shareholders of the Corporation
and compliance with the provision of the California Corporations
Code, there will be no consents
required at Closing.
EXHIBIT 2.07
To Stock Purchase Agreement and Plan of Reorganization
Litigation as of June 15, 2000
1. Abstract of judgment dated October 12, 1999; Plaintiff
Insight Electronics. Defendant
Data Technologies Corporation. Amount of judgment: $110,252.00
2. Abstract of judgment dated October 12, 1999; Plaintiff: ACI
Corporation. Defendant
Data Technologies Corporation. Amount of judgment: $16,753.00
3. Default Judgment February 17, 2000, Plaintiff Danka Funding
Company v. Defendant
Photonics, Docket No. L-8482-99, Superior Court of New Jersey Law
Division,
Bergen County for $40,474.00 with proposed settlement offer by
Danka of $
30,355.72 as of March 22, 2000. (lease of Kodak 85 Copier)
4. Litigation Superior Court, Contra Costa County, CA.,
Plaintiff L.A. Commercial
Group, Inc (Bay Alarm) Defendant Photonics Corporation, for the
amount of
$8,666.00
5. Abstract of Judgment dated January 13, 2000, Judicial
District Court of Harris County,
Texas, Plaintiff Innovative Vanguard Group, Inc. v. Defendant
Photonics Corporation.
Amount of judgment $ 99,630.45.
6. Potential Litigation - Fireman's Fund for $ 6,030. 00
7. Potential Litigation- Accountant Plus now known as Nelson
Staff- for $2,896.00
8. Potential claim from Fudan University, Shanghai, China in the
amount of $6,000.00.
9. Potential claim from an employee of the predecessor company,
Qume, who claims that
he contracted black lung disease after inhaling toner from a
printer located in the
office. There has been no contact relating to this potential claim
in more than one year.
EXHIBIT 2.08
To Stock Purchase Agreement and Plan of Reorganization
Tax Returns as of June 15, 2000
1. The Company has not filed it's Federal Income Tax return for
it's fiscal year 1998.
2. The Company has not filed it's Federal Income Tax return for
it's fiscal year 1999.
3. The Company has not filed it's California State Income Tax
return for it's fiscal year 1998.
4. The Company has not filed it's California State Income Tax
return for it's fiscal year 1999.
EXHIBIT 2.09
To Stock Purchase Agreement and Plan of Reorganization
Contracts and Agreements as of June 15, 2000
1. None.
EXHIBIT 2.11
To Stock Purchase Agreement and Plan of Reorganization
Changes to Financial Statements as of June 15, 2000
1. As to items (g) and (i) of the Agreement, the Corporation has
transferred all of the assets,
business and certain liabilities of its operating division, DTC
Data Technologies, to Sunnyvale
Technology Corporation, a Texas corporation that was, at
incorporation, a wholly owned
subsidiary of the Corporation. The Corporation has sold, subject
to shareholder approval, 90% of
the shares of Sunnyvale Technology Corporation to James T. Koo.
Further, the Corporation has incorporated a new wholly owned
subsidiary, REpipeline.com, Inc., a
Delaware corporation, for the purpose completing the Transaction as
describe in the Agreement.
2. As to items (c), (e) and (k) of the Agreement, the
Corporation has negotiated with the
following creditors to issue common stock of the Corporation in
exchange for forgiveness of their
respective creditor's debt:
Amount of Amount of
Number of
Creditor Original Debt Negotiated Debt
Common Shares to be Issued
See attachment 1 to this exhibit that is a financial print out of
the creditor status.
3. As to item (c) of the Agreement, the Corporation has received
the following advances of
money in the form of shareholder loans from James T. Koo:
David Lee $ 483,000
James T. Koo $ 549,514
EXHIBIT 2.11
To Stock Purchase Agreement and Plan of Reorganization
Attachment 1, Accounts Payable that have agreed to Convert to
Common Shares
Category Amount of Account
Receivable Amount of Common
Shares
To be Issued
ACTION WELL 580,876
261,394
AEROCRUISE TRAVEL 3,500
1,575
BOWNE OF LOS ANGELES 23,000
10,350
BROAD AND CAS 26,117
11,753
BROBECK PHOLGER 2,654
1,194
COOLEY, GODWARD 138,339
62,.253
CORTELCO 147,534
66,390
DAVID LEE 1,061
477
DUET TECHNOLOGIES 65,000
29,250
FEDERAL EXPRESS 1,125
506
GILMAN C, McMILLON 82,715
37,222
GLENN SHEPHERD 6,186
2,784
HAVERSTOCK 8 ASSOC. 18,422
8,290
INCREMENTAL SALES 3,589
1,615
INTERNATIONAL FREIGHT 13,212
5,945
JAMES T. KOO 5,655
2,545
LADAS & PARRY 9,707
4.368
MICHAEL HAM 3,638
1,637
MICROLINK 42,600
19,170
NOR-CAL MOVING 8,184
3,683
PERSON ELECTRONICS 24,297
10,934
RR DONNELLEY 11,602
5,221
SUPERIOR TEMP 3,627
1,632
TECHNICAL RESOURCES 1,168
526
US WEB 3,637
1,637
ZIFF-DAVIS PUBLISHING 7,929
3,568
Total AR 1,235,374
555,919
EXHIBIT 2.11
To Stock Purchase Agreement and Plan of Reorganization
Attachment 2, Accounts Payable that have not agreed to Convert
to Common Shares
Category Total Photonics
Trust Amount Trust shares
Accrued for Potential Liabilities 47,316
111,473
ACCOUNTANTS PLUS 2,986 1,344
ACI ELECTRONICS 16,753 7,539
ADC, WO 18,713 8,421
ATRONICS INTERNATIONAL 5,013 2,256
BAY ALARM 8,666 3,900
BROWNING-FERRIS 1,090 491
BT OFFICE PRO 1,219 549
BUSINESS WIRE 1,835 826
CENTREPOINTE 2,039 917
CHASE MELLON 8,332 3,749
COMP USA 431,895 194,353
DANKA FINANCIAL 40,474 18,213
DANKAOFFICE IMAGING 5,285 2,378
DIVERSIFIED RISK 6,030 2,714
DUN & BRADSTR 4,926 2,217
EMPLOYMENT AGENCY 1,397 629
FIRST AMERICA 24,678 11,105
INNOVATIVE VANGUARD 99,630 44,834
INSIGHT ELECTRONICS 110,252 49,613
MANULIFF FINANCIAL 7,224 3,251
MERRILL CORD. 702 316
PACIFIC BELL 8,986 4,044
PITNEY BOWES 5,137 2,312
SANTA CLARA COUNTY 11,564 5,204
SHARP SERVICE 3,400 1,530
SYNOPSYS, INC 4,655 2,095
TASMAN ASSOCI 3,343 1,504
TAX COLLECTOR 7,480 3,366
TIG INSURANCE 1,299 585
TIMCO ENGINEE 2,015 907
UNITED PARCEL 1,942 874
VIEIRAS JANITORAL 2,000 900
WILSON.SONSIN 141,254 63,564
Linda Brown 3,330 1,499
Arlene Guillen 2,200 990
Total AR
1,045,060 560,462
EXHIBIT 2.11
To Stock Purchase Agreement and Plan of Reorganization
Attachment 3, Creditors
that are not Accounts Payable
that have agreed to
Convert to Common Shares
Category Amount of Account
Receivable Amount of Common
Shares
To be Issued
Richard J. Hockert, Esq. 12,000
5,400
Rosenblum Parish 21,457
9,656
Donald YU
45,000 20,250
Sub Total Contracts 78,457
35,306
James T. Koo
101,663 45,748
Jong Guo 8,056
3,625
Robert Chang
16,701
7,515
Elll Tehrani
6,141 2,763
Wen-Want Huang 1,235
566
Sub Total Salary 133,796
60,208
David Lee 483,600
217,620
James Koo 549,514
247,281
Actionwell (Pradip)
476,956
214,630
Sub Total Shareholder Loans 1,510,070
679,531
David Lee 49,053
22,074
CMCI (David Lee) 87,449
39,352
James Koo 170,256
76,615
Actionwell (Pradip)
111,300
50,085
Total Interest on Notes 418,057
188,126
EXHIBIT 2.12
To Stock Purchase Agreement and Plan of Reorganization
Liens as of June 15, 2000
The Corporation has the following liens filed against it assets:
1. Type of lien: Personal Property Tax
Lien holder: State of California/ Santa Clara
County
Amount of lien: $5,444.87
Date of lien: November 6, 1998
Debtor: Photonics Corporation
2. Type of lien: Personal Property Tax
Lien holder: State of California/ Santa Clara
County
Amount of lien: $6,119.54
Date of lien: November 5, 1999
Debtor: Photonics Corporation
EXHIBIT 3.01
To Stock Purchase Agreement and Plan of Reorganization
Stock Ownership
1. REP-T does not own, directly or indirectly, any of the
capital stock of any other
corporation or any equity, profit sharing, participation, or other
interest n any corporation,
partnership, joint venture or other entity.
EXHIBIT 3.04
To Stock Purchase Agreement and Plan of Reorganization
Changes to Financial Statements as of June 15, 2000
1. There have been no material adverse changes to its financial
position, and it has not contracted
for or incurred any liabilities.
