<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(Mark One)
X Quarterly report under Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended June 30, 1996
Transition report under Section 13 or 15(d) of the Exchange Act
For the transition period from to
------------------ -----------------
Commission file number 000-20731
---------------
PHOTRAN CORPORATION
(Exact Name of Small Business Issuer as Specified in Its Charter)
MINNESOTA 41-1697628
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
21875 GRENADA AVENUE
LAKEVILLE, MN 55044
(Address of Principal Executive Offices)
(612) 469-4880
(Issuer's Telephone Number, Including Area Code)
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
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 No X .
----- -----
The number of the registrant's common shares outstanding as of August 6, 1996
was 5,134,823
Transitional Small Business Disclosure Format (check one):
Yes No X .
----- -----
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PHOTRAN CORPORATION
FORM 10QSB
TABLE OF CONTENTS
PAGE
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets 3
Statements of Operations 4
Statements of Cash Flows 5
Notes to Financial Statements 6
Item 2. Management's Discussion and 8
Analysis of Financial Condition
and Results of Operations
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 11
Signature page 12
Exhibit Index 13
2
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PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
PHOTRAN CORPORATION
BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 8,073,518 $ 1,532,361
Accounts receivable 1,094,881 808,549
Costs and earnings in excess of billings 410,000
Inventory 1,347,700 1,420,048
Equipment held for sale 4,569,547 3,203,314
Prepaid expense 94,128 14,527
------------ ------------
Total current assets 15,589,774 6,978,799
PROPERTY AND EQUIPMENT, net 9,332,813 6,995,381
DEFERRED FINANCING COSTS 191,990
OTHER ASSETS 26,485 26,485
------------ ------------
$ 24,949,072 $ 14,192,655
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Bridge financing $ 4,000,000
Line of credit 1,916,480
Line of credit 225,000
Current portion of long term debt,
notes payable, and capital lease obligations $ 246,599 1,041,547
Accounts payable 813,414 1,195,833
Accrued expenses 144,650 261,221
Customer advances 1,555,435 1,555,435
------------ ------------
Total current liabilities 2,760,098 10,195,516
LONG TERM DEBT 152,726 762,783
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Undesignated stock, no par value, 6,000,000 shares
authorized, no shares issued
Common stock, no par value, 24,000,000 shares authorized,
5,137,323 and 2,834,823 shares issued and outstanding,
respectively 25,266,938 6,671,217
Accumulated deficit (3,230,690) (3,436,861)
------------ ------------
Total shareholders' equity 22,036,248 3,234,356
------------ ------------
$ 24,949,072 $ 14,192,655
============ ============
</TABLE>
See notes to financial statements.
3
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PHOTRAN CORPORATION
STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------------- ----------------------------
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUES $ 1,653,101 $ 451,349 $ 2,791,050 $ 668,943
COST OF SALES 1,206,923 446,775 1,912,281 543,706
------------ ------------ ------------ ------------
Gross profit 446,178 4,574 878,769 125,237
OPERATING EXPENSES:
Process and product development 86,002 67,450 156,372 139,900
General and administrative 149,525 89,171 299,716 187,063
Selling and marketing 101,567 65,927 173,731 93,954
------------ ------------ ------------ ------------
Total operating expenses 337,094 222,548 629,819 420,917
------------ ------------ ------------ ------------
(LOSS) INCOME FROM OPERATIONS 109,084 (217,974) 248,950 (295,680)
INTEREST INCOME (EXPENSE), net 18,059 (60,962) (42,779) (78,285)
------------ ------------ ------------ ------------
NET (LOSS) INCOME $ 127,143 $ (278,936) $ 206,171 $ (373,965)
============ ============ ============ ============
NET (LOSS) INCOME PER COMMON
AND COMMON EQUIVALENT SHARE $ 0.03 $ (0.08) $ 0.06 $ (0.11)
============ ============ ============ ============
WEIGHTED AVERAGE NUMBER OF
COMMON AND COMMON EQUIVALENT
SHARES OUTSTANDING 4,028,574 3,346,194 3,693,958 3,346,194
============ ============ ============ ============
</TABLE>
See notes to financial statements.
