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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
------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
------------------------------------------------------------------------------
(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):
(4) Proposed maximum aggregate value of transaction:
(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:
(2) Form, Schedule or Registration Statement
No.:
(3) Filing Party:
(4) Date Filed:
Notes:
PHOTONICS CORPORATION
1222 ALDERWOOD
SUNNYVALE, CALIFORNIA 94089
PROXY STATEMENT
FOR ANNUAL MEETING OF SHAREHOLDERS
October 2, 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, October 18, 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 October 2, 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 October 12, 2000 in order to be included on
the agenda of the 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, October 18, 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.
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, October 18, 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 October 2, 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 October 2, 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: List of Assets for Sunnyvale Technology as
of 12-31-99.
12. Appendix I: Certificate of a Board Resolution Appointing
James T. Koo as Managing Consultant
13. Appendix J: 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
18
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
Use of the Newly Authorized Shares
28
Vote Required
29
Anti-takeover Implications
29
Recommendation of the Company
30
PROPOSAL 2
30
Background
30
Reasons in Support of the Resolution
30
Reasons Against the Resolution
30
Effective Date of Amendment
31
Vote Required
31
Recommendation of the Company
31
PROPOSAL 3
31
Vote Required
31
Nominees
32
Board Committees and Meetings
33
Recommendation of the Company
33
PROPOSAL 4
33
Recommendation of the Company
34
PROPOSAL 5
34
Background of the Transaction
34
Historical Activities of the Company:
34
Recent Events
35
Proposed Acquisition of RealEstate4Sale.com / REP-T
35
Management's Discussion and Analysis of Financial Condition
and Results of Operations of REP-T
37
The Internet
38
Business Strategies
39
Marketing Strategies
40
Technology Strategies
40
An In-depth Approach
40
Competing Commercial Real Estate Internet Sites
41
ASP Industry
41
Vertical Trade Communities
41
Commercial Real Estate Internet based property listing bulletin
boards
41
LoopNet
41
Small Commercial Property Listing Sites
42
Market Information Companies
42
CoStar
42 ecent Events for REP-T
42
Technology
42
Acquisitions
43
Strategic Partnerships
43
Management of REP-T that will become the Management of Photonics
after the Acquisition
43
Executive Compensation of Officers and Directors of REP-T that
will be assumed by Photonics
44
Remuneration of Officers; Employment Agreements
44
Compensation of the Executive Officers
46
Compensation Philosophy
47
Remuneration of Officers and the approval of a Stock Option Plan
48
Outside Director Stock Option Plan
48
Employment Agreements
48
Securities Ownership of Principal Stockholders and Management
of REP-T
48
Securities Ownership of Principal Stockholders and Management
of REP-T after the Acquisition
49
Comparison of Rights of Shareholders of Photonics and REP-T
50
Representations and Covenants
55
Conditions to the Closing
55
Termination or Amendment
55
Indemnification
55
Regulatory Matters
55
Expenses and Fees
55
Reasons for the Acquisition
56
Disadvantages of the Acquisition of REP-T
57
Recommendation of the Company
57
PHOTONICS FINANCIAL STATEMENT PRESENTATION
58
Unaudited Pro Forma Condensed Combined Financial Statements
58
AUDITED FINANCIAL STATEMENTS OF REPIPELINE.COM, INC.
63
PROPOSAL 6
73
Authorization for Indemnity under California and Federal Law
74
Meaning of the Indemnity Agreement
75
Recommendation of the Company
75
PROPOSAL 7
75
History of DTC and Sunnyvale Technology
75
Assets of Sunnyvale Technology
76
The DTC/Sunnyvale Technology Transaction as it relates to the
Acquisition
76
Selected Financial Data for Sunnyvale Technology Corporation
76
Reasons in Support of the DTC/Sunnyvale Technology Transaction
77
Vote Required
77
Recommendation of the Company
77
PROPOSAL 8
78
History of DTC and Sunnyvale Technology
78
Photonic's Intellectual Property Arrangements with STC
79
Benefits to Photonics of the Spin-off.
79
Restricted Securities
80
Financial Information on STC
80
Vote Required
80
Recommendation of the Company
80
PROPOSAL 9
80
Employee Stock Option Plan
80
Compensation Philosophy
81
General
81
Purpose
82
Administration
82
Eligibility
82
Terms of Options
82
Restricted Stock Purchase Rights
83
Adjustments upon Changes in Capitalization
84
Amendment and Termination
84
Plan Benefits
84
Federal Income Tax Aspects of the Stock Plan
84
Vote Required
85
Recommendation of the Company
85
PROPOSAL 10
85
Outside Director Stock Option Plan
85
Vote Required
85
Recommendation of the Company
85
PROPOSAL 11
86
History of Auditors
86
Vote Required
86
PROPOSAL 12
86
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
86
SECURITY OWNERSHIP BY CERTAIN OWNERS AND MANAGEMENT OF PHOTONICS
87
DISSENTER'S RIGHTS
88
EXPERTS
89
LEGAL MATTERS
89
APPENDICES AND ATTACHMENTS
90
APPENDIX A
100
APPENDIX B
110
APPENDIX C
121
APPENDIX D
158
APPENDIX E
191
APPENDIX F
220
APPENDIX G
225
APPENDIX H
230
APPENDIX I
231
APPENDIX J
232
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, October 18, 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.