EXHIBIT 3.05
To Stock Purchase Agreement and Plan of Reorganization
Lease Obligations
1. The Company has an eighteen-month lease on its office space
at 12377 Merit Drive,
Dallas, Texas, at a monthly expense of $ 5.000.
2. The Company has a lease with the option to purchase of a:
Fax
Copier
Printer
EXHIBIT 3.08
To Stock Purchase Agreement and Plan of Reorganization
Consents Necessary for Approval of the Transaction
1. There is no governmental or public body or authority required
for authorization, consent or
approval or permit necessary except the Securities and Exchange
Commission.
EXHIBIT 3.10
To Stock Purchase Agreement and Plan of Reorganization
Litigation
1. Except as described in 3.10, there are no legal actions or
administrative proceedings or
investigation instituted or to the best of the knowledge of REP-T
threatened against or affecting
any of the assets, or business of REP-T.
APPENDIX F
Chapter 13
GENERAL CORPORATION LAW OF CALIFORNIA
DISSENTERS RIGHTS
SECTION 1300. Right to Require Purchase-"Dissenting Shares" and
"Dissenting
Shareholder" Defined.
(e) If the approval of the outstanding shares (Section 152) of a
corporation is required for a
reorganization under subdivisions (a) and (b) or subdivision (e) of
Section 1201, each shareholder
of the corporation entitled to vote on the transaction and each
shareholder of a subsidiary
corporation in a short-form merger may. by complying with this
chapter, require the corporation in
which the shareholder holds shares to purchase for cash at their
fair market value the shares owned
by the shareholder which are dissenting shares as defined in
subdivision (b). The fair market value
shall be determined as of the day before the first announcement of
the terms of the proposed
reorganization or short-form merger, excluding any appreciation or
depreciation in consequence of
the proposed action, but adjusted for any stock split; reverse
stock split or share dividend which
becomes effective thereafter.
(f) As used in this chapter, "dissenting shares" means shares which
come within all of the following
descriptions:
(1 ) Which were not immediately prior to the reorganization or
short-form merger either (i) listed
on any national securities exchange certified by the Commissioner
of Corporations under
subdivision (o) of Section 25100 or (ii) listed on the list of OTC
margin stocks issued by the Board
of Governors of the Federal Reserve System, and the notice of
meeting of shareholders to act upon
the reorganization summarizes this section and Sections 1301, 1302,
1303 and 1304; provided,
however, that this provision does not apply to any shares with
respect to which there exists any
restriction on transfer imposed by the corporation or by any law or
regulation; and provided,
further, that this provision does not apply to any class of shares
described in clause (i) or (ii) if
demands for payment are filed with respect to 5 percent or more of
the outstanding shares of that
class.
(2) Which were outstanding on the date for the determination of
shareholders entitled to vote on the
reorganization and (i) were not voted in favor of the
reorganization or, (ii) if described in clause (i)
or (ii) of paragraph (1) (without regard to the provisos in that
paragraph), were voted against the
reorganization, or which were held of record on the effective date
of a short-form merger;
provided, ho, ever, that clause (i) rather than clause (ii) of this
paragraph applies in any case where
the approval required by Section 1201 is sought by written consent
rather than at a meeting.
(3) Which the dissenting shareholder has demanded that the
corporation purchase at their fair
market value, in accordance with Section 1301.
(4) Which the dissenting shareholder has submitted for endorsement,
in accordance with Section
1302.
(g) As used in this chapter, "dissenting shareholder" means the
record holder of dissenting shares
and includes a transferee of record.
SECTION 1301. Demand for Purchase.
(a) If, in the case of a reorganization, any shareholders of a
corporation have a right under Section
1300, subject to compliance with paragraphs (3) and (4) of
subdivision (b) thereof, to require the
corporation to purchase their shares for cash, such corporation
shall mail to each such shareholder a
notice of the approval of the reorganization by its outstanding
shares (Section 152) within 10 days
after the date of such approval, accompanied by a copy of Sections
1300, 1302, 1303, 1304 and this
section, a statement of the price determined by the corporation to
represent the fair market value of
the dissenting shares, and a brief description of the procedure to
be followed if the shareholder
desires to exercise the shareholder's right under such sections.
The statement of price constitutes an
offer by the corporation to purchase at the price stated any
dissenting shares as defined in
subdivision (b) of Section 1300, unless they lose their status as
dissenting shares under Section
1309.
(b) Any shareholder who has a right to require the corporation to
purchase the shareholder's shares
for cash under Section 1300, subject to compliance with paragraphs
(3) and (4) of subdivision (b)
thereof, and who desires the corporation to purchase such shares
shall make written demand upon
the corporation for the purchase of such shares and payment to the
shareholder in cash of their fair
market value. The demand is not effective for any purpose unless it
is received by the corporation
or any transfer agent thereof (1) in the case of shares described
in clause (i) or (ii) of paragraph (1)
of subdivision (b) of Section 1300 (without regard to the provisos
in that paragraph), not later than
the date of the shareholders' meeting to vote upon the
reorganization, or (2) in any other case
within 30 days after the date on which the notice of the approval
by the outstanding shares pursuant
to subdivision (a) or the notice pursuant to subdivision (i) of
Section 1110 was mailed to the
shareholder.
(c) The demand shall state the number and class of the shares held
of record by the shareholder
which the shareholder demands that the corporation purchase and
shall contain a statement of what
such shareholder claims to be the fair market value of those shares
as of the day before the
announcement of the proposed reorganization or short-form merger.
The statement of fair market
value constitutes an offer by the shareholder to sell the shares at
such price.
SECTION 1302. Endorsement of Shares.
Within 30 days after the date on which notice of the approval by
the outstanding shares or the
notice pursuant to subdivision (i) of Section I 110 was mailed to
the shareholder, the shareholder
shall submit to the corporation at its principal office or at the
office of any transfer agent thereof,
(a) if the shares are certificated securities. the shareholder's
certificates representing any shares
which the shareholder demands that the corporation purchase, to be
stamped or endorsed with a
statement that the shares are dissenting shares or to be exchanged
for certificates of appropriate
denomination so stamped or endorsed or (b) if the shares are
uncertificated securities, written
notice of the number of shares which the shareholder demands that
the corporation purchase. Upon
subsequent transfers of the dissenting shares on the books of the
corporation, the new certificates,
initial transaction statement, and other written statements issued
therefor shall bear a like statement,
together with the name of the original dissenting holder of the
shares.
SECTION 1303. Agreed Price -Time for Payment.
(a) If the corporation and the shareholder agree that the shares
are dissenting shares and agree upon
the price of the shares, the dissenting shareholder is entitled to
the agreed price with interest
thereon at the legal rate on judgments from the date of the
Agreement. Any agreements fixing the
fair market value of an) dissenting shares as between the
corporation and the holders thereof shall
be filed with the secretary of the corporation.
(b) Subject to the provisions of Section 1306, payment of the fair
market value of dissenting shares
shall be made within 30 days after the amount thereof has been
agreed or within 30 days after any
statutory. or contractual conditions to the reorganization are
satisfied, whichever is later. and in the
case of certificated securities, subject to surrender of the
certificates therefor, unless provided
otherwise by Agreement.
SECTION 1304. Dissenter's Action to Enforce Payment.
(a) If the corporation denies that the shares are dissenting
shares, or the corporation and the
shareholder fail to agree upon the fair market value of the shares,
then the shareholder demanding
purchase of such shares as dissenting shares or any interested
corporation, within six months after
the date on which notice of the approval by the outstanding shares
(Section 152) or notice pursuant
to subdivision (i) of Section I 110 was mailed to the shareholder,
but not thereafter, may file a
complaint in the superior court of the proper count) praying the
court to determine whether the
shares are dissenting shares or the fair market value of the
dissenting shares or both or may
intervene in and action pending on such a complaint.
(b) Two or more dissenting shareholders may join as plaintiffs or
be joined as defendant, in any
such action and two or more such actions may be consolidated. On
the trial of the action. the court
shall determine the issues. If the status of the shares as
dissenting shares is in issue, the court shall
first determine that issue. If the fair market value of the
dissenting shares is in issue. the court shall
determine, or shall appoint one or more impartial appraisers to
determine, the fair market value of
the shares.
SECTION 1305. Appraiser's Report - Payment - Costs.
(a) If the court appoints an appraiser or appraisers, they shall
proceed forthwith to determine the
fair market value per share. Within the time fixed by the court,
the appraisers, or a majority of
them, shall make and file a report in the office of the clerk of
the court. Thereupon, on the motion
of any party, the report shall be submitted to the court and
considered on such evidence as the court
considers relevant. If the court finds the report reasonable, the
court may confirm it.
(b) If a majority of the appraisers appointed fail to make and file
a report within 10 days from the
date of their appointment or within such further time as may be
allowed by the court or the report is
not confirmed by the court, the court shall determine the fair
market value of the dissenting shares.
(c) Subject to the provisions of Section 1306, judgment shall be
rendered against the corporation
for payment of an amount equal to the fair market value of each
dissenting share multiplied by the
number of dissenting shares which any dissenting shareholder who is
a party, or who has
intervened, is entitled to require the corporation to purchase.
with interest thereon at the legal rate
from the date on which judgment was entered.