4
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PHOTRAN CORPORATION
STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
----------------------------
1996 1995
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) income $ 206,171 $ (373,965)
Adjustments to reconcile net (loss) income to cash
provided by (used in) operating activities:
Depreciation and amortization - property and
equipment 176,312 104,739
Interest expense associated with amortization of
deferred financing costs 191,990
Changes in assets and liabilities:
(Increase) decrease in :
Accounts receivable (286,332) 1,052
Costs and earnings in excess of billings (410,000)
Inventory 72,348 (1,205,287)
Equipment held for sale (1,366,233) (950,044)
Prepaid expenses (79,601) (74,358)
Increase (decrease) in:
Accounts payable (382,419) 967,973
Accrued expenses (116,571) 38,451
------------ ------------
Cash provided by (used in) operating activities (1,994,335) (1,491,439)
CASH FLOWS FROM INVESTING ACTIVITIES
Property additions (2,513,744) (798,295)
------------ ------------
Cash used in investing activities (2,513,744) (798,295)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable and long-term debt 0 2,723,466
Payments of notes payable and long-debt (7,546,485) (375,523)
Common stock issued 18,595,721 10,000
------------ ------------
Cash provided by financing activities 11,049,236 2,357,943
------------ ------------
INCREASE IN CASH 6,541,157 68,209
CASH AT BEGINNING OF PERIOD 1,532,361 173,160
------------ ------------
CASH AT END OF PERIOD $ 8,073,518 $ 241,369
============ ============
</TABLE>
See notes to financial statements.
5
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PHOTRAN CORPORATION
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying financial statements are unaudited and reflect all
adjustments, consisting of normal recurring adjustments, which are, in
the opinion of management, necessary for a fair presentation. Operating
results for the three and six month periods ended June 30, 1996 are not
necessarily indicative of the results that may be expected for the year
ended December 31, 1996.
These financial statements should be read in conjunction with the
financial statements and notes thereto for the year ended December 31,
1995, previously filed with the SEC as part of the Company's
Registration Statement on form SB 2, effective May 29, 1996.
2. INVENTORIES
Inventories consist of the following:
June 30, December 31,
1996 1995
------------ ------------
Raw materials and supplies $ 1,347,700 $ 1,420,048
============ ============
3. SHAREHOLDERS' EQUITY
INITIAL PUBLIC OFFERING - On May 29, 1996, the Company sold 2,000,000
Common Shares in an initial public offering. Net proceeds to the Company
were approximately $16,125,721 after deducting offering costs,
including underwriting commissions, of approximately $1,874,779.
OVERALLOTMENT OPTION - In connection with the Company's initial public
offering of common stock the company issued an option to the
underwriters to purchase up to 300,000 shares solely to cover
overallotments. This option was exercised in June 1996 resulting in
additional net proceeds of approximately $2,470,000 after deducting
offering costs, including underwriting commissions, of approximately
$230,000.
4. EQUIPMENT HELD FOR SALE
In June 1996 the Company entered into an agreement to sell a refurbished
ITO coating equipment for a total contract price of $2,916,500. The
Company has received a down payment of $500,000. $2,000,000 is to be
paid upon completion of the in factory acceptance test and shipment by
the Company. The final payment of $416,500 is payable upon completion of
the installation and the final acceptance test. The contract specifies
that the equipment ship by October 18, 1996. The Company has
reclassified the used coating equipment it was in the process of
refurbishing from property and equipment to contract accounting as
discussed below.
Revenue from the equipment contract is being recognized on the
percentage-of-completion method, measured by the percentage of costs
incurred to date on the contract to estimated total contract costs at
the end of an accounting period. Management considers expended costs to
be the best available measure of progress on uncompleted contracts.
Revenue for the three and six month periods ended June 30, 1996 included
$910,000 related to this contract.
6
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PHOTRAN CORPORATION
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
Contract costs include all direct material, subcontract, labor and labor-
related costs and those indirect costs related to contract performance, such
as indirect labor, supplies, small tools, repairs and depreciation costs.
Selling, general and administrative expenses are charged to expense as
incurred. Changes in job performance, job conditions, estimated profitability
and final contract settlements may result in revisions to costs and income,
and will be recognized in the period in which the revisions are determined.
