New SEC EOY filing:CONFORMED SUBMISSION TYPE: 10KSB
PUBLIC DOCUMENT COUNT: 3
CONFORMED PERIOD OF REPORT: 19961231
FILED AS OF DATE: 19970514
SROS: NASD
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: PHOTONICS CORP
CENTRAL INDEX KEY: 0000912844
STANDARD INDUSTRIAL CLASSIFICATION: COMPUTER COMMUNICATIONS EQUIPMENT [3576]
IRS NUMBER: 770102343
STATE OF INCORPORATION: CA
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: 10KSB
SEC ACT: 1934 Act
SEC FILE NUMBER: 000-22514
FILM NUMBER: 97604990
BUSINESS ADDRESS:
STREET 1: 1515 CENTRE POINTE DR
CITY: MILPITAS
STATE: CA
ZIP: 95035
BUSINESS PHONE: 4089557930
MAIL ADDRESS:
STREET 1: 1515 CENTRE POINTE DRIVE
CITY: MILPITAS
STATE: CA
ZIP: 95035
</SEC-HEADER>
<DOCUMENT>
<TYPE>10KSB
<SEQUENCE>1
<DESCRIPTION>FORM 10-KSB
<TEXT>
<PAGE>
_______________________________________________________________________________
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR FISCAL YEAR ENDED: DECEMBER 31, 1996
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-22514
_______________________________
PHOTONICS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
CALIFORNIA 77-0102343
________________________________ _________________
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1515 CENTRE POINTE DRIVE
MILPITAS, CA 95035
Issuer's telephone number:
(408) 942-4000
Securities registered pursuant to Section 12 (b) of the Act:
NONE
Securities registered pursuant to Section 12 (g) if the Act:
Common Stock, $0.001 par value
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities and Exchange Act during the past 12 months
(or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes [X] No [_]
Check if there is no disclosure of delinquent fliers pursuant to Item 405 of
Regulation S-B is met contained in this form, and no disclosure will be
contained or to the best of the 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. [X]
Issuer's revenues for fiscal year 1996: $5,184,000
The aggregate market value of the voting stock held by non-affiliates computed
by reference to the average bid and asked prices of the Common Stock on
12/31/96 as reported on the NASDAQ National Market System, was approximately
$862,621. Shares of Common Stock held by each officer and director and each
person who owns 5% or more of the outstanding Common Stock have been excluded in
that such persons may be deemed affiliates.
As of December 31, 1996, the Registrant had outstanding 4,323,560 shares of
Common Stock.
_______________________________________________________________________________
<PAGE>
PHOTONICS CORPORATION
DBA
DTC DATA TECHNOLOGY
FORM 10-KSB
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
INDEX
PAGE NUMBER
-----------
Part I
Item 1 Business 1
General 1
Products and the Market 1
The Competition 2
Intellectual Property 3
Manufacturing and Suppliers 3
Patents and Licenses 3
Significant Customer 3
Backlog 3
Employees 4
Item 2 Properties 4
Item 3 Legal Proceedings 4
Item 4 Submission of Matter to a Vote of Security Holders 4
Part II
Item 5 Market for Common Equity 4
Item 6 Management's Discussion and Analysis 5
Liquidity and Capital Resources 6
Other Matters 7
Item 7 Financial Statements 7
Item 8 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosures 7
Part III
Item 9 Director, Executive Officers, Promoters and
Control Person;
Compliance with Section 16a of the Exchange Act 7
Indemnification Agreements 8
Item 10 Executive Compensation 9
Board of Director's Report on Repricing of Options/SARs 10
Item 11 Security Ownership of Certain Beneficial Owners
and Management 10
Item 12 Certain Relationships and Related Transactions 12
Item 13 Exhibits 13
SECTION F
Independent Auditors Report
Consolidated Financial Statements
Notes to Consolidated Financial Statements
(see index for Section F)
<PAGE>
PART I
ITEM 1. BUSINESS
--------
GENERAL
- -------
Photonics was incorporated in 1985 to design , develop and market wireless
infrared local area network products (IR-LAN) which would offer unique and cost-
effective connectivity solutions based on diffuse infrared technology.