(d) Any such judgment shall be payable forthwith with respect to
uncertificated securities and, with
respect to certificated securities, only upon the endorsement and
delivery to the corporation of the
certificates for the shares described in the judgment. Any party
may appeal from the judgment.
(e) The costs of the action, including reasonable compensation to
the appraisers to be fixed by the
court, shall be assessed or apportioned as the court considers
equitable, but, if the appraisal exceeds
the price offered by the corporation. the corporation shall pay the
costs (including in the discretion
of the court attorneys' fees, fees of expert witnesses and interest
at the legal rate on judgments from
the date of compliance with Sections 1300, 1301 and 1302 if the
value awarded by the court for the
shares is more than 125 percent of the price offered by the
corporation under subdivision (a) of
Section 1301).
SECTION 1306. Dissenting Shareholder's Status as Creditor.
To the extent that the provisions of Chapter 5 prevent the payment
to any holders of dissenting
shares of their fair market value, they shall become creditors of
the corporation for the amount
thereof together with interest at the legal rate on judgments until
the date of payment, but
subordinate to all other creditors in any liquidation proceeding.
such debt to be payable when
permissible under the provisions of Chapter 5.
SECTION 1307. Dividends Paid as Credit Against Payment.
Cash dividends declared and paid by the corporation upon the
dissenting shares after the date of
approval of the reorganization by the outstanding shares (Section
152) and prior to payment for the
shares by the corporation shall be credited against the total
amount to be paid by the corporation
therefor.
SECTION 1308. Continuing Rights and Privileges of Dissenting
Shareholders.
Except as expressly limited in this chapter, holders of dissenting
shares continue to have all the
rights and privileges incident to their shares, until the fair
market value of their shares is agreed
upon or determined. A dissenting shareholder may not withdraw a
demand for payment unless the
corporation consents thereto.
SECTION 1309. Termination of Dissenting Shareholder Status.
Dissenting shares lose their status as dissenting shares and the
holders thereof cease to be
dissenting shareholders and cease to be entitled to require the
corporation to purchase their shares
upon the happening of any of the following:
(a) The corporation abandons the reorganization. Upon abandonment
of the reorganization, the
corporation shall pay on demand to any dissenting shareholder who
has initiated proceedings in
good faith under this chapter all necessary expenses incurred in
such proceedings and reasonable
attorneys' fees.
(b) The shares are transferred prior to their submission for
endorsement in accordance with Section
1302 or are surrendered for conversion into shares of another class
in accordance with the articles.
(b) The dissenting shareholder and the corporation do not agree
upon the status of the shares as
dissenting shares or upon the purchase price of the shares, and
neither files a complaint or
intervenes in a pending action as provided in Section 1304, within
six months after the date on
which notice of the approval by the outstanding shares or notice
pursuant to subdivision (i) of
Section 1110 was mailed to the shareholder.
(d) The dissenting shareholder, with the consent of the
corporation, withdraws the shareholder's
demand for purchase of the dissenting shares.
SECTION 1310. Suspension of Proceedings for Payment Pending
Litigation.
If litigation is instituted to test the sufficiency or regularity
of the votes of the shareholders in
authorizing a reorganization, any proceedings under Sections 1304
and 1305 shall be suspended
until final determination of such litigation.
SECTION 1311. Exempt Shares.
This chapter, except Section 1312, does not apply to classes of
shares whose terms and provisions
specifically set forth the amount to be paid in respect to such
shares in the event of a reorganization
or merger.
SECTION 1312. Attacking Validity of Reorganization or Merger.
(a) No shareholder of a corporation who has a right under this
chapter to demand payment of cash
for the shares held by the shareholder shall have any right at law
or in equity to attack the validity
of the reorganization or short-form merger, or to have the
reorganization or short-form merger set
aside or rescinded, except in an action to test whether the number
of shares required to authorize or
approve the reorganization have been legally voted in favor
thereof; but any holder of shares of a
class whose terms and provisions specifically set forth the amount
to be paid in respect to them in
the event of a reorganization or short-form merger is entitled to
payment in accordance with those
terms and provisions or, if the principal terms of the
reorganization are approved pursuant to
subdivision (b) of Section 1202, is entitled to payment in
accordance with the terms and provisions
of the approved reorganization.
(b) If one of the parties to a reorganization or short-form merger
is directly or indirectly controlled
by, or under common control with, another party to the
reorganization or short-form merger.
subdivision (a) shall not apply to any shareholder of such party
who has not demanded payment of
cash for such shareholder's shares pursuant to this chapter; but if
the shareholder institutes any
action to attack the validity of the reorganization or short-form
merger or to have the reorganization
or short-form merger set aside or rescinded. the shareholder shall
not thereafter have any right to
demand payment of cash for the shareholder's shares pursuant to
this chapter. The court in any
action attacking the validity of the reorganization or short form
merger or to have the
reorganization or short-form merger set aside or rescinded shall
not restrain or enjoin the
consummation of the transaction except upon 10 days' prior notice
to the corporation and upon a
determination by the court that clearly no other remedy will
adequately protect the complaining
shareholder or the class of shareholders of which such shareholder
is a member.
(c) If one of the patties to a reorganization or short-form merger
is directly or indirectly controlled
by, or under common control with, another party to the
reorganization or short-form merger, in any
action to attack the validity of the reorganization or short-form
merger or to have the reorganization
or short-form merger set aside or rescinded. (1) a party to a
reorganization or short-form merger
which controls another party to the reorganization or short-form
merger shall have the burden of
proving that the transaction is just and reasonable as to the
shareholders of the controlled part. and
(2) a person who controls two or more parties to a reorganization
shall have the burden of proving
that the transaction is just and reasonable a. to the shareholder,
of an\ party so controlled.
APPENDIX G
General Settlement Agreement
With
PHOX and its Debt Holders
This agreement is made and entered into as of the date last
written below by and between
Photonics Corporation, d/b/a DTC Data Technology (PHOX), whose
address is 1222 Alderwood
Ave., Sunnyvale, CA 94089 and company's full name
( "Creditor"),
whose address is
Whereas, PHOX and Creditor acknowledge a certain unsecured
indebtedness (the "Debt")
in the amount of $ , owed by PHOX and
payable to Creditor, which Debt
includes all debts owed by PHOX to Creditor through the date of
this agreement; and
Whereas, PHOX is unable to make payment on the Debt and is seeking
an alternative
method to settle the Debt with the Creditor ; and
Whereas, PHOX has a merger suitor (RealEstate4Sale.com, Inc.
'RE4S'), who has agreed
in principal to be acquired as the principal business of PHOX,
subject to all creditors and a
majority of shareholders approving the terms of the reorganization
and acquisition.
Now, therefore, for and in consideration of the mutual promises and
conditions contained
in this agreement and for valuable consideration, the receipt and
adequacy of which is hereby
acknowledged and confessed, the parties hereto agree as follows:
1.0 Conversion of Debt. The parties agree that the Debt shall be
converted to and replaced by
shares of common voting stock of the Company issued by PHOX to
Creditor under the following
terms:
a) Each $1.00 of the Debt shall be converted to and replaced by
.45 shares of common
voting stock (which have maintained an average price of $1.00 from
March 1, 2000
through March 31, 2000);
b) PHOX shall be required to register the shares that it issues to
Creditor and shall use its
best efforts to effect such registration within three months of the
date of the issuance of the
shares;
2.0 Sale of DTC operating division. Creditor hereby approves,
subject to PHOX shareholder and
board of directors approval, PHOX management's plan to transfer all
assets of DTC to, Sunnyvale
Technologies Corporation, a newly formed subsidiary corporation.
PHOX management intends to
seek a buyer for Sunnyvale Technologies Corporation. The transfer
of assets and sale of
Sunnyvale Technologies Corporation is a condition to the merger
with Real Estate 4 Sale.com.
The net proceeds of the sale of Sunnyvale Technologies
Corporation, after all legal and auditing
costs related to the sale and the merger, shall be distributed to
Creditor and all other debt holders
equally, based on the original amount of unsecured debt held by
each creditor, prior to the planned
reorganization of PHOX debt. The failure of a sale of Sunnyvale
Technologies Corporation shall
not effect the validity of this agreement or the shares of common
voting stock issued to Creditor.
3.0 Approval of Shareholders of PHOX. Should PHOX not secure
initial approval of the plan of
reorganization from a majority of shareholders and from 85%
(calculated by debt amount) of all
debt held by PHOX debt holders (or such lesser percentage if
approved by RE4S to complete the
planned acquisition of RE4S), within 15 days of the approval of the
agreement herein, PHOX may,
by written notice within such 15 days rescind this agreement;
4.0 Risk of Securities. Creditor does herein acknowledge that it
is familiar with the risk associated
with public securities, has experience in such matters and is
classified as an accredited investor (as
is defined by local, state and federal securities laws).
5.0 Decision based on status as unsecured Creditor. Creditor
acknowledges that the acceptance of
the agreement herein is based exclusively upon the premise that the
alternative is for Creditor to be
considered an unsecured creditor under the terms of a Chapter VII
bankruptcy liquidation of
PHOX. Creditor is not using the business plan or anticipated
performance of RE4S's as an entity
of PHOX as a basis for its acceptance of the agreement herein.