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 Acquistion
Common (fully diluted)
6,765,496 73,540,648
Preferred
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
Annual Annual
6 Months
1998 1999
2000
Audited Audited
Unaudited
Revenues,
net of returns and
allowances
$3,484,000.00 $750,226.00 $201,626.41
Net Loss available
to common stockholder $(2,820,000.00) $(673,817.00)
$(24,383.65)
Loss per share
- Diluted
$(0.67) $(0.19)
$(0.004)
Total Assets
$852,000.00 $75,000.00
$196,683.11
Long-term debt payable,
net of current portion-
$-
$- $-
Stockholder's deficit -
Preferred stock
$2,328,000.00 $2,328,136.00
$-
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 Pandesic(tm) 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, October 18, 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.
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.
Use of the Newly Authorized Shares
If the proposed Resolution is approved by the Company's shareholders, the Company has no plans for the use of such shares except as set out in the following table:
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.
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 1/2 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 .
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The shares that are issued to the creditors, upon approval of this
proposal by the shareholders, will not be registered by the Company.
The Company is relying on Section 3(a)(9) of the Securities Act of 1933,
under which an exempted security is defined as "any security exchanged
by the issuer with its existing security holders exclusively where no commission
or other remuneration is paid or given directly or indirectly for soliciting
such exchange."
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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
10.56 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
66.07% 0.00%
C/o Repipeline.com
12377 Merit Drive
Dallas, TX 75251
James Vaughan
66,625
1.13% 3.32%
Chairman of the Board
12377 Merit Drive
Dallas, TX 75251
Thomas Bailey
142,982
2.42% 7.12%
President
12377 Merit Drive
Dallas, TX 75251
Joseph Langston
171,300
2.90% 8.53%
Chief Financial Officer
12377 Merit Drive
Dallas, TX 75251
Dale Sparrow
287,188
4.85% 14.31%
12377 Merit Drive
Dallas, TX 75251
Michael Craven
78,700
1.33% 3.92%
Vice President
12377 Merit Drive
Dallas, TX 75251
Other Shareholders 1,260,603 21.31% 62.80%
Total Number of Shares 5,916,665 100.00% 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 September 6, 2000 figures of 5,916,665 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. 41,311,212
56.17% 0.00%
C/o REpipeline.com, Inc.
James Vaughan
703,560
0.96% 2.18%
Chairman of the Board
Thomas Bailey
1,509,890
2.05% 4.68%
President/Direct
Joseph Langston
1,808,928
2.46% 5.61%
C.F.O./Director
Michael Craven
831,072
1.13% 2.58%
Vice President
James T. Koo
858,475
1.17% 2.66%
Director
Dale Sparrow 3,032,705 4.12% 9.41%
David S. Lee 1,475,360 2.01% 4.58%
Other Shareholders 22,009,446 29.93% 68.29%
Total Shares Issued
73,540,648 100.00%
100.00%
Total Shares Outstanding 32,229,436
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)
======= ========== ==========
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 )
BALANCE SHEET
JUNE 30, 2000
Assets
Current assets:
Cash
23,659
Advances
to former employees
36,661
Total current assets
60,320
Property and equipment, at cost, less
accumulated depreciation of $ 1,998
7,992
Other assets:
Capitalized web site development costs,
less accumulated amortization of $ 0
100,381
Rental security deposit
15,696 116,077
184,389
Liabilities and Stockholders' Equity
Current liabilities:
Accounts
payable, trade
59,074
Withholding
taxes payable
19,238
Total current liabilities
78,312
Commitments and contingencies 0
Stockholders' equity:
Common stock, $ .0001, 10,000,000 shares
authorized, 5,561,834 shares issued and
outstanding
556
Preferred stock, $ .0001 par value, 2,000,000
shares authorized, no shares issued and
outstanding, no preferences determined
0
Paid in capital in excess of par
715,900
Deficit accumulated during development stage (610,379)
Treasury stock, 3,909,267 common stock
shares at $ 0 cost
0 106,077
184,389
The accompanying notes are an integral part of the financial statements.
REpipeline.com, Inc.