DTC Data Technology Corporation ("DTC") was founded in 1979 to design, develop
and market intelligent storage controllers and chip sets used primarily in
connection with IBM compatible personal computers.
On June 30, 1995 Photonics suspended operations as sales continued to be
significantly below the Company's plan. On August 31, 1995 Photonics entered
into an Asset Purchase Agreement ("the Agreement") with DTC Data Technology
Corporation , which was effective March 5, 1996. In the Agreement, Photonics was
to acquire all the assets and certain liabilities of DTC in exchange for the
issuance to DTC of shares and rights to shares of common stock representing
77.5% of Photonics outstanding stock.
As the DTC stockholders own a majority of the shares of the combined entity, and
the management and control comes from DTC, the transaction is accounted for as
though DTC was the acquirer. Accordingly, the assets and liabilities of
Photonics Corporation were recorded at fair value. The historical results of
operations of Photonics Corporation dba (DTC Data Technology), as reported
herein, are those of DTC.
As DTC Data Technology has the established name recognition, and established
sales channels, it is the intent of the Company to eventually rename the
company DTC Data Technology Corporation. As the reported history belongs to DTC
Data Technology and the legal entity is known as Photonics Corporation dba DTC
Data Technology, for brevity sake, the company is herein after referred to as
DTC, or the Company.
DTC's fiscal year end has historically been the last day of February, and
Photonics operated on a calendar year. After the acquisition/merger, the Company
adopted Photonics' operating year, it's I.R.S. Employer Identification Number
and it's Securities and Exchange Commission file number. The merged company came
into existence on March 5, 1996 which was the first week in the first month of
DTC Data Technology's new fiscal year. As the combined company adopted DTC's
history as its own, all historical comparisons in this report are based upon
DTC's past fiscal years ending February 29 and the ten (10) month period March
1, 1996 through December 31, 1996.
PRODUCTS AND THE MARKET
The intent, at the time of the Photonics/DTC acquisition, was to continue to
market the Photonics IR-LAN products and find a strategic partner to help in the
development of the next generation of the IR-LAN product.
Marketing Photonics products through DTC's sales channel failed. The search for
a partner which began in the Fourth Quarter of 1996 was successful. The
agreement with Moldat Wireless Technologies Ltd. ("Moldat") of Lod, Israel as an
exclusive (except existing agreements and Apple related products) was signed in
First Quarter 1997. Under this agreement the Company licensed its technology,
products, trademarks and service marks relating to its infrared Local Area
Network business to Moldat for royalty payments. Moldat, (an Infrared LAN
company) will use Photonics 1 Mb technology and products to augment its 10mb
business. The Company continues to focus on it's IDE and Small Computer Systems
Interface ("SCSI") product controllers.
After unsuccessful attempts to market IR-LAN, modem, ISDN and other Personal
Computer ("PC") related peripheral products, the Company decided to return to
its core market of controller business. DTC's storage controllers are
sophisticated electronic devices which control the flow of data between a
microcomputer's central processing unit and peripheral storage devices such as
floppy and hard disks, and increasingly Compact Disk-Read Only Memory ("CD-
ROMs).
1
<PAGE>
DTC dominated the Integrated Device Electronics ("IDE") and Enhanced IDE
("EIDE") controller card market in 1994-1995. Starting in 1995, the IDE
controller market started to decline as Intel entered into the motherboard
business and incorporated the IDE controller function into its motherboard
chipset. Today, the transition from add-on IDE cards to on-board built-in IDE
function is complete. Now, the IDE controller cards are used by Original
Equipment Manufacturers ("OEM") for inclusion with IDE CD-ROM, Tape and other
IDE peripheral devices. System Integrators and Value Added Resellers ("VAR") use
IDE input/output ("I/O") controller cards for maintaining and upgrading existing
systems to EIDE disk interface, high speed serial port (I6550), Enhanced
Parallel Port ("EPP") and Enhanced Capability Parallel Port ("ECP") for high
performance modems, printers and other new peripherals. Sales also have changed
from mainly OEM to VARs and system integrators through distribution and
retailers. The IDE I/O market has settled and stabilized at a much lower level
of approximately $50 million dollars.