6.0 RE4S Controlling Shareholders. Creditor acknowledges that
RE4S, upon approval of the
reorganization and acquisition by shareholders and debt holders of
reorganization of debt, shall be
issued sufficient shares of PHOX to reflect that the current
shareholders of RE4S will own 85% of
the common voting shares of PHOX. Additionally, Creditor is aware
that the acquisition of RE4S
may be consummated in part as long as such part is in excess of 95%
of RE4S.
7.0 Insider Funding of PHOX. Creditor acknowledges herein that it
is aware that former insiders
of PHOX, through personal cash contributions to support PHOX, now
represent approximately $2
million of the $3.6 million of total debt owed by PHOX to its
creditors. It is also recognized by
Creditor that such insiders have in various capacities been working
for or advising the direction of
PHOX for many months for no pay or any other form of compensation
and continuing to place
their own capital in PHOX, in a effort to benefit debt and
shareholders.
8.0 Compliance with laws. The transaction herein contemplated,
shall comply with all local, state,
federal and applicable securities laws.
9.0 Entire Agreement. This Agreement contains the entire
agreement between the parties, and no
promise, representation, warranty to covenant not included in this
Agreement or any such
referenced agreements has been or is relied upon by either party.
Furthermore, no party has made
any representations, warranties or covenants to any other party
concerning any tax benefits or tax
treatment which may accrue or be given to any other party in
connection with the transactions
contemplated hereby. Each party has been advised by legal counsel
in the drafting of this
document and has relied upon its own examination of the full
Agreement and the provisions
thereof, the counsel of its own advisors, and the warranties,
representations and covenants
expressly contained in this Agreement itself. No modification or
amendment of this Agreement
shall be of any force or effect unless made in writing and executed
by both PHOX and Creditor.
10.0 Counterparts. This Agreement may be executed in any
number of counterparts which
together shall constitute the agreement of the parties. Facsimile
copies of this document may be
treated as originals for all purposes when sent and received in the
ordinary course of business. The
article headings herein contained are for purposes of
identification only and shall not be considered
in construing this Agreement.
11.0 Successors and Assigns. This Agreement and the terms and
provisions hereof shall inure
to the benefit of and be binding upon the parties hereto and their
respective heirs, executors,
personal representatives, successors and assigns whenever the
context so requires or admits
12.0 Partial Invalidity. Any provision of this agreement which is
prohibited or unenforceable in
any jurisdiction shall, as to that jurisdiction, be ineffective to
the extent of that prohibition or
unenforceability without invalidating the remaining provisions
hereof or affecting the validity or
enforceability of that provision in any other jurisdiction.
13.0 Arbitration. Any controversy or claim arising out of or
relating to this agreement or the
breach thereof which is not amicably settled between the parties
shall be settled by arbitration in
accordance with the rules then in existence by the American
Arbitration Association with hearings
to take place in Dallas, Texas. Any award made may include all
arbitration costs, attorneys fees,
and other charges and damages deemed fair by the arbitrator(s).
IN WITNESS WHEREOF, the parties hereto have executed this agreement
as of the date last
written hereinbelow.
Creditor
Photonics Corporation,
__________________________ ________________________
By: By: James T. Koo,
authorized
representative
Date:________ Date:________
APPENDIX G
Attachment 1
Accounts Payable that have agreed to Convert to Common Shares
Category Amount of Account Receivable
Amount of Common Shares
To be Issued
ACTION WELL 580,876
261,394
AEROCRUISE TRAVEL 3,500
1,575
BOWNE OF LOS ANGELES 23,000
10,350
BROAD AND CAS 26,117
11,753
BROBECK PHOLGER 2,654
1,194
COOLEY, GODWARD 138,339
62,.253
CORTELCO 147,534
66,390
DAVID LEE 1,061
477
DUET TECHNOLOGIES 65,000
29,250
FEDERAL EXPRESS 1,125
506
GILMAN C, McMILLON 82,715
37,222
GLENN SHEPHERD 6,186
2,784
HAVERSTOCK 8 ASSOC. 18,422
8,290
INCREMENTAL SALES 3,589
1,615
INTERNATIONAL FREIGHT 13,212
5,945
JAMES T. KOO 5,655
2,545
LADAS & PARRY 9,707
4.368
MICHAEL HAM 3,638
1,637
MICROLINK 42,600
19,170
NOR-CAL MOVING 8,184
3,683
PERSON ELECTRONICS 24,297
10,934
RR DONNELLEY 11,602
5,221
SUPERIOR TEMP 3,627
1,632
TECHNICAL RESOURCES 1,168
526
US WEB 3,637
1,637
ZIFF-DAVIS PUBLISHING 7,929
3,568
Total AR 1,235,374
555,919
Creditors that are not Accounts Payable that have agreed to Convert
to Common Shares
Category Amount of Account
Receivable Amount of Common Shares
To be Issued
Richard J. Hockert, Esq. 12,000
5,400
Rosenblum Parish 21,457
9,656
Donald YU
45,000 20,250
Sub Total Contracts 78,457
35,306
James T. Koo
101,663 45,748
Jong Guo
8,056 3,625
Robert Chang
16,701 7,515
Elll Tehrani
6,141 2,763
Wen-Want Huang
1,235 566
Sub Total Salary
290,710 130,829
David Lee
483,600 217,620
James Koo
295,014 132,756
Actionwell (Pradip)
476,956 214,630
Sub Total Shareholder Loans
1,255,570 565,066
David Lee
49,053 22,074
CMCI (David Lee)
87,449 39,352
James Koo
170,256 76,615
Actionwell (Pradip)
111,300 50,085
Total Interest on Notes
418,057 188,126
James T. Koo Preferred share conversion
Adjustment 245,500
245,500
Accounts Payable that represent disputed payables
The Company will set aside 2,090,120 shares as a reserve against
the following items.
Category Amount Payable
ACCOUNTANTS PLUS 2,986
ACI ELECTRONICS 16,753
ADC, WO 18,713
ATRONICS INTERNATIONAL 5,013
BAY ALARM 8,666
BROWNING-FERRIS 1,090
BT OFFICE PRO
1,219
BUSINESS WIRE
1,835
CENTREPOINTE
2,039
CHASE MELLON
8,332
COMP USA
431,895
DANKA FINANCIAL
40,474
DANKA OFFICE IMAGING 5,285
DIVERSIFIED RISK
6,030
DUN & BRADSTREET
4,926
EMPLOYMENT AGENCY 1,397
FIRST AMERICA
24,678
INNOVATIVE VANGUARD 99,630
INSIGHT ELECTRONICS 110,252
MANULIFF FINANCIAL 7,224
MERRILL CORD. 702
PACIFIC BELL 8,986
PITNEY BOWES 5,137
SANTA CLARA COUNTY 11,564
SHARP SERVICE 3,400
SYNOPSYS, INC 4,655
TASMAN ASSOCI 3,343
TAX COLLECTOR 7,480
TIG INSURANCE 1,299
TIMCO ENGINEE 2,015
UNITED PARCEL 1,942
VIEIRAS JANITORAL 2,000
WILSON.SONSIN 141,254
Linda Brown 3,330
Arlene Guillen 2,200
Total AR
1,045,060
APPENDIX H
USE OF NEWLY AUTHORIZED SHARES
Use of Shares Number
of Shares
Creditors converting to common shares
555,919
Unpaid salaries satisfied with common shares
130,829
Loans from creditors 565,006
Past due interest on loans 188,126
Preferred dividends due 490,318
Disputed payables (Appendix G, attachment 1)
2,090,120
James T. Koo preferred stock conversion adjustment
245,500
REP-T shareholders
18,127,707
REP-T Acquisition and Finance
Potential Acquisition: First Data Systems 600,000
Potential Acquisition: System Specialists 1,200,000
Officer Options
14,708,078
Available for financing or acquisitions
27,873,549
Total 44,381,627
44,381,627
TOTAL NEW SHARES TO BE ISSUED 66,775,152
Existing number of shares issued and outstanding
6,765,496
TOTAL Shares issued following acquisition
73,540,648
The Combined Company will have 73,540,648 shares issued and
29,159,021 shares outstanding.
The Company holds 44,381,627 Treasury (Acquisition and Finance
Subsidiary) for the express
purpose of future corporate financing and acquisitions.
Of the shares held in Treasury, George Thomas Bailey has an option
on 14,708,078 for 10 years, at
$0.10 per share pursuant to his Employment Agreement. This number
was derived by taking 20%
of the shares issued as of the completion of the reverse merger, or
73,540,648 times 20%.
The Company is in conversation with prospective acquisition
targets. Based on current discussions,
the Company could anticipate issuing over 3 million shares, or
approximately 10% of the issued
shares.
The Company is in conversation with several finance sources
regarding a second round financing
structured as a Convertible Preferred Stock. If the maximum amount
of currently contemplated
financing is raised at the most dilutive rate to the Company, the
financing will require the issuance
of approximately 9,100,000 shares or approximately 30% of the
amount issued.