( A DEVELOPMENT STAGE COMPANY )
STATEMENT OF OPERATIONS
PERIOD AUGUST 16, 1999 ( INCEPTION ) THROUGH JUNE 30, 2000
Revenues 0
Costs and expenses:
Web site
development costs 164,201
Marketing
and promotion
26,286
Compensation and
benefits 67,922
General and administrative
349,972
Depreciation and
amortization 1,998
610,379
Loss from operations (610,379)
Interest expense 0
Loss before income taxes (610,379)
Provision for income tax benefit
Net loss
(610,379)
The accompanying notes are an integral part of the financial statements.
REpipeline.com, Inc.
( A DEVELOPMENT STAGE COMPANY )
STATEMENT OF STOCKHOLDERS' EQUITY
PERIOD AUGUST 16, 1999 ( INCEPTION ) THROUGH JUNE 30, 2000
Common Stock Additional Accumulated
Treasury
No. of Shs. $ Paid in Capital Deficit
Stock Total
Balance at
August 16, 1999 0
0 0
0 0
0
Common stock
issued in
exchange for
organizational
services from
founder 3,930,267
393
393
Common stock
issued in
exchange for
cash
675,169 68 642,101
642,169
Common stock
issued in
exchange for
services 956,398
95 73,799
73,894
Common stock
shares expunged
from founder
and held in
treasury (3,909,267)
0 0
Net loss (610,379)(610,379)
Balance at
June 30,
2000
5,561,834 556 715,900 (610,379)
0 106,077
The accompanying notes are an integral part of the financial statements.
REpipeline.com, Inc.
( A DEVELOPMENT STAGE COMPANY )
STATEMENT OF CASH FLOWS
PERIOD AUGUST 16, 1999 ( INCEPTION ) THROUGH JUNE 30, 2000
Cash flows from operating activities:
Cash received
from customers
Cash paid
to employees
( 67,922)
Cash paid
to suppliers
(387,860)
Interest
paid
Income taxes
paid
Cash used in operating activities
(455,782)
Cash flows from investing activities:
Purchase
of property and equipment
(9,990)
Web development
expenditures
(100,381)
Rental deposit
advanced
(15,696)
Advances
to former employees
(36,661)
Cash used in investing activities (162,728)
Cash flows from financing activities:
Proceeds
from issuance of common stock
642,169
Cash provided by financing activities
642,169
Net increase ( decrease ) in cash 23,659
Cash at beginning of the year
0
Cash at end of year
23,659
The accompanying notes are an integral part of the financial statements.
REpipeline.com, Inc.
( A DEVELOPMENT STAGE COMPANY )
STATEMENT OF CASH FLOWS
PERIOD AUGUST 16, 1999 ( INCEPTION ) THROUGH JUNE 30, 2000
Reconciliation of Net Loss
to Net Cash Flows Used in Operations
Net loss (610,379)
Adjustments to reconcile net loss to
net cash flows used in operations:
Depreciation
and amortization
1,998
Common stock
issued for services 74,287
Increase
( decrease ) in
accounts
payable
59,074
Increase
( decrease ) in
withholding
taxes payable
19,238 154,597
Net cash used in operating activities
(455,782)
Supplemental Disclosure of Non Cash
Investing and Financing Activities
Issuance of common stock in exchange for services
74,287
The accompanying notes are an integral part of the financial statements.
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, citing 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 $ 2 million 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-cancelable 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
2002
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)
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 an individual management committee for the broad purpose of selling, liquidating or otherwise winding down Photonics Corporation.
<R>
The California Corporations Code, Section 300 states:
"The board may delegate the management of the day-to-day operation of the business of the corporation to a management company or other person provided that the business and affairs of the corporation shall be managed and all corporate powers shall be exercised under the ultimate direction of the board."(emphasis added)
The California Corporations Code, Section 307(8) states:
"Every act or decision done or made by a majority of the directors present at a meeting duly held at which a quorum is present is the act of the board, ..."
Section 307(8)(c) adds:
(c) The provisions of this section apply also to committees of the board and incorporators and action by such committees and incorporators, mutatis mutandis.
The Amended and Restated Bylaws of Photonics Corporation state under Article 3.1:
"Subject to the provisions of the Code and any limitations in the article of incorporation and these bylaws relating to action required to be approved by the shareholders or by the outstanding shares, the business and affairs of the corporation shall be managed and all corporate powers shall be exercised by or under the direction of the board of directors." (emphasis added)
Mr. Koo's engagement to manage the winding down, sale or reorganization of the Company at the direction of the board of directors 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 I. 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 purpose for the Company requesting shareholder approval
of the actions of Mr. Koo relating to the Proposals set out in this Proxy/Prospectus
is to have a corporate record that that indicates shareholder approval
of all actions taken in preparation for and in consummation of the transactions
relating to the Proposals set forth herein. Shareholder approval
of these actions along with the approval by the newly elected board of
directors of the same actions will remove any doubt from any third party
that the actions of the Company have the benefit of complete and full corporate
authorization and may be relied upon by all parties. The following
are the actions taken by Mr. Koo on behalf of the Company for which ratification
is sought:
a) Winding down the business of Photonics Corporation;
b) Relocating the headquarters of the Company to reduce costs and
overhead;
c) Entering into a letter agreement with RealEsate4Sale.com, Inc.