Cost of sales for the three and six month periods ended June 30, 1996 include
$610,050 related to this contract.
Cost incurred and earning in excess of billings on the contract are as
follows:
Costs and estimated earnings incurred on
uncompleted contract $ 910,000.
Billings on uncompleted contract 500,000.
-----------
Cost incurred and earnings in excess
of billings $ 410,000
===========
7
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ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 1996 COMPARED TO THREE MONTHS
ENDED JUNE 30, 1995
REVENUES. Revenues for the second quarter of 1996 were $1,653,101
compared to $451,349 for the second quarter of 1995, an increase of 266%.
Revenues for the 1996 quarter include $910,000 in equipment sales revenue,
approximately $83,000 of enhanced reflection mirror revenue, and $24,000 of
STN grade ITO coated glass. The balance of $636,101 was primarily from TN
grade ITO coated glass. Revenue for the 1995 quarter was almost entirely from
the sale of TN grade ITO coated glass.
Revenues for ITO coated glass and other coated products increased in the
second quarter of 1996 compared to the second quarter of 1995 because in the
1995 quarter sales consisted primarily of TN grade ITO coated glass the
Company had inventoried prior to the suspension of production operations to
redesign and modify its production equipment and glass produced during trial
production runs of the Company's redesigned equipment.
Revenues were less than expected during the second quarter of 1996
because the Company encountered start-up problems related to the production
of its enhanced reflection mirror products which resulted in longer than
anticipated production time and limited the production of TN grade ITO coated
glass. In addition, a contamination problem in the glass cleaning system
caused production downtime and delayed shipments. Management believes that
these problems have been resolved and anticipates revenue growth for the
balance of 1996 from the sale of TN grade ITO coated glass and added revenue
from the sales of STN grade ITO coated glass, enhanced reflection mirrors and
other coated products.
The installation of the Company's second production line was delayed by
supplier problems and engineering changes to the load lock, coating chambers,
material handling and glass cleaning systems. These components are being
replaced with redesigned systems that will increase capacity and capability.
Management expects that its second production line will be operational in the
fourth quarter.
In late June 1996 the Company entered into an agreement to sell ITO
coating equipment for a total contract price of $2,916,500. The components of
the second production line which have been replaced with custom designed
systems are included in this equipment. The Company has received a down
payment of $500,000. An additional $2,000,000 is to be paid upon completion
of the in factory acceptance test and shipment of the equipment. The final
payment of $416,500 is payable upon completion of the installation and the
final acceptance test. The contract specifies that the equipment ship by
October 18, 1996. Revenue of $910,000 from the equipment contract was
recognized on the percentage-of-completion method, measured by the percentage
of costs incurred to date on the contract to estimated total contract costs
at the end of an accounting period. Management considers expended costs to be
the best available measure of progress on uncompleted contracts.
GROSS PROFIT. The gross profit for the second quarter of 1996 was
$446,177 compared to $4,574 in 1995. Gross profit for the second quarter of
1996 includes $299,950 from the equipment contract recognized on the
percentage of completion method. Gross profit on coated products increased to
$146,227 in the second quarter of 1996 from $4,574 in the second quarter of
1995. This increase was due primarily to the revenue increases discussed
above. Gross profit on coated products during the second quarter of 1996
includes additional costs related to the commencement of commercial scale
production of enhanced reflection mirrors on the Company's existing
production line. The start up, glass cleaning and material handling problems
encountered significantly reduced production yields and increased scrap
costs. Management believes that the completion of its second production line
for the production of enhanced reflection mirrors and anti-reflection
productions coupled with equipment and facility improvements to be completed
in 1996 will resolve these problems.
NET INTEREST EXPENSE (INCOME). Interest income for the second quarter
of 1996 was $18,059 compared to interest expense of $60,962 for the second
quarter of 1995. The change was due to the earnings from the investment of
the proceeds from the Company's initial public offering. In addition, the
Company retired substantially all of its outstanding debt after its initial
public offering.
8
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NET INCOME. The Company reported net income of $127,143 for the second
quarter of 1996 compared to a net loss of $278,936 for the second quarter of
1995. This improvement was primarily due to increased revenue from the sales
of ITO coated glass and equipment sales revenue.