The Company plans to broaden its product offering in this IDE I/O market segment
to reverse the decline in sales and restore the Company to profitability. ISA-
IDE and VL-IDE I/O controller products still represent the major portion of the
Company's sales. Recently the Company introduced the ISA BUS EIDE Ultima family
of controller products, and plans to introduce several new serial, parallel port
I/O products in the coming year for the upgrade market.
During the last fiscal year, the Company also decided to re-enter the SCSI
market, and Adaptec compatible SCSI products in particular. While the Company
intends to continue to market IDE I/O products as long as the market exits, it
is the Company's intention to base its future growth on this new line of SCSI
controller cards.
SCSI controller cards are mainly used in corporate Internet, web site file
servers and engineering workstations. Low end SCSI is used for interface with
CD-ROMs, tape and disk backup systems, and scanners. The SCSI market was
estimated to be $1.2 billion dollars in 1996 and has been growing at over 40%
per year for the past 5 years and is forecasted to grow at least 25% per year
until the year 2000. Adaptec dominates the SCSI market. It has over 70% of the
market with a gross profit margin approaching 60%. Alternative high performance
interface technologies, such as SSA and Fibre Channel, are still years away from
general acceptance because of lack of product standards and continuous improving
performance of SCSI controllers. Recently Intel introduced the Universal Serial
Bus (USB) interface, that may compete or even replace the low end SCSI.
In October 1996 the Company introduced a family of low end Adaptec compatible
ISA-SCSI products, which represents 10 - 20% of the total SCSI market, based on
its proprietary DTC 50C18 chip. The customers for low end SCSI are OEM
peripheral suppliers for inclusion with their SCSI product offerings. It is more
cost competitive than the high end market. The Company believes it can compete
and generate a profit.
The Company is in the process of developing a family of high end Adaptec
compatible PCI-SCSI products that would include high performance features that
are not currently found on Adaptec products. It is in this market segment that
the Company believes its future growth lies.
THE COMPETITION
Due to the decline of the market, most of the IDE controller vendors have
dropped out of that business segment. Atronics, Acculogic, CMD, GSI, Promise,
Relialogic, SIIG, and Tyan have stopped marketing the standard IDE I/O products.
Promise and SIIG remain in the upgrade and I/O add-on markets that competes with
the Company's newly introduced Ultima and planned I/O family of products. The
Company has broader sales channel, stronger name recognition, and access to low
cost manufacturing compared with either of these companies..
In the SCSI market, the Company plans to offer a family of Adaptec compatible
SCSI products that should offer a superior alternative to Adaptec and other
competitors. Besides DTC, which currently markets a family of non-Adaptec
compatible SCSI products, and Adaptec, the current other suppliers of SCSI
products are: Always, DPT, AdvanSys, CMD, Forex, Initio, LDP, Mylex, Promise, Q
Logic, SIIG, and Symbios (Other Competitors). While Adaptec has been growing at
40% or more per year, none of the other competitors are prospering financially.
Acculogic, Future Domain, Trantor, and BusLogic have either dropped out of the
market place or have been bought. All of them market purportedly technically
superior but non-Adaptec compatible products at a lower price than Adaptec
without achieving significant success.
2
<PAGE>
The markets in which DTC operates are characterized by intense competition,
rapid technological and product changes, changing market requirements,
dependence upon highly skilled personnel, and significant expenditures for
product and marketing development. DTC has a number of present and potential
competitors, many of whom have substantially greater financial, marketing and
other resources than DTC. If DTC's competitors introduce new products which
offer improved performance and/or lower prices, DTC's revenue and income could
be adversely affected.
DTC believes that the principal competitive factors in the storage controller
market are compatibility, brand recognition, performance, sales support and
competitive pricing. DTC believes it meets these important criteria.