for the acquisition of that company by Photonics Corporation;
d) Terminating the letter agreement by and between RealEsate4Sale.com,
Inc. on May 31, 2000;
e) Entering into a letter agreement with REpipeline.com, Inc. for
the acquisition of that company by Photonics Corporation;
f) Entering into the Stock Purchase Agreement and Plan of Reorganization
with REpipeline.com, Inc. included herewith as Appendix E;
g) Terminating BDO Seidman as auditors of the Company;
h) Engaging Hines and Associates, Dallas, Texas as auditors of
the Company;
i) Entering into individual agreements entitled "General Settlement
Agreement With PHOX and its Debt Holders" with the creditors listed
on Appendix G, attachment 1;
j) Forming Sunnyvale Technology Corporation as a subsidiary of
the Company;
k) Transferring the assets and business of DTC Data Technology,
a division of Photonics, to Sunnyvale Technology Corporation;
l) Purchasing a 90% interest in Sunnyvale Technology Corporation
from the Company under the terms and conditions set out and described in
Proposal 7 of this Proxy/Prospectus;
m) Terminating Hines and Associates, Dallas, Texas as auditors
of the Company;
n) Employing Turner Stone & Company of Dallas, Texas as the
auditors for the Company;
o) Performing such other actions as were normal, customary and
ancillary to the foregoing actions.
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 J. The indemnity agreement contains language that can be found in many indemnity agreements entered into with members of the board of directors of other publicly traded companies. 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 set out immediately above, to the fullest extent allowed by California law.
California law contains statutory limitations on the length of time during which an aggrieved party may file a lawsuit against a person or entity. The effect of the indemnity agreement will be to protect Mr. Koo during the time within which a lawsuit can be filed. Under California law, a lawsuit based upon a written contract must be filed within four years of the date of the contract (California Code of Civil Procedure, Section 337.1), a lawsuit based upon fraud or mistake must be filed within three years of the date of occurrence of the fraud or mistake (California Code of Civil Procedure, Section 338.d) and a lawsuit based upon an oral contract must be filed within two years of the date of the contract (California Code of Civil Procedure, Section 339.1). Based on the actions of Mr. Koo and the time periods allowed under California law for filing a lawsuit, the Company could be exposed for a period as long as four years from the date that Mr. Koo entered into a contract on behalf of the Company.
Authorization for Indemnity under California and Federal Law
California law specifically provides that a corporation may indemnify it' officers, directors and agents (California Corporations Code, Section 204(11) but imposes limitations on such indemnity. A corporation may indemnify it's agent, provided, however, that the provision may not provide for indemnification of any agent for any acts or omissions or transactions from which a director may not be relieved of liability as set forth in the exception to paragraph (10). California Corporations Code, Section 204(10) states:
"such a provision may not eliminate or limit the liability of directors (i) for acts or omissions that involve intentional misconduct or a knowing and culpable violation of law, (ii) for acts or omissions that a director believes to be contrary to the best interests of the corporation or its shareholders or that involve the absence of good faith on the part of the director, (iii) for any transaction from which a director derived an improper personal benefit, (iv) for acts or omissions that show a reckless disregard for the director's duty to the corporation or its shareholders in circumstances in which the director was aware, or should have been aware, in the ordinary course of performing a director's duties, of a risk of serious injury to the corporation or its shareholders, (v) for acts or omissions that constitute an unexcused pattern of inattention that amounts to an abdication of the director's duty to the corporation or its shareholders, (vi) under Section 310, or (vii) under Section 316, ..."
Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers or persons controlling the Company, the Company has been informed that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is therefore unenforceable.
Meaning of the Indemnity Agreement
The effect of the indemnity agreement to Mr. Koo is that he will be held harmless by the Company for any costs or expenses relating to the actions set out above. The agreement states that if Mr. Koo was involved in or a witness to any threatened, pending or completed action, suit or proceeding, by reason of the fact that he was an agent of the Company, he will be held harmless against any and all expenses relating to that matter. If Mr. Koo made any negligent misrepresentations, intentional omissions or mistakes in the actions cited above, the Company will be responsible for defending his actions and for paying any claims that result in liability against Mr. Koo or the Company. If Mr. Koo has taken actions relating to the above items that result in claims against him or the Company, the Company could suffer financial obligations to settle such claims.
In the event that Mr. Koo is elected as a director of the Company,
the Indemnity Agreement will also hold him harmless from future liability
relating to actions that he takes on behalf of the Company, subject to
the same limitations recited above.
</R>
The closing of the REP-T acquisition as outlined in Proposal 5 is conditioned upon the approval of this Proposal 6 by the shareholders of the Company.