FOR THE SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO SIX MONTHS ENDED
JUNE 30, 1995
REVENUES. Revenues for the first six months of 1996 were $2,791,050
compared to $668,943 for the first six months of 1995, an increase of 418%.
Revenue for the first six months of 1996 include $910,000 in equipment sales
revenue, approximately $83,000 from sales of enhanced reflection mirrors and
$24,000 from STN grade ITO coated glass. The balance of $1,774,050 was
primarily from TN grade ITO coated glass. Revenue for the first six months of
1995 was almost entirely from the sale of TN grade ITO coated glass.
Revenues for ITO coated glass and other coated products increased in the
first six months of 1995 compared to the first six months of 1996 because
sales in the first six months of 1995 consisted primarily of TN grade ITO
coated glass the Company had inventoried prior to the suspension of
production operations to redesign and modify its production equipment and
glass produced during trial production runs of the Company's redesigned
equipment.
Revenue for the first six months of 1996 were less than expected because
the Company commenced sample runs of STN grade ITO coated glass, enhanced
reflective mirrors and other coated products for prospective customers. These
sample runs did not result in revenues for the Company. The Company has
received a substantial order for enhanced reflective mirrors. The Company
commenced commercial production of this product on its existing production
line because of the delay in the installation of its second production line.
The change over from ITO production and the start up production problems
related to this new product limited the production of TN grade ITO coated
glass. In addition, a contamination problem in the glass cleaning systems
caused production downtime and delayed shipments.
In June 1996 the Company entered into an agreement to sell an ITO
production line for a total contract price of $2,916,500. Revenue of
$910,000 from the equipment contract was recognized on the
percentage-of-completion method, measured by the percentage of costs incurred
to date on the contract to estimated total contract costs at the end of an
accounting period.
GROSS PROFIT. The gross profit for the first six months of 1996 was
$878,769 compared to $125,237 for the first six months of 1995. The primary
reasons for the increase are the revenue increases discussed above and the
$299,950 of gross profit recognized on the equipment sale contract for the
first six months of 1996. Gross profit on coated products for the first six
months of 1996 were adversely affected by the costs associated with the
production of samples and the start up production costs incurred in the
production of enhanced reflective mirrors Management believes that the
completion of the Company's second production line for the manufacture of
enhanced reflection mirrors and anti-reflection productions coupled with
equipment and facility improvements to be completed in 1996 will resolve
these problems and significantly improve production yields, thereby
decreasing production costs and improving gross profits.
NET INTEREST EXPENSE. Interest expense for the first six months of 1996
was $42,779 compared to $78,285 for the first six months of 1995. The change
is due to the earnings from the investment of the proceeds from the Company's
initial public offering. In addition, the Company retired substantially
all of its outstanding debt after the initial public offering.
NET INCOME. The Company reported net income of $206,171 for the first
six months of 1996 compared to a net loss of $373,965 for the first six
months of 1995. This improvement was primarily due to increased revenue from
the sales of TN grade ITO coated glass and equipment sales revenue.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1996, the Company's principal sources of liquidity
included cash and cash equivalents of $8,073,518 and net accounts receivable
of $1,504,881. The Company believes that its existing sources of liquidity
and anticipated funds from operations, including collections on equipment
sales, will satisfy the Company's projected working capital and capital
expenditure requirements for at least 24 months.
9
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The net cash used in operating activities for the first six months of
1996 was $1,994,335 compared to $1,491,439 for the first six months of 1995.
Work in process for the sale of equipment to the Chinese joint venture
increased $1,366,233. The Company has entered into negotiations with its
Chinese joint venture partner, The Shenzhen WABO Group Company, Limited
("WABO"), to expand the scope and products offerings of the Chinese joint
venture company, known as The Shenzhen Fortune Conductive Glass Company. The
parties have reached an agreement in principal to expand the product line of
the joint venture to include optical grade enhanced reflection mirror
assemblies for use in photocopy machines, laser scanners and overhead
projectors. The joint venture company will concentrate on servicing the Asian
market for small mirror assemblies. This is a product that the Company does
not intend to produce in the U. S.. The Company is proceeding with the
necessary additions and modifications to the P-1000 FUZION coating system to
enable this equipment to produce the expanded product line. The Company will
collect approximately $3,300,000 when the equipment is shipped and an
additional $600,000 when the equipment meets the final acceptance test.