INTELLECTUAL PROPERTY
Software and proprietary ASIC designs are important ingredients for success in
the controller market. DTC has a large library of copyrighted IDE and SCSI
software drivers and utilities for various operating systems including DOS,
OS/2, UNIX, Novell, Windows 3.1, and Windows 95. DTC, having designed several
SCSI and IDE ASICs, recently acquired the design right to the ASIC used in its
low end DTC50C18 ISA-SCSI, and is 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 its IDE, I/O or
SCSI products.
MANUFACTURING AND SUPPLIERS
Substantially all of DTC's printed circuit boards are manufactured by companies
located in the Far East. At the present time, approximately 70% of the Company's
storage controller requirements are produced in China.
In order to achieve early market introductions, the Company uses either ASICs
co-developed by DTC design engineers, subcontracted ASIC designers, and ASIC
vendors engineers 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 proprietary software and trade secrets.
Certain technologies are licensed to DTC from third parties. Those licenses are
generally perpetual, worldwide and, DTC believes, on commercially reasonable
terms.
Similarly, DTC licenses its controller technology for which it receives
royalties. Total royalty income for the year ending December 31, 1996 was
$38,000.
As a result of the merger with Photonics, the Company has a number of key IR-LAN
patents and has licensed, and will continue to license, them to others for
royalties.
Royalty income from the licensing of Photonics technology is estimated to be a
minimum of $100,000 for the calendar year of 1997.
SIGNIFICANT CUSTOMER
No customer accounted for more than 10% of revenues in fiscal year ending
2/29/96. During the 10 months ending December 31, 1996 Ingram-Micro, a
distributor, accounted for 13.1% of net revenues.
BACKLOG
DTC does not believe that backlog is a meaningful indicator of future sales. It
is common industry practice for purchasers of DTCs products to issue purchase
orders on a month to month basis rather than to contract for delivery
3
<PAGE>
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, 1996 DTC employed 18 individuals on a full-time basis, all of
which were located in the United States. Of such employees 3 were engaged in
manufacturing and related operations, 6 in development and engineering, 5 in
sales and marketing, and 4 in general management and administration. This work
force was augmented periodically by the employment of consultants and temporary
agency employees. None of DTCs employees are represented by a labor union and
DTC considers its employee relations to be good.
ITEM 2. PROPERTIES
----------
The Company's principal executive and administrative office is located in a
23,000 square foot facility in Milpitas, California. The current monthly rental
of the facility is approximately $14,000. A facility in San Jose, California and
vacated by Photonics Corporation, is under sub-lease and is not a liability to
the Company.
ITEM 3. LEGAL PROCEEDINGS
-----------------
In January 1994 Ms. Phyllis Azah, a former employee of DTC, filed a complaint
in the County of Santa Clara Superior Court, California alleging harassment
and discrimination by DTC and certain of its employees and claiming damages in
the amount of $100 million. While the suit was still in discovery as of
December 31, 1996, it was settled out of court in March 1997 for $13,500. The
first quarterly installment of $4,300 was paid in April 1997. The next of
installments of $4,350 will be paid in June and September of 1997.
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 its 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 MATTER TO A VOTE OF SECURITY HOLDERS
--------------------------------------------------
None
PART II
ITEM 5. MARKET FOR COMMON EQUITY
- --------------------------------
The Company's Common Stock trades on the NASDAQ over the counter market under
the symbol: PHTX. For the original Photonics Corporation and under the symbol
DTEC for pre merger DTC Data Technology Corporation whose prices were quoted on
the non-NASDAQ over the counter market.