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. <R>During the month of
July, 1999, the Company received three written offers to purchase the assets
of the DTC division of the Company in response to a solicitation of offers
by Mr. Koo as part of his duties to wind down the Company. The offers
were from HMS Tech, Inc., Palo Alto, California for $16,050, from City
Metals, San Jose, California for $.75 per pound of materials and from RA
enterprise, Santa Clara, California for $5,100. In lieu of accepting
any of these offers, the Company 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.
</R>
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.
Annual Annual 6 months
1998 1999
2000
Audited Audited Unaudited
Revenues, net of returns
and allowances
$3,484,000 $750,226 $201,626
Net Loss available to
common stockholders
$(2,820,000) $( 673,817) $(24,383)
Loss per share - Diluted
$(0.67) $(0.19) $(0.004)
Total Assets
$852,000 $75,000 $196,683
Long-term debt payable,
net of current portion
$-
$- $-
Stockholder's deficit -
Preferred stock
$2,328,000 $2,328,136 $-
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 December 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: List of Assets for Sunnyvale Technology as of
12-31-99.
Appendix I: Certificate of a Board Resolution Appointing
James T. Koo as Managing Consultant
Appendix J: 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 OCTOBER 18,
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, October 18, 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
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 October 18, 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 October 2, 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 October 2, 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.
<PAGE>
PHOTONICS CORPORATION
For the quarter ended June 30, 2000
INDEX
Page Number
PART I FINANCIAL INFORMATION 4
ITEM I Interim Financial Statements
Consolidated Balance Sheet as of
June 30, 2000 and June 30, 1999
5
Consolidated Statements of Operation
For the Three months and Six months
ending June 30, 2000 and June 30, 1999
6
Consolidated Statement of Cash Flows
For the Six months ending March 31, 2000 and June 30, 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
-3-
<PAGE>
PART 1 FINANCIAL INFORMATION
The condensed consolidated interim financial statements included
herein
have been prepared by the Company, without audit, pursuant to the
rules
and regulations of the Securities and Exchange Commission.
Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules
and
regulations, although the Company believes that the disclosures
made are
adequate to make the information 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.
-4-
<PAGE>
PHOTONICS CORPORATION
Consolidated Balance Sheet
(Amounts in thousands)
<TABLE>
<CAPTION>
June 30, June 30,
2000
1999
(Unaudited) (Unaudited)
<S>
<C>
<C>
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
</TABLE>
The accompanying notes are an integral part of these consolidated
Financial statements.
-5-
<PAGE>
PHOTONICS CORPORATION
Consolidated Statements of Operations
(Amounts in thousands, except per share data)
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
2000 1999
2000
1999
(Unaudited) (Unaudited) (Unaudited)
(Unaudited)
<S>
<C> <C>
<C>
<C>
REVENUES:
Net Product Sales $ 0
$ 0 $
691 $ 691
Cost of Revenues 0
0 152
152
---------- ------- ----------
----------
Gross Profit
0
0 539
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
======= ========== ==========
==========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED
FINANCIAL
-6-
PHOTONICS CORPORATION
FORM 10-QSB
PHOTONICS CORPORATION
Consolidated Statement of Cash Flows
(Amounts in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended June 30,
2000
1999
(Unaudited) (Unaudited)
----------- -----------
<S>
<C>
<C>
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
======
=========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED
FINANCIAL
STATEMENTS.
-7-
<PAGE>
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.
-8-
<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.
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
-9-
<PAGE>
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
-10-
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.
<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.
-2-
<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
-3-
<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.
-4-
<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.
-5-
<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.
-6-
<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.
-7-
<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.
-8-
<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
-9-
<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.
-10-
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 ( )
-1-
<PAGE>
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.
-2-
<PAGE>
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
-3-
<PAGE>
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
-4-
<PAGE>
Introduction
This report contains forward-looking statements and the Company's
actual results could differ materially from those anticipated in
these
forward-looking statements as a result of numerous factors, including
those set forth below and elsewhere in this report.
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.
-5-
<PAGE>
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
-6-
<PAGE>
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.
-7-
<PAGE>
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.
<TABLE>
<CAPTION>
Fiscal Yr. End 12/31/97
HIGH LOW
<S>
<C> <C>
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
</TABLE>
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
-8-
<PAGE>
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
-9-
<PAGE>
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.
-10-
<PAGE>
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 will 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
11
<PAGE>
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.
12
<PAGE>
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.
-13-
<PAGE>
Item 8. Changes in and Disagreements with Accountants of
Accounting
and Financial Disclosures.
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
-14-
<PAGE>
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
-15-
<PAGE>
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 4,396,271 shares of
Common Stock, 2,328,136 shares of Preferred stocks. All
-16-
<PAGE>
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, 2,328,136 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.