Cash used in investing activities was $2,513,733 during the first six
months of 1996 and $798,295 in the first six months of 1995. In both periods
this cash was used for the purchase of equipment and leasehold improvements.
Internal costs, consisting primarily of direct labor and supplies used in
the construction of equipment, of $800,234 and $618,635 were capitalized or
charged to construction in process during the first six months of 1996 and
1995 respectively.
On May 29, 1996, the Company sold 2,000,000 Common Shares in an initial
public offering. Net proceeds to the Company were approximately $16,125,721
after deducting offering costs, including underwriting commissions, of
approximately $1,874,779. In connection with the Company's initial public
offering of common stock the Company issued an option to the underwriters to
purchase up to 300,000 shares solely to cover overallotments. This option was
exercised in June 1996 resulting in additional net proceeds of approximately
$2,470,000 after deducting offering costs, including underwriting
commissions, of approximately $230,000.
The Company repaid the $4,000,000 of Bridge Notes together with
approximately $287,500 in accrued interest and a loan from a director of
$1,166,668 from the proceeds of the initial public offering. The Company also
repaid the $2,000,000 EXIM secured Bank lines of credit from the proceeds of
the initial public offering to reduce interest payments and to avoid payment
of EXIM renewal fees.
RECENTLY ISSUED ACCOUNTING STANDARD
In October 1995, The Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123, ACCOUNTING FOR
STOCK-BASED COMPENSATION (SFAS 123). SFAS 123 requires expanded disclosures
of stock-based compensation arrangements with employees and encourages (but
does not require) application of the fair value recognition provisions of
SFAS 123 to such arrangements. SFAS 123 is required to be adopted for
reporting purposes by the Company in fiscal 1996. The Company is currently
evaluating whether of not it will change to the recognition provisions of
SFAS 123 and has not yet performed the required calculations. The fair
value recognition and measurement provisions of SFAS 123 for stock-based
arrangements with nonemployees is not expected to have a significant impact
on the Company as such transactions were accounted for on the fair value
basis during fiscal 1995 and 1994.
FORWARD LOOKING STATEMENTS
Except for the historical information contained herein, the matters
discussed in this section contain forward looking statements that involve
risks and uncertainties that could cause actual results to differ materially
from those set forth above. Such risks and uncertainties include, among
others, the timely completion of construction and installation of new
manufacturing equipment, the timely completion, testing and shipment of
equipment manufactured for sale, the timely development and acceptance of new
products, the impact of competitive products and pricing, and the other risks
detailed from time to time in the Company's reports filed with the Securities
and Exchange Commission, including the Company's registration statement on
Form SB-2 which became effective May 29, 1996.
10
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PART II. OTHER INFORMATION
ITEM 6.
a. Exhibits
10. Sale Agreement Between Photran Corporation and Wintek
Corporation dated June 28, 1996
11. Computation of Net Income per Share
27. Financial Data Schedule
b. Reports on Form 8-K
No Current Reports on Form 8-K were filed in the fiscal quarter
ended June 30, 1996
11
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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.
PHOTRAN CORPORATION
Registrant
Dated August 8, 1996 By: /s/ David E. Stevenson
---------------------------------------
David E. Stevenson
President, Chief Executive Officer
and Chairman of Board of
Directors
and
Dated August 8, 1996 /s/ Paul T. Fink
---------------------------------------
Paul T. Fink
Chief Financial Officer, Treasurer
and Director
12
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EXHIBIT INDEX
EXHIBIT PAGE
NUMBER NUMBER
10 Sale Agreement Between Photran Corporation 14
and Wintek Corporation dated June 28, 1996
11 Computation of Net Income per Share 20
27 Financial Data Schedule 21
13
<PAGE>
ITEM 6.
EXHIBIT 10
SALE AGREEMENT
This agreement made this 28th day of June 1996 between Photran Corporation ,
hereinafter referred to as "SELLER" and Wintek Corporation, hereinafter referred
to as "BUYER".