APPENDIX I
AUDITED FINANCIAL STATEMENTS OF
REPIPELINE.COM, INC.
Independent Auditor's Report
Board of Directors and Stockholders
REpipeline.com, Inc.
Dallas, Texas
We have audited the accompanying balance sheet of REpipeline.com,
Inc. (a development stage
company) as of June 30, 2000, and the related statements of
operations, stockholders' equity, and
cash flows for the period August 16, 1999 (inception) through June
30, 2000. These financial
statements are the responsibility of the company's management. Our
responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards
require that we plan and perform our audit to obtain reasonable
assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also
includes assessing the accounting principles used and the overall
financial statement presentation.
We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the
financial position of REpipeline.com, Inc. at June 30, 2000 and the
results of its operations and its
cash flows for the period August 16, 1999 (inception) through June
30, 2000 in conformity with
generally accepted accounting principles.
Turner Stone & Associates
/s/
Certified Public Accountants
August 23, 2000
REpipeline.com, INC.
( A DEVELOPMENT STAGE COMPANY )
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and business
The Company was incorporated in the state of Texas on June 8,2000.
The Company is an
Applications Service
Provider (ASP) and Business Service Provider (BSP) for the
commercial real estate industry. On
July 10, 2000, the Company agreed to purchase the assets and assume
the liabilities and
shareholder's equity of RealEstate4Sale.com. RealEstate4Sale.com,
("RE4S") was incorporated in
Colorado on August 17, 1999, and its purpose was to provide a
commercial real estate listings on
the Internet. However, the concept was too narrow for the
marketplace, which requires a variety of
services to the commercial real estate market over the Internet,
which are best addressed by
REpipeline.com. The company, currently in the development stage,
anticipates its new website will
be completed and ready for use in November 2000.
Management estimates
The preparation of financial statements in conformity with
generally accepted accounting principles
requires
management to make estimates and assumptions that affect the
reported amounts of assets and
liabilities
and disclosures of contingent assets and liabilities at the date of
the financial statements and the
reported
amounts of revenues and expenses during the reporting period.
Actual results could differ from
those
estimates.
Significant estimates include the capitalization of costs incurred
to develop the Company's web site
and
the amortization of these costs over the estimated useful life of
the web site ( Note 2 ).
Cash flows
For purposes of the statement of cash flows, cash includes demand
and time deposits with
maturities of
less than three months. None of the Company's cash is restricted.
Property and equipment
Property and equipment are stated at cost less accumulated
depletion and depreciation.
Depreciation of
property is equipment is being provided by straight line methods
over estimated useful lives of five
years.
Web site development costs
The Company accounts for its costs of developing its web site (
Note 2 ) pursuant to EITF Abstract
No. 00-02.
Pursuant to this pronouncement, all costs incurred for planning
activities have been charged to
expense.
Costs incurred for development of the web site and its
infrastructure are being capitalized and will
be
amortized using the straight line method over its estimated useful
live of three years, beginning
when the
web site is available for use, which is anticipated to be in
November 2000. Costs incurred to
operate the
web site will be charged to expense.
Advertising costs
The Company's advertising costs, which consist primarily of printed
materials, are charged to
expense when incurred. For the period August 16, 1999 ( inception
) through June 30, 2000,
advertising expenses totaled $19,837.
Accounting for stock based compensation
SFAS No. 123, 'Accounting for Stock-Based Compensation', encourages
entities to recognize
compensation costs for stock-based employee compensation plans
using the fair value method of
accounting, as defined therein, but allows for the continued use of
the intrinsic value method of
accounting prescribed by APB Opinion No. 25, 'Accounting for Stock
Issued to Employees'. The
Company has adopted the intrinsic value method to account for its
stock options and as such is not
required to recognize compensation expense in the accompanying
financial statements because
the market value of the Company's common stock was less than the
exercise price on the dates
the options were granted.
2. WEB SITE DEVELOPMENT
During the period August 16, 1999 ( inception ) through June 30,
2000, the RE4S purchased a web
site domain
name for $ 90,000. This web site allowed the RE4S to provide
commercial listings of real estate
properties over the Internet. However, the focus of these
services was too narrow and was not
accepted by the commercial real estate market, therefore the
Company subsequently abandoned
this web site and returned it to the seller, who forgave the
remaining $ 64,000 balance owed on the
purchase price. The actual payments made for this web site
totaling $26,000, along with the
operating costs, were charged to expense.
The RE4S website technology was discontinued and REpipeline's
technology platform was
launched June 1, 2000.
In connection with the development of REpipeline's website, the
Company has capitalized $
100,381
of development costs, which consist primarily of the internal labor
costs of employees directly
associated
with the development activity and external direct costs of
materials and services consumed during
the
development activity. These costs will be amortized over the three
year estimated useful life of the
web
site beginning at the time the web site is available for use,
currently anticipated to be in November
2000.
3. LEGAL PROCEEDINGS/FORMER STOCKHOLDER
Many of the employees of the Company had previously been employees
of RE4S. Tom Bailey,
who was hired
as President and CEO of RE4S on January 27, 2000, resigned his
position as of May 1, 2000,
siting a breach
of Contract and failure to disclose the criminal background of Mr.
Douglas Fonteno, the founder
and acting
officer of RE4S. Tom Bailey incorporated REpipeline.com, Inc., a
Texas corporation subsequent to
leaving as President of RE4S.
In April 2000, Mr. Fonteno was incarcerated for parole violation
from a prior conviction of securities
fraud. On April 28, 2000, the board of directors voted to expunge
all shares of RE4S owned by Mr.
Fonteno, his family members and/or affiliated companies, which were
issued for inadequate
consideration and proper approval by the Board of Directors. These
shares, totaling 3,909,267, are
currently held in treasury by a wholly owned nominee corporation to
be reissued in the future to
outsiders for corporate financing of the Company and /or
acquisition.
Prior to his displacement from RE4S, Mr. Fonteno made numerous non
interest bearing advances
to himself
and several entities controlled by him totaling $ 183,906.
Although these advances have been
written off
as uncollectable in the accompanying financial statements, the
Company is in the process of
obtaining a
Writ of Garnishment against Mr. Fonteno in the amount of $ 180,858
and will attempt to collect this
amount.
Any amount received in the future will be recorded as income.
4. COMMITMENTS AND CONTINGENCIES
Legal proceedings
The Company is subject to legal proceedings and claims which arise
in the ordinary course of its
business. As of this date, except for its legal proceedings
against its founder ( Note 3 ), the
Company is not a party to a lawsuit or other legal claims or
contingencies. Management does not
believe the outcome of its lawsuit with its founder will have an
adverse effect on the Company's
financial position, operating results or cash flows.
Employment agreements
On May 1, 2000, the Company entered into an employment agreement
with George Thomas
Bailey, its President/CEO. The agreement, which expires June 30,
2003, provides for annual
compensation of $150,000 increasing to $225,000 after the Company
raises $ 2million in equity
funding. In addition, the agreement provides a $200,000 signing
bonus, payable after the above
funding has been raised. The company has the option to pay half of
the amount payable in
common stock shares of the company valued at the bid price of the
stock as of the effective date of
the agreement. In the case of termination, the agreement provides
for a 12 month salary
severance package, reduced by 50% if the termination is for cause.
The agreement provides for
an equity bonus package if the Company completes its proposed
merger with a public company (
Note 7 ) and if the Company achieves various goals as these goals
are defined in the agreement.
In the case of the Photonics merger, an option to purchase at $0.10
per share approximately
11,000,000 shares would be issued to Mr. Bailey.
In addition, this employment agreement provides qualified stock
options for 500,000 of the
Company's common stock at an exercise price of $ 0.10 per share
(post merger). These options
vest over the three year term of the
employment agreement and automatically expire three years from the
date they vest. Upon
termination, all vested options must be exercised within 45 days or
they expire and all non-vested
options will be cancelled. Subject to the approval of the
Photonic's shareholders.
Leases
The Company is obligated under a non-cancellable operating sublease
agreement for its office
facilities, effective May 1, 2000 and expiring December 31, 2001.
The agreement provides for a
monthly rental payment of $ 5,232 and a three month security
deposit. There is no option for
renewal. Prior to May 1, 2000, the RE4S leased office space from
its founder, a corporation of Mr.
Fonteno ( Note 3 ) under a month to month agreement at $ 3,000 per
month. Rent under this
agreement totaled $ 15,000. At June 30, 2000, future minimum
rental payments required under the
terms of the above sublease agreement is as follows.
Year Ended June 30,
Amount
2001
62,784
2001
31,392
2003
0
94,176
Common stock to be issued
The Company has agreed with three of its vendors to satisfy $
36,250 of its accounts payable
obligations through the issuance of 145,750 shares of its common
stock. No specific time has
been established for these shares to be issued.
5. INCOME TAXES
The Company uses the accrual method of accounting for federal
income tax reporting purposes.
At June 30, 2000, the Company has a net operating loss carry
forward for tax reporting purposes of
approximately $ 580,000 which expires through the year 2010.
