FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Three Month period ended 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.
<PAGE>
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 4
ITEM I Interim Financial Statements
Consolidated Balance Sheet as of
March 31, 2000 and March 31, 1999 5
Consolidated Statements of Operation
For the Three months and Six months
ending March 31, 2000 an March 31, 1999 6
Consolidated Statement of Cash Flows
For the Six months ending March 31, 2000 and March 31, 1999 7
Notes to Consolidated Financial Statements 8
ITEM 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II OTHER INFORMATION
ITEM 1 Legal Proceedings 10
ITEM 2 Changes in Securities 10
ITEM 3 Defaults Upon Senior Securities 10
ITEM 4 Submission of Matters of a Vote of Security Holders 10
ITEM 5 Other Information 10
ITEM 6 Exhibits and Reports on Form 8-K 10
SIGNATURE 10
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.
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<PAGE>
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
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<PAGE>
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.
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<PAGE>
PHOTONICS CORPORATION
Consolidated Balance Sheet
(Amounts in thousands)
<TABLE>
<CAPTION>
March 31, March 31,
2000 1999
(Unaudited) (Unaudited)
<S> <C> <C>
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
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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<PAGE>
PHOTONICS CORPORATION
Consolidated Statements of Operations
(Amounts in thousands, except per share data)
<TABLE>
<CAPTION>
Three months ended Sept. 30,
2000 1999
(Unaudited) (Unaudited)
<S> <C> <C>
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
========== ==========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
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<PAGE>
PHOTONICS CORPORATION
FORM 10-QSB
PHOTONICS CORPORATION
Consolidated Statement of Cash Flows
(Amounts in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended March 31,
2000 1999
(Unaudited) (Unaudited)
----------- -----------
<S> <C> <C>
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
===== =========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
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<PAGE>
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.
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<PAGE>
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
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<PAGE>
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.
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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
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<TABLE> <S> <C>
<S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF MARCH 31, 2000 AND THE CONSOLIDATED
STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2000 OF
PHOTONICS CORPORATION, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 73
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 73
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 73
<CURRENT-LIABILITIES> 4,121
<BONDS> 0
0
0
<COMMON> 44,096
<OTHER-SE> (51,023)
<TOTAL-LIABILITY-AND-EQUITY> 73
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 4
<OTHER-EXPENSES> 155
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 99
<INCOME-PRETAX> (159)
<INCOME-TAX> 0
<INCOME-CONTINUING> (159)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (159)
<EPS-BASIC> (.04)
<EPS-DILUTED> (.04)
</TABLE>