-17-
<PAGE>
Exhibit 27.1 Financial Data Schedule
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 80K on April 12, 2000 reporting a change
in
Auditors, Sale of Sunnyvale Technologies and change of location
for
The corporate headquarters.
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
-18-
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND CONSOLIDATED FINANCIAL STATEMENT
SCHEDULES
<TABLE>
<CAPTION>
Consolidated Financial Statements
Page
------------------------------
----
<S>
<C>
Report of Independent Certified Public Accountants
F-2
Consolidated Financial Statements
Balance Sheet - Assets
F-3
Balance Sheet - Liabilities and Stockholder'
Deficit 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
<PAGE>
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.
Certified Public Accountants
June 13, 2000
F-2
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-3
<PAGE>
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-4
<PAGE>
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-5
<PAGE>
PHOTONICS CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIENCY
FOR THE YEAR ENDED DECEMBER 31, 1999 AND
THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
PREF STOCK
COM STOCK ADDL
ACCUM
-----------
---------- PAID-IN ACCUM
OTHER COMP
SHARES AMOUNT
SHARES AMOUNT CAP DEFICIT
INCOME TOTAL
-----
----- ----- ---- -----
------ ---- -------
<S> <C> <C>
<C> <C> <C>
<C> <C>
<C>
(1) 2106009 2106000 4164148 $ 4396 44085604
(47163000) 154000 (813000)
(2) --
-- 32123
6000 -
- 6000
(3) 222127 222000
222000
(4)
(2706000) (2706000)
----------------------------------------------------------------------------
(5) 2328136 2328000 4396271 4396
44091604 (49869000) 154000 (3291000)
(6)
136
136
(7)
603697
603697
(8)
154000 (154000)
----------------------------------------------------------------------------
(9) 2328136 2328136 4396271 4396
44091604 (50318697) ($3894561)
</TABLE>
KEY TO ABOVE TABLE
(1) Balance at January 31, 1998
(2) Issuance of common stock under the stock option plans
(3) issuance of preferred stock for cash
(4) Net Income (Loss)
(5) Balance at December 31, 1998
(6) Rounding
(7) Net Income (Loss)
(8) Reclassification adjustment for foreign currency translation
(9) Balance at December 31, 1999
The accompanying notes are an integral part of the consolidated
financial
statements.
F-6
<PAGE>
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 pref 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-7
<PAGE>
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
F-8
<PAGE>
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.
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-9
<PAGE>
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
F-10
<PAGE>
reported as a separate component of stockholders' deficit.
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-11
<PAGE>
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%
F-12
<PAGE>
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.
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
F-14
<PAGE>
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 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)
$( .67)
Pro forma
( .23)
( 0.68)
F-15
<PAGE>
During 1999, no additional options were granted and all outstanding
options
expired with employee termination.
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, ADL 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
F-16
<PAGE>
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 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-17
<PAGE>
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.
Accounts receivable, trade
F-18
<PAGE>
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-19
<PAGE>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-2.1
<DESCRIPTION>SALE OF SUB
<TEXT>
EXHIBIT 2.1
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-K
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 December 31, 1998 was 4,336,186 shares.
-1-
PHOTONICS CORPORATION
INDEX
Page Number
PART I -
Item 1.
Business
3
General
3
Products and the Market
3
Competition
4
Intellectual Property
5
Manufacturing and Suppliers
5
Patents and Licenses
5
Significant Customer
5
Backlog
5
Employees
6
Item 2.
Properties
6
Item 3.
Legal Proceedings
6
Item 4.
Submission of Matters to a Vote of Security Holders
6
PART II
Item 5.
Market Price for Registrant's Common Equity and
Related Stockholder Matters.
7
Item 6 Selected Financial Data.
7
Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations
8
Item 8 - Financial Statements
11
Item 9 - Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure.
11
PART III
Item 10. Directors and Executive Officers
11
Item 11 Executive Compensation
13
Item 12 Security Ownership of Management
14
Item 13 Related Transactions, Changes in Securities
15
PART IV
Item 14 Exhibits, and Reports on Form 8-K.
16
SCHEDULE II
16
SCHEDULE III
17
Signature
17
Financial Statements
F-1 - F-19
Exhibit 23.1
38
Exhibit 27.1
39
-2-
<PAGE>
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
-3-
<PAGE>
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
-4-
<PAGE>
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 with 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
-5-
<PAGE>
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 - 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. The current monthly rental, including common area
maintenance, is
approximately $15,000.
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 approximately $14 thousand dollars on a monthly basis, and
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.
-6-
<PAGE>
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.