Deferred income taxes are recognized for the net tax effects of
temporary differences between the
carrying amounts of assets and liabilities for financial reporting
purposes and the tax bases of
those assets and liabilities that will result in taxable or
deductible amounts in future years. At June
30, 2000, pursuant to Statement of Financial Accounting Standards
No. 109, the Company has
recognized deferred tax assets and liabilities, the significant
components of which are summarized
below.
Deferred tax assets:
Net operating loss carry forward
197,200
Deferred tax liability:
Depreciation and amortization
(800)
Gross deferred tax asset
196,400
Valuation allowance
(196,400)
Net deferred tax asset
0
A reconciliation of income tax expense at the statutory federal
rate of 34% to income tax expense
at the Company's effective tax rate for the period August 16, 1999
( inception ) through June 30,
2000 is as follows:
Tax expense ( benefit ) computed at statutory rate
(196,400)
Valuation allowance increase
196,400
Income tax expense ( benefit )
0
6. FINANCIAL INSTRUMENTS
The Company's financial instruments, none of which are held for
trading purposes and which
potentially subject the Company to credit risks, consist of its
cash and advances to its former
employees.
Cash
The Company maintains its cash in bank deposit and other accounts
which, at times, may exceed
federally insured limits. The Company has not experienced any
losses in such accounts and does
not believe it is subject to any credit risks involving its cash.
Advances to former employees
The Company's advances to its former employees are non interest
bearing, due on demand and
are secured by 28,186 shares of the Company's common stock issued
to the former employees but
held by the Company. Management believes this collateral will be
sufficient to induce repayment of
the advances and that it is not exposed to any significant credit
risks affecting these advances and
that these advances are fairly stated at estimated net realizable
amounts.
7. PROPOSED MERGER WITH PUBLIC COMPANY
On June 30, 2000, the Company entered into an agreement with an
inactive, public California
corporation whereby the stockholders of the Company would exchange
their common stock shares
for 85% of the outstanding common stock shares of the public
company. The public company
would survive the merger and the transaction would be accounted for
as a reverse merger similar
to a pooling of interests.
A condensed pro forma balance sheet of the combined companies,
assuming the merger was
effected June 30, 2000, is a follows.
Assets
Current assets
135,320
Other assets
124,069
259,389
Liabilities & Equity
Current liabilities
4,025,049
Other liabilities
0
Stockholders' equity
(3,765,660)
259,389
8. STOCK OPTIONS
At May 1, 2000, pursuant to an employment agreement ( Note 4 ), the
Company had granted
27,778 options to purchase the Company's common stock at an excise
price of $ 1.00. The
following pro forma information is required by SFAS No. 123 and is
based on the fair value of the
options estimated by management to be approximately $ .09 per
share. Management's estimate of
fair value is primarily based on the book value of the Company
since no other recoverable form of
value measurement is available.
Pro forma net loss
(662,687)
APPENDIX J
Sunnyvale Technology Corporation Asset List
APPENDIX K
CERTIFICATE OF SECRETARY
At a meeting of the Directors of Photonics Corporation held
at the offices of the company
and by telephone, duly called and held on June 21, 1999, a quorum
being present, it was on motion
RESOLVED THAT :
1. All employees be laid off and the operations of the Company
be shut down in an orderly
fashion;
2. James T. Koo is appointed as the Managing Consultant, at no
pay, for the Company to sell
the Company or to orderly shut down the Company and sell it's
assets;
3. A form 8K filing should be made with the SEC to reflect the
actions of the board of
directors;
and, for the purpose aforesaid James T. Koo is authorized to
execute on behalf of the Company, all
such conveyance, transfers and other documents as the said person
may deem advisable, and to
affix thereto the Corporate Seal of the Company and to attest the
same by his signature as an
Officer of the Company, and to deliver the said documents as an Act
and Deed of the Company.
I, James T. Koo, Chief Executive Officer and attorney-in-fact
for the Secretary of the
above Company DO CERTIFY that the above is a true copy from the
minutes of said Meeting of
the Board of Directors and a true copy of the whole of said
Resolution and that said Resolution is
in full force and effect as of the date hereof.
SIGNED AND SEALED as of the 21st day of June, 1999.
I hereby certify that I am the
___/s/________________
sole signing officer. James T. Koo,
Attorney-in-Fact for
the Secretary
___/s/_______________________
James T. Koo
SEAL
APPENDIX L
INDEMNIFICATION AGREEMENT
This Indemnification Agreement ("Agreement") is made as of
____________ , by and between
Photonics Corporation, a California corporation (the "Company"),
and James T. Koo
("Indemnitee").
RECITALS
The Company and Indemnitee recognize the increasing difficulty
in obtaining directors' and
officers' liability insurance in order to adequately protect
officers, directors and consultants of the
Company, the increases in the cost of such insurance and the
general reductions in the coverage of
such insurance.
The Company and Indemnitee further recognize the substantial
increase in corporate litigation in
general, subjecting officers and directors to expensive litigation
risks at the same time as the
availability and coverage of liability insurance has been severely
limited.
Indemnitee does not regard the current protection available as
adequate under the present
circumstances and the Company is willing to provide to Indemnitee
additional protection.
The Company desires to attract and retain the services of
highly qualified individuals, such as
Indemnitee, to serve as officers, directors and consultants of the
Company and to indemnify them
so as to provide them with the maximum protection permitted by law.
AGREEMENT
In consideration of the mutual promises made in this Agreement,
and for other good and
valuable consideration, receipt of which is hereby acknowledged,
the Company and Indemnitee
hereby agree as follows:
1. INDEMNIFICATION.
(a) GENERAL AGREEMENT. The Company shall indemnify
Indemnitee if Indemnitee is
or was a party to or witness or other participant in, or is
threatened to be made a party to or witness
or other participant to any threatened, pending or completed
action, suit or proceeding, whether
civil, criminal, administrative or investigative (including an
action by or in the right of the
Company) by reason of the fact that Indemnitee is or was a
director, officer, employee or agent of
the Company, or any subsidiary of the Company, by reason of any
action or inaction on the part of
Indemnitee while an officer or director or by reason of the fact
that Indemnitee is or was serving at
the request of the Company as a director, officer, employee or
agent of another corporation,
partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees and
costs), judgments, fines, any interest, assessments, and other
charges and amounts paid in
settlement (if such settlement is approved in advance by the
Company, which approval shall not be
unreasonably withheld) actually and reasonably incurred by
Indemnitee in connection with such
action, suit or proceeding if Indemnitee acted in good faith and in
a manner Indemnitee reasonably
believed to be in or not opposed to the best interests of the
Company, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe
Indemnitee's conduct was
unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent,
shall not, of itself, create a
presumption that Indemnitee did not act in good faith and in a
manner which Indemnitee
reasonably believed to be in or not opposed to the best interests
of the Company, and, with respect
to any criminal action or proceeding, had reasonable cause to
believe that Indemnitee's conduct was
unlawful.
(b) MANDATORY PAYMENT OF EXPENSES. To the extent that
Indemnitee has been
successful on the merits or otherwise in defense of any action,
suit or proceeding referred to in
Subsection (a) of this Section 1 or the defense of any claim, issue
or matter therein, Indemnitee
shall be indemnified against expenses (including attorneys' fees)
actually and reasonably incurred
by Indemnitee in connection therewith.
2. NO EMPLOYMENT RIGHTS. Nothing contained in this Agreement
is intended to create in
Indemnitee any right to continued employment.
3. EXPENSES; INDEMNIFICATION PROCEDURE.
(a) ADVANCEMENT OF EXPENSES. Subject to the terms and
conditions of this
Agreement, the Company shall advance all expenses incurred by
Indemnitee in connection with the
investigation, defense, settlement or appeal of any civil or
criminal action, suit or proceeding
referenced in Section 1(a) hereof (including amounts actually paid
in settlement of any such action,
suit or proceeding). Indemnitee hereby undertakes to repay such
amounts advanced only if, and to
the extent that, it shall ultimately be determined that Indemnitee
is not entitled to be indemnified by
the Company as authorized hereby. Any advances made hereunder shall
be paid by the Company to
Indemnitee within twenty (20) days following delivery of a written
request therefor by Indemnitee
to the Company.
(b) NOTICE/COOPERATION BY INDEMNITEE. Indemnitee shall,
as a condition
precedent to his or her right to be indemnified under this
Agreement, give the Company notice in
writing as soon as practicable of any claim made against Indemnitee
for which indemnification will
or could be sought under this Agreement. Notice to the Company
shall be directed to the Chief
Executive Officer of the Company at the address shown on the
signature page of this Agreement
(or such other address as the Company shall designate in writing to
Indemnitee). Notice shall be
deemed received three (3) business days after the date postmarked
if sent by domestic certified or
registered mail, properly addressed, otherwise notice shall be
deemed received when such notice
shall actually be received by the Company. In addition, Indemnitee
shall give the Company such
information and cooperation as it may reasonably require and as
shall be within Indemnitee's
power.