W I T N E S S E T H
WHEREAS SELLER desires to sell and BUYER desires to purchase an apparatus to be
designated PVAC to be designed, manufactured and assembled by SELLER to the
specification in Appendix A to this agreement.
Now, therefore it is agreed as follows:
1.0 THE EQUIPMENT. SELLER will design, manufacture and assemble one vacuum
glass coating system hereinafter designated "PVAC", conforming generally to
the description set forth in Specification No. 96.001/U as show in Appendix
A to this agreement.
2.0 PURCHASE PRICE AND PAYMENT TERMS. The BUYER will pay to SELLER the sum of
$2,866,500 in payment for the system. This purchase price shall be paid
in accordance with the following schedule and on the following terms:
A. US$500,000 on contract signing.
B. US$2,000,000 payable upon shipment by irrevocable letter of credit.
C. US$425,000 payable upon completion of installation and the Final
Acceptance Test as specified in this agreement by irrevocable letter
of credit.
3.0 DELIVERY SCHEDULE. The PVAC system shall be delivered in accordance with
the following delivery schedule:
WEEK NUMBER ACTIVITY
----------- --------------------------------------------------
1 Contract acceptance
3 Submission of machine layout drawings for approval
10 Completion of in-factory assembly
11-13 In-factory acceptance test
16 Shipment
WEEK NUMBER ACTIVITY
----------- --------------------------------------------------
19 Commence installation
21 Complete installation
23 Final acceptance test
25 Commence production
14
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4.0 TESTING IN SELLER'S PLANT. Prior to shipment of the PVAC system SELLER
will conduct such tests of the various components and sub- assemblies as it
deems necessary to assure that the PVAC system functions properly. In
addition the SELLER shall operate the PVAC system on a full production
basis for a period of four (4) weeks. During this time the BUYER shall be
present to monitor the performance of the PVAC system. The PVAC system
shall be deemed to have passed this In-factory acceptance test if it
operates at full production capacity for a minimum of 22 hours out of 24
hours for six consecutive days. During this period the aggregate
production output shall equal a minimum of 90,000 pieces of which at least
92% or more shall have met the quality standards as specified in Appendix B
to this agreement.
5.0 DELIVERY. SELLER shall purchase insurance and make shipping arrangements
which have been included in the purchase price paid by BUYER. SELLER'S
good faith estimate of the date of shipment is 16 weeks from the date of
execution of this agreement. In the event of late delivery BUYER'S sole
remedy shall be to reduce the purchase price paid to SELLER by the amount
of 1% for each four week period that the system is shipped late. In the
event that the system is shipped more than four weeks late such penalty
shall be increased to 2% for each four week period or part thereof. Such
penalty shall not apply provided SELLER can provide evidence that the cause
of such delay was due to or arising from, but not limited to, acts of God,
acts of BUYER, acts of subcontractors including the failure of suppliers of
materials or components to timely delivery the same or to comply with
specifications, modifications of design of the apparatus or specifications
requested by BUYER, acts of civil or military authorities, fires, strikes,
labor disputes, sabotage, quarantine restrictions, war or riot. In the
event of any delay caused by the reasons described above the date of
delivery shall be extended for a length of time equal to the period of
delay but in any case not in excess of three months, which period SELLER
shall use his best efforts to minimize.
6.0 SCOPE OF WORK TO BE PERFORMED BY THE BUYER. Buyer will supply an
appropriate facility located within Taiwan of sufficient size and quality
to properly accommodate the PVAC system. This will include appropriate
foundations, trenches, ceiling heights, floor space, water piping,
electrical services, compressed air quality and temperatures as specified
in Appendix A of this agreement. The BUYER'S facility shall have the
appropriate cooling water, compressed air, electrical power, sputter gases,
city water and de-ionized water, material handling, craneage and such other
services as identified by SELLER in the Specification Appendix A of this
agreement needed to enable the PVAC system to be properly installed and
tested. Further, BUYER shall be responsible for providing facility
drawings to accurately reflect the position where the PVAC system is to be
installed.