<TABLE>
<CAPTION>
PHOTONICS
High Low DTEC
High Low
<S>
<C> <C> <C>
<C> <C>
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
</TABLE>
Neither Photonics Corporation nor DTC Data Technology has historically
paid
cash dividends. 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:
-7-
<PAGE>
BALANCE SHEET DATA
At December 31, 1998
At December 31, 1997
<TABLE>
<MULTIPLIER> 1,000
<S> <C>
<C>
Total Assets
852
2,807
Total Liabilities
4,018
3,495
Long Term Debt
0
0
Stockholders Equity
(3,291) ( 813)
STATEMENT OF OPERATIONS
<CAPTION>
For the period
01/01/98-12/31/98 01/01/97-12/31/97
Sales
3,484 5,662
Loss from Operations
(2,608) ( 759)
Net Loss
(2,706) ( 459)
Basic and diluted loss per share
(.62) ( .11)
</TABLE>
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 the year, 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.
-8-
<PAGE>
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 $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. However, the potential
impact and related
-9-
<PAGE>
costs are not know 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 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 force if the sales does 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 negative working capital 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.
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
-10-
<PAGE>
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 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
-11-
<PAGE>
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
-12-
<PAGE>
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
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
<TABLE>
<S>
<C> <C>
<C>
<C>
Securities Value
of
Underlying Unexercised
in the
Unexercised Options Money Options
Value At FY End #
at FY end $
Realized Exercisable/
Exercisable/
Name
# $
Unexercisable Unexercisable
-----------------------------------------------------------------------------
None
-----------------------------------------------------------------------------
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.
-14-
<PAGE>
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%
-15-
<PAGE>
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 pages 16 and 17.
Schedule II - Valuation and Qualifying Accounts
Schedule III - Quarter 4 Income Statement Comparison
(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
-16-
<PAGE>
Schedule III - Quarter 4 Income Statement Comparison
Consolidated Statements of Operations
Quarter 4, 1998
(unaudited)
Three Months ended December 31,
1998 1997
-----------------------------------------------------------------------
Revenues:
Net Product Sales
$ 404
$ 1,697
Cost of Revenues
270
967
Gross Profit
134
730
Operating Expenses:
Research and Development
91
97
Selling, General and Administrative
277
562
Total Operating Expense
368
659
Income <loss> from Operations
(234)
71
Other Income <Expense>
(55)
154
Provision for taxes
0
0
Net Income <loss>
(296)
225
Net Income <loss> per share
$ 0.07
$ 0.05
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
<TABLE>
<CAPTION>
Consolidated Financial Statements
Page
------------------------------
----
<S>
<C>
Report of Independent Certified Public Accountants
F-2
Report of Independent Certified Public Accountants
(Relating to 1996 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
<PAGE>
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's recurring losses from operations and
net capital
deficiency at December 31,1998 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
F-2
<PAGE>
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
-F-2A-
<PAGE>
PHOTONICS CORPORATION
(DBA DTC DATA TECHNOLOGY)
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
December 31,
1998 1997
--------- -------
<S>
<C> <C>
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
========= =========
</TABLE>
F-3
PHOTONICS CORPORATION
(DBA DTC DATA TECHNOLOGY)
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
December 31,
1998 1997
--------- --------
<S>
<C> <C>
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 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
=========== ===========
</TABLE>
See accompanying
Notes to Consolidated Financial Statements.
F-4
<PAGE>
PHOTONICS CORPORATION
(DBA DTC DATA TECHNOLOGY)
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
AND THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
Year ended December 31,
1998
1997
----
----
<S>
<C>
<C>
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)
========= ==========
Basic and diluted loss per common share
$ (0.62)
(0.11)
========= ==========
Weighed average common shares outstanding
4,336,186 4,331,859
========= ==========
</TABLE>
See accompanying
Notes to Consolidated Financial Statements.
F-5
<PAGE>
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)
<TABLE>
<CAPTION>
PREF STOCK
COM STOCK
-----------
---------- CAP ACCUM
SHARES AMOUNT SHARES
AMOUNT SUB DEFICIT (A) (B)
TOTAL
----- -----
----- ---- --- ------ ----
---- -------
<S> <C> <C>
<C> <C>
<C> <C> <C> <C>
<C>
(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)
========= ====== ========= =======
== ======== ==== ======= =======
</TABLE>
KEY TO ABOVE TABLE
(A) Accumulated Other Comprehensive Income
(B) Total Comprehensive Loss
(1) Balances as of 12/31/97
(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
<PAGE>
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)
<TABLE>
<CAPTION>
For the Years ended December 31,
1997 1996
<S>
<C>
<C>
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
========== ==========
</TABLE>
See accompanying
Notes to Consolidated Financial Statements.
F-7
<PAGE>
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.
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%,
F-8
<PAGE>
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.
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
F-9
<PAGE>
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, the
common
equivalent shares of 119,409 in 1998 and 120,075 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 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
F-10
<PAGE>
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.
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
F-11
<PAGE>
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 materials
$ 88,000 $148,000
Work-in-process
62,000 190,000
Finished goods
200,000 582,000
-----------------------------------------------------------------------------
Total
$350,000 $920,000
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.