(c) PROCEDURE. Any indemnification and advances provided
for in Section 1 shall be
made no later than forty-five (45) days after receipt of the
written request of Indemnitee. If a claim
under this Agreement, under any statute, or under any provision of
the Company's Certificate of
Incorporation or Bylaws providing for indemnification, is not paid
in full by the Company within
forty-five (45) days after a written request for payment thereof
has first been received by the
Company, Indemnitee may, but need not, at any time thereafter bring
an action against the
Company to recover the unpaid amount of the claim and, subject to
Section 13 of this Agreement,
Indemnitee shall also be entitled to be paid for the expenses
(including attorneys' fees and
interest, at the Bank of America prime rate in effect on the date
of Indemnitee's written request, on
the unpaid amount of the claim) of bringing such action. It shall
be a defense to any such action
(other than an action brought to enforce a claim for expenses
incurred in connection with any
action, suit or proceeding in advance of its final disposition)
that Indemnitee has not met the
standards of conduct which make it permissible under applicable law
for the Company to
indemnify Indemnitee for the amount claimed. Indemnitee shall be
entitled to receive interim
payments of expenses pursuant to Subsection 3(a) unless and until
such defense may be finally
adjudicated by court order or judgment from which no further right
of appeal exists. It is the
parties' intention that if the Company contests Indemnitee's right
to indemnification, the question of
Indemnitee's right to indemnification shall be for the court to
decide, and neither the failure of the
Company (including its Board of Directors, any committee or
subgroup of the Board of Directors,
independent legal counsel, or its stockholders) to have made a
determination that indemnification
of Indemnitee is proper in the circumstances because Indemnitee has
met the applicable standard of
conduct required by applicable law, nor an actual determination by
the Company (including its
Board of Directors, any committee or subgroup of the Board of
Directors, independent legal
counsel, or its stockholders) that Indemnitee has not met such
applicable standard of conduct, shall
create a presumption that Indemnitee has or has not met the
applicable standard of conduct.
(d) NOTICE TO INSURERS. If, at the time of the receipt of
a notice of a claim pursuant to
Section 3(b) hereof, the Company has director and officer liability
insurance in effect, the
Company shall give prompt notice of the commencement of such
proceeding to the insurers in
accordance with the procedures set forth in the respective
policies. The Company shall thereafter
take all necessary or desirable action to cause such insurers to
pay, on behalf of the Indemnitee, all
amounts payable as a result of such proceeding in accordance with
the terms of such policies.
(e) SELECTION OF COUNSEL. In the event the Company shall
be obligated under Section
3(a) hereof to pay the expenses of any proceeding against
Indemnitee, the Company, if appropriate,
shall be entitled to assume the defense of such proceeding, with
counsel approved by Indemnitee,
upon the delivery to Indemnitee of written notice of its election
so to do. After delivery of such
notice, approval of such counsel by Indemnitee and the retention of
such counsel by the Company,
the Company will not be liable to Indemnitee under this Agreement
for any fees of counsel
subsequently incurred by Indemnitee with respect to the same
proceeding, provided that (i)
Indemnitee shall have the right to employ his or her counsel in any
such proceeding at Indemnitee's
expense; and (ii) if (A) the employment of counsel by Indemnitee
has been previously authorized
by the Company, (B) Indemnitee shall have reasonably concluded that
there may be a conflict of
interest between the Company and Indemnitee in the conduct of any
such defense, or (C) the
Company shall not, in fact, have employed counsel to assume the
defense of such proceeding, then
the fees and expenses of Indemnitee's counsel shall be at the
expense of the Company.
(f) CHANGE OF CONTROL OF THE COMPANY. (i) A Change in
Control shall be
deemed to have occurred if (A) any "person" (as such term is used
in Sections 13(d) and 14(d) of
the Securities Exchange Act of 1934, as amended (the "Exchange
Act")), is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of
securities of the Company representing 30% or more of the total
voting power represented by the
Company's then outstanding voting securities or (B) during any
period of two (2) consecutive
years, individuals who at the beginning of such period constitute
the Board and any new director
whose election by the Board or nomination for election by the
Company's stockholders was
approved by a vote of at least two-thirds (2/3) of the directors
then still in office who either were
directors at the beginning of the period or whose election or
nomination for election was previously
so approved, cease for any reason to constitute a majority of the
Board, or (C) the stockholders of
the Company approve a merger or consolidation of the Company with
any other corporation, other
than a merger or consolidation that would result in the voting
securities of the Company
outstanding immediately prior thereto continuing to represent
(either by remaining outstanding or
by being converted into voting securities of the surviving entity)
at least 80% of the total voting
power represented by the voting securities of the Company or such
surviving entity outstanding
immediately after such merger or consolidation, or (D) the
stockholders of the Company approve a
plan of complete liquidation of the Company or an agreement for the
sale or disposition by the
Company (in one transaction or a series of transactions) of all or
substantially all of the Company's
assets.
(ii) With respect to all matters arising after a
Change in Control (other than a Change in
Control approved by a majority of the directors on the Board who
were directors immediately prior
to such Change in Control) concerning the rights of Indemnitee to
indemnity payments and
advancement of expenses under this Agreement, the Company shall
seek legal advice only from
independent counsel selected by Indemnitee and approved by the
Company (which approval shall
not be unreasonably withheld) (the "Independent Counsel"), and who
has not otherwise performed
services for the Company or the Indemnitee (other than in
connection with indemnification
matters)within the last five years. The Independent Counsel shall
not include any person who,
under the applicable standards of professional conduct then
prevailing, would have a conflict of
interest in representing either the Company or Indemnitee in an
action to determine Indemnitee's
rights under this Agreement. Such counsel, among other things,
shall render its written opinion to
the Company and Indemnitee as to whether and to what extent the
Indemnitee should be permitted
to be indemnified under applicable law. The Company agrees to pay
the reasonable fees of the
Independent Counsel and to indemnify fully such counsel against any
and all expenses (including
attorneys' fees), claims, liabilities, loss, and damages arising
out of or relating to this Agreement or
the engagement of Independent Counsel pursuant hereto.
(g) ESTABLISHMENT OF TRUST. In the event of a Change in
Control (other than a
Change in Control approved by a majority of the directors on the
Board who were directors
immediately prior to such Change in Control) the Company shall,
upon written request by
Indemnitee, create a trust for the benefit of the Indemnitee and
from time to time upon written
request of Indemnitee shall fund the trust in an amount sufficient
to satisfy any and all expenses
reasonably anticipated at the time of each such request to be
incurred in connection with
investigating, preparing for, participating in, and/or defending
any proceeding relating to any
indemnifiable event covered herein. The amount or amounts to be
deposited in the trust pursuant to
the foregoing funding obligation shall be determined by the
Independent Counsel. The terms of the
trust shall provide that (i) the trust shall not be revoked or the
principal thereof invaded without the
written consent of the Indemnitee, (ii) the trustee shall advance,
within ten business days of a
request by the Indemnitee, any and all expenses to the Indemnitee
(and the Indemnitee hereby
agrees to reimburse the trust under the same circumstances for
which the Indemnitee would be
required to reimburse the Company under Section 3(a) of this
Agreement), (iii) the trust shall
continue to be funded by the Company in accordance with the funding
obligation set forth above,
(iv) the trustee shall promptly pay to the Indemnitee all amounts
for which the Indemnitee shall be
entitled to indemnification pursuant to this Agreement or
otherwise, and (v) all unexpended funds
in the trust shall revert to the Company upon a final determination
by the Independent Counsel or a
court of competent jurisdiction, as the case may be, that the
Indemnitee has been fully indemnified
under the terms of this Agreement. The trustee shall be chosen by
the Indemnitee. Nothing in this
Section 3(g) shall relieve the Company of any of its obligations
under this Agreement. All income
earned on the assets held in the trust shall be reported as income
by the Company for federal, state,
local, and foreign tax purposes. The Company shall pay all costs of
establishing and maintaining
the trust and shall indemnify the trustee against any and all
expenses (including attorneys' fees),
claims, liabilities, loss, and damages arising out of or relating
to this Agreement or the
establishment and maintenance of the trust.
4. ADDITIONAL INDEMNIFICATION RIGHTS; NONEXCLUSIVITY.
(a) SCOPE. Notwithstanding any other provision of this
Agreement, the Company hereby
agrees to indemnify the Indemnitee to the fullest extent permitted
by law, notwithstanding that such
indemnification is not specifically authorized by the other
provisions of this Agreement, the
Company's Certificate of Incorporation, the Company's Bylaws or by
statute. In the event of any
change in any applicable law, statute or rule which narrows the
right of a California corporation to
indemnify a member of its board of directors or an officer, such
changes, to the extent not
otherwise required by such law, statute or rule to be applied to
this Agreement shall have no effect
on this Agreement or the parties' rights and obligations hereunder.
(b) NONEXCLUSIVITY. The indemnification provided by this
Agreement shall not be
deemed exclusive of any rights to which Indemnitee may be entitled
under the Company's
Certificate of Incorporation, its Bylaws, any agreement, any vote
of stockholders or disinterested
members of the Company's Board of Directors, the California
Corporations Code, or otherwise,
both as to action in Indemnitee's official capacity and as to
action in another capacity while holding
such office. The indemnification provided under this Agreement
shall continue as to Indemnitee for
any action taken or not taken while serving in an indemnified
capacity even though he or she may
have ceased to serve in such capacity at the time of any action,
suit or other covered proceeding.