<TABLE>
<CAPTION>
PHOTONICS High Low DTC High Low
FISCAL YR. END 12/31/94 FISCAL YR. END 2/29/94
<S> <C> <C> <C> <C> <C>
First quarter 7 3/4 3 1/2 First quarter .22 .22
Second quarter 5 2 5/8 Second quarter .22 .16
Third quarter 4 3/8 2 3/4 Third quarter .25 .11
</TABLE>
4
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Fourth quarter 3 1/4 1 1/2 Fourth quarter .09 .09
FISCAL YR. END 12/31/95 FISCAL YR. END 2/28/95
First quarter 2 3/8 5/8 First quarter .16 .02
Second quarter 1 1/8 1/4 Second quarter .20 .03
Third quarter 1/2 5/16 Third quarter .25 .11
Fourth quarter 1/4 1/8 Fourth quarter .50 .11
AFTER 3/6/96 MERGER FISCAL YR. END 2/29/96
Second quarter (6/30) 1 1/4 1/2 First quarter (5/30) .50 .19
Third quarter (9/30) 1 1/4 Second quarter (8/31) .38 .13
Fourth quarter (12/31) 7/8 3/8 Third quarter (11/30) .19 .16
Fourth quarter (2/28) .218 .062
</TABLE>
Neither Photonics Corporation or 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. MANAGEMENT'S DISCUSSION AND ANALYSIS
------------------------------------
The following discussion relates to the historic operations of DTC prior to the
acquisition by Photonics.
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 10K contains detailed risk factors that may contribute
to the actual results for 1996 and beyond which could materially differ from
forward-looking statements made by the Company.
The Company's revenues for the ten (10) month period ending 12-31-96, when
annualized, decreased 45% from the fiscal period ending 2/29/96. The Company
believes that the decline of the IDE market and lack of sufficient working
capital were the principle causes of the revenue decline. The net revenues for
the 10 month period ending 12/31/96 were $5.184 million. On an annualized basis
this would be $6.221 million. The Company's sales forecast for the calendar year
1997 is between $7 and $8 million dollars. The Company believes its reentry into
the SCSI market, its projected increase in working capital during Fiscal 97, the
addition of a new Vice President of Sales & Marketing, coupled with a sharper
focus on the market place, will lead to increased revenues and restore the
Company to profitability.
The gross margin, after deduction of cost of revenues, showed significant
improvement going from 10% at year end 2/29/96 to 21% for year ending 12/31/96.
A sign of the Company's commitment to Research and Development is the increase
in R & D expense from 7% of revenues for the year ended 2/29/96 to 14% of
revenues for the ten months ended 12/31/96. The expenditure for year ending
12/31/96 on an annualized basis would be $853,000 compared to $835,000 in the
last reporting period. The Company expects to make some significant expenditures
during the coming year of 1997 to develop it's high end SCSI line.
Selling, general and administrative expenses were $2.307 million dollars for the
10 months ending December 31, 1996 which would annualize at $2.768 million as
opposed to $3.248 million for the 12 months ending February 29, 1996 which
equals a 15% reduction in cost. The reduction is the result of cost containment
measures taken during the year of 1996 and the Company expects to have no
appreciable increase in these expenses during 1997.
There was no gain or loss on disposal of assets or divestiture of business units
for the 10 months ending December 31, 1996.
During the third quarter of the calendar year 1996, the company resolved three
claims that resulted in approximately $2.9 million in Other Income. They were:
1) The elimination of the $1.8 million reserve for the Taiwan tax claim. On May
13, 1996 notice was given to all creditors of the Company of the dissolution
of DTC Data Technology Corporation. In the Photonics acquisition of DTC,
Photonics assumed all liabilities of DTC, except certain liabilities of DTC
arising from
5
<PAGE>
claims made by the taxing authority of the Republic of Taiwan. All creditors
(including the Republic of Taiwan), who had legitimate claims on DTC were
required, in the notice, to present their claims by July 12, 1996. As of
September 30, 1996 no claim had been made by the Republic of Taiwan. The
Company has chosen to record the eliminated reserve in Other Income.
2) The elimination of the balance of $730,000 due to the liquidation of Qume
LTD, in the United Kingdom. A settlement was reach on December 13, 1995 to
pay approximately $80,000 of an $810,000 claim. The last installment was made
in August 1996. The Company has accounted for the elimination of the balance
as Other Income.
3) The elimination of a $371,000 reserve for potential claim by the IRS. In 1991
the Company, then known as Qume Corporation, received |