F-12
<PAGE>
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 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
F-13
<PAGE>
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 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.
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 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:
As reported
$(2,706,000) $(459,000)
Pro forma
$(2,759,000) $(506,000)
Basic and diluted loss per share:
As reported
$ (0.60) $ (0.10)
Pro forma
$ (0.63) $ (0.12)
----------------------------------------------------------------------------
F-14
<PAGE>
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:
<TABLE>
<CAPTION>
Weighted-Average
--------------------------------
Share Exercise
Exercise Fair Remaining
Options Price
Price Value at
Life
Grant
-----------------------------------------------------------------------------
<S>
<C> <C>
<C> <C>
<C>
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
-----------------------------------------------------------------------------
</TABLE>
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.
The options outstanding and currently exercisable by exercise price
as of December 31, 1998 are as follows:
<TABLE>
<CAPTION>
Options Outstanding Options Currently Exercisable
------------------------------------------------------------------------------
Exercise Price
(A) (B) (C)
(D) (E)
<S>
<C> <C> <C>
<C> <C>
$0 - $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
-------------------------------------------------------------------------------
</TABLE>
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
F-16
<PAGE>
subcontractor for the production of the Company's storage controllers,
which meets approximately 70% 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.
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
F-17
<PAGE>
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
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. 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.
F-18
<PAGE>
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 accounts 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.
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 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, 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
80,876 261,394
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
Sunnyvale Technology Corporation Asset List
DECSR
Category GROSS QTY COST LAST6M
SALES RESERVE NET QTY NetCost
Bakers Rack f
1 100
0 1 100.00
Chairs
f 15 10
0 15 150.00
Conference Table f
2 100
0 2 200.00
Desks
f 6 25
0 6 150.00
Fax Machine f
2 100
0 2 200.00
File Cab.
f 21 20
0 21 420.00
ITT phone sys f
1 200
0 1 200.00
Paintings
f 5 20
0 5 100.00
Pers. Computers f
4 200
0 4 800.00
Phones
f 5 25
0 5 125.00
Printers
f 5 50
0 5 250.00
Safe
f 1 100
0 1 100.00
Servers
f 3 300
0 3 900.00
Toshiba Copier f
1 200
0 1 200.00
Typerwriter f
1 50
0 1 50.00
Typing Tables f
2 20
0 2 40.00
TOTAL FIXED ASST
3985.00
1138 retail I
0 15
0 0 0.00
1138D RETAIL i
0 23.94 -10
0 0 0.00
1181 ISA BIOS i
0 6.63
72 0 0
0.00
1181Y2K
i 0 7.53
5934 0 0
0.00
2130D DUAL PO i
0 7.66 -80
0 0 0.00
2183E RETAIL i
0 3.30
0 0 0.00
2183H PCB,ASY i 13400
2.78 307 13100
300 834.75
2278E PCB ASY i
2720 11.96 -289
2720 0 0.00
2278E USING 2 i
101 12.54
0 101 0
0.00
2278EB SMC PC i
475 22.25 -39
475 0 0.00
2278EB WINBON i
1530 12.05
0 1530 0 0.00
2278EB-Y2K
i 0 12.95
-26 0 0
0.00
2280 2-CHIP W i
0 7.87
0 0 0
0.00
2280 HMC ACTI i
1215 5.78 1396
0 1215 7022.70
2280 KIT USIN i
72 5.78
0 0 72 415.87
2280E W/16550 i
0 11.35 129
0 0 0.00
3130B board i
77 37.98
0 77 0
0.00
3130B PCI TO i
1189 37.98 216
989 200 7595.30
3130B U20
i 14 63.21
0 14 0
0.00
3130BW-ULTRA4 i
22 65.21 18
22 0 0.00
3510A PCB,ASY i
300 3.41 609
0 300 1022.79
3510A RETAIL i
63 8.33
0 0 63 524.57
3520A brd
i 67 10.31
0 67 0
0.00
3520A RETAIL i
2650 12.88 525
2150 500 6441.35
DTC 1187 I/O i
0 9.40
0 0 0
0.00
DTC HARDCOPY i
10 85.39 -25
10 0 0.00
EIDE ULTIMA P i
0 12.18 201
0 0 0.00
EIDE ULTIMA P i
0 11.65
0 0 0.00
EIDE ULTIMA PY2K i
0 12.03 55
0 0 0.00
EIDE ULTIMA R i
867 6.02 -56
867 0 0.00
PARALLEL EXPR i
0 5.51
0 0 0.00
ULTIMA PRO-Y2 i
0 12.03
0 0 0.00
ULTIMA-Y2K
i 0 7.14
0 0 0.00
TOTAL INVENTORY
23857.33
Total assets
27842.33
APPENDIX I
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 J
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:
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