5. PARTIAL INDEMNIFICATION. If Indemnitee is entitled under
any provision of this
Agreement to indemnification by the Company for some or a portion
of the expenses, judgments,
fines or penalties actually or reasonably incurred by him or her in
the investigation, defense, appeal
or settlement of any civil or criminal action, suit or proceeding,
but not, however, for the total
amount thereof, the Company shall nevertheless indemnify Indemnitee
for the portion of such
expenses, judgments, fines or penalties to which Indemnitee is
entitled.
6. MUTUAL ACKNOWLEDGMENT. Both the Company and Indemnitee
acknowledge that in
certain instances, Federal law or applicable public policy may
prohibit the Company from
indemnifying its directors and officers under this Agreement or
otherwise. Indemnitee understands
and acknowledges that the Company has undertaken or may be required
in the future to undertake
with the Securities and Exchange Commission to submit the question
of indemnification to a court
in certain circumstances for a determination of the Company's right
under public policy to
indemnify Indemnitee.
7. OFFICER AND DIRECTOR LIABILITY INSURANCE. The Company
shall, from time to
time, make the good faith determination whether or not it is
practicable for the Company to obtain
and maintain a policy or policies of insurance with reputable
insurance companies providing
coverage for losses from wrongful acts, or to ensure the Company's
performance of its
indemnification obligations under this Agreement. Among other
considerations, the Company will
weigh the costs of obtaining such insurance coverage against the
protection afforded by such
coverage. Notwithstanding the foregoing, the Company shall have no
obligation to obtain or
maintain such insurance if the Company determines in good faith
that such insurance is not
necessary or is not reasonably available, if the premium costs for
such insurance are
disproportionate to the amount of coverage provided, if the
coverage provided by such insurance is
limited by exclusions so as to provide an insufficient benefit, or
if Indemnitee is covered by similar
insurance maintained by a subsidiary or parent of the Company.
However, the Company's decision
whether or not to adopt and maintain such insurance shall not
affect in any way its obligations to
indemnify its officers and directors under this Agreement or
otherwise. In all policies of director
and officer liability insurance, Indemnitee shall be named as an
insured in such a manner as to
provide Indemnitee the same rights and benefits as are accorded to
the most favorably insured of
the Company's directors, if Indemnitee is a director; or of the
Company's officers or consultants, if
Indemnitee is not a director of the Company, but is an officer;
consultant or one of the Company's
key employees.
8. SEVERABILITY. Nothing in this Agreement is intended to
require or shall be construed as
requiring the Company to do or fail to do any act in violation of
applicable law. The Company's
inability, pursuant to court order, to perform its obligations
under this Agreement shall not
constitute a breach of this Agreement. The provisions of this
Agreement shall be severable as
provided in this Section 8. If this Agreement or any portion hereof
shall be invalidated on any
ground by any court of competent jurisdiction, then the Company
shall nevertheless indemnify
Indemnitee to the full extent permitted by any applicable portion
of this Agreement that shall not
have been invalidated, and the balance of this Agreement not so
invalidated shall be enforceable in
accordance with its terms.
9. EXCEPTIONS. Any other provision herein to the contrary
notwithstanding, the Company
shall not be obligated pursuant to the terms of this Agreement:
(a) CLAIMS INITIATED BY INDEMNITEE. To indemnify or
advance expenses to
Indemnitee with respect to proceedings or claims initiated or
brought voluntarily by Indemnitee
and not by way of defense, except with respect to proceedings
brought to establish or enforce a
right to indemnification under this Agreement or any other statute
or law or otherwise as required
under Section 145 of the Delaware General Corporation Law, but such
indemnification or
advancement of expenses may be provided by the Company in
specific cases if the Board of
Directors has approved the initiation or bringing of such suit.
(b) LACK OF GOOD FAITH. To indemnify Indemnitee for any
expenses incurred by the
Indemnitee with respect to any proceeding instituted by Indemnitee
to enforce or interpret this
Agreement, if a court of competent jurisdiction determines that
each of the material assertions
made by the Indemnitee in such proceeding was not made in good
faith or was frivolous.
(c) INSURED CLAIMS. To indemnify Indemnitee for expenses
or liabilities of any type
whatsoever (including, but not limited to, judgments, fines, ERISA
excise taxes or penalties, and
amounts paid in settlement) to the extent such expenses or
liabilities have been paid directly to
Indemnitee by an insurance carrier under a policy of officers' and
directors' liability insurance
maintained by the Company.
(d) CLAIMS UNDER SECTION 16(b). To indemnify Indemnitee
for expenses and the
payment of profits arising from the purchase and sale by Indemnitee
of securities in violation of
Section 16(b) of the Securities Exchange Act of 1934, as amended,
or any similar successor statute.
10. CONSTRUCTION OF CERTAIN PHRASES.
(a) For purposes of this Agreement, references to the
"COMPANY" shall include any
constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have
had power and authority to
indemnify its directors, officers, and employees or agents, so that
if Indemnitee is or was a director,
officer, employee or agent of such constituent corporation, or is
or was serving at the request of
such constituent corporation as a director, officer, employee or
agent of another corporation,
partnership, joint venture, trust or other enterprise, Indemnitee
shall stand in the same position
under the provisions of this Agreement with respect to the
resulting or surviving corporation as
Indemnitee would have with respect to such constituent corporation
if its separate existence had
continued.
(b) For purposes of this Agreement, references to "OTHER
ENTERPRISES", shall include
employee benefit plans; references to "FINES" shall include any
excise taxes assessed on
Indemnitee with respect to an employee benefit plan; and references
to "SERVING AT THE
REQUEST OF THE COMPANY" shall include any service as a director,
officer, consultant,
employee or agent of the Company which imposes duties on, or
involves services by, such director,
officer, employee or agent with respect to an employee benefit
plan, its participants, or
beneficiaries; and if Indemnitee acted in good faith and in a
manner Indemnitee reasonably
believed to be in the interest of the participants and
beneficiaries of an employee benefit plan,
Indemnitee shall be deemed to have acted in a manner "NOT OPPOSED
TO THE BEST
INTERESTS OF THE COMPANY" as referred to in this Agreement.
11. SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon the Company and
its successors and assigns, and shall inure to the benefit of
Indemnitee and Indemnitee's estate,
heirs, legal representatives and assigns.
12. ATTORNEYS' FEES. In the event that any action is
instituted by Indemnitee under this
Agreement to enforce or interpret any of the terms hereof,
Indemnitee shall be entitled to be paid
all court costs and expense, including reasonable attorneys' fees,
incurred by Indemnitee with
respect to such action. The Company hereby consents to service of
process and to appear in any
such action. In the event of an action instituted by or in the name
of the Company under this
Agreement or to enforce or interpret any of the terms of this
Agreement, Indemnitee shall be
entitled to be paid all court costs and expenses, including
attorneys' fees and costs, incurred by
Indemnitee in defense of such action (including with respect to
Indemnitee's counterclaims and
cross-claims made in such action).
13. NOTICE. All notices, requests, demands and other
communications under this Agreement
shall be in writing and shall be deemed duly given (i) if delivered
by hand and receipted for by the
party addressee, on the date of such receipt, or (ii) if mailed by
domestic certified or registered mail
with postage prepaid, on the third business day after the date
postmarked. Addresses for notice to
either party are as shown on the signature page of this Agreement,
or as subsequently modified by
written notice.
14. CONSENT TO JURISDICTION. The Company and Indemnitee each
hereby irrevocably
consent to the jurisdiction of the courts of the State of
California for all purposes in connection
with any action or proceeding which arises out of or relates to
this Agreement and agree that any
action instituted under this Agreement shall be brought only in the
state courts of the State of
California.
15. CHOICE OF LAW. This Agreement shall be governed by and
its provisions construed in
accordance with the laws of the State of California, as applied to
contracts between California
residents entered into and to be performed entirely within
California.
16. MODIFICATION. This Agreement constitutes the entire
agreement between the parties
hereto with respect to the subject matter hereof. All prior
negotiations, agreements and
understandings between parties with respect thereto are superseded
hereby. This Agreement may
not be modified or amended except by an instrument in writing
signed by or on behalf of the
parties hereto.
17. COMMENCEMENT DATE AND TERM. This Agreement shall be
effective as to all acts
of Indemnitee commencing as of June 1, 1999 and shall continue in
effect until such time as either
Indemnitee shall terminate his engagement as management consultant
to the Company or the
Company shall terminate Indemnitee as management consultant to the
Company, whichever occurs
earlier. In the event of termination of this Agreement,
Indemnitee shall continue to be fully
entitled to and receive the benefits of this Agreement relating to
any cause, claim or action as
defined in Section 1 hereinabove that arose, commenced or occurred
during the term of this
Agreement notwithstanding whether the claim relating to such action
as defined in Section 1
hereinabove is made during the term of this Agreement or following
the termination of this
Agreement.
The parties hereto have executed this Agreement as of the day
and year set forth on the first
page of this Agreement.
PHOTONICS CORPORATION INC.
By:
-----------------------------------
Title:
---------------------------------
Address:
AGREED TO AND ACCEPTED:
INDEMNITEE:
- --------------------------------------
James T. Koo
Address:
150
Stock Purchase Agreement; PHOX; 09/08/2000
Page 205