To enable the Seller to perform the scope of work outlined in Section 7.0
the BUYER will be responsible for performing the following work:
1.0 Provide skilled project engineer to coordinate site preparation work
with Seller. This person shall be responsible for providing accurate
drawings and answering all questions concerning availability of
utilities and other needed facilities to assist Seller in the
installation of the equipment.
2.0 Provide machine unloading upon arrival at Buyer's facility.
3.0 Provide skilled personnel for uncrating, moving and installation of
the PVAC system and supporting equipment in its permanent location.
4.0 Provide required electrical service supply and distribution.
5.0 Provide appropriate cooling water and clean dry air supply.
6.0 Provide skilled electricians for making electrical connections from
electrical supply switch gear to power supplies, control panels, motor
control centers, washing machines, conveyors, clean rooms, and
inspection stations.
15
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7.0 Provide skilled mechanical tradesman for installing air, water and
vacuum piping to the PVAC system.
8.0 Provide appropriate technical personnel to be trained in the operation
and maintenance of the PVAC system.
9.0 Arrange for all required permits and approvals to facilitate equipment
installation.
10.0 Provide any needed foundations, cable trenches or water supply piping.
11.0 Provide process gas supply and piping.
12.0 Provide City and DI water supply and piping.
13.0 Provide all consumable materials and supplies needed to test machine.
14.0 Provide glass racks for storing and transporting raw, in-process and
finished glass.
7.0 SCOPE OF WORK TO BE PERFORMED BY SELLER. BUYER shall notify SELLER
immediately upon arrival of the PVAC system at the BUYER'S plant. SELLER
shall be responsible for supplying skilled personnel to supervise the
installation of the PVAC system in the BUYERS facility.
Seller will perform the following scope of work in the supply of the PVAC
system:
1.0 Supply PVAC system in accordance with this specification.
2.0 Perform a full operational test of the PVAC system for a period of 30
days in the Seller's facility in accordance with the terms of the
Sales Agreement.
3.0 Arrange export crating and shipping to Buyer's facility.
4.0 Provide supervision of the installation of the system in the Buyers
facility.
5.0 Perform the acceptance test as specified in the Sales Agreement in
Buyer's facility.
6.0 Provide comprehensive training program for Buyer's personnel.
7.0 Assist Buyer in pilot scale-up of production for a period of one month
after the machine has passed acceptance tests. Additional technical
assistance for a period of up to three months available at Buyer's
expense.
Work to be performed by Seller will be done in a professional and workman
like manner. Work will be performed in accordance with the delivery and
installation schedule per Section 3.0 of this agreement.
To the extent that the installation requires a coordination of work between
the SELLER and BUYER the SELLER shall have authority to direct BUYER'S
personnel in the proper techniques and methods for completing the
installation of the machine in a timely manner. BUYER shall be responsible
for providing access for up to sixteen hours per day to the BUYER'S
facility to facilitate the efficient installation of the PVAC system.
Each party shall be responsible for any delays which it causes which result
in an inability to proceed in an efficient manner with the installation of
the PVAC system. To the extent that such delays are caused by the SELLER
but are remedied in such a manner that the overall delivery and
installation schedule is not changed SELLER shall have no further liability
to the BUYER. To the extent that such delays caused by SELLER result in a
delay in the installation schedule as specified in Section 3.0 of this
agreement, SELLER shall be liable for a penalty of up to $1000.00 per
working day for each day of such delay. To the extent that such delays are
caused by actions of the BUYER but do not result in a delay in the overall
completion of the installation and acceptance
16
<PAGE>
testing of the PVAC, BUYER shall have no obligation to the SELLER. To the
extent that such delays caused by BUYER do result in a delay in the
installation of the machine BUYER shall be liable to pay SELLER the sum of
$1000.00 for each working day of delay caused by the BUYER'S actions.
8.0 FINAL ACCEPTANCE TEST. Upon completion of the installation of the PVAC
system SELLER shall notify BUYER that the system is ready for the Final
Acceptance test. SELLER shall demonstrate the operation of the PVAC system
for a period of 22 hours out of 24 hours for six consecutive days. The
PVAC system will be deemed to have passed the Final Acceptance Test if it
operates in at full production capacity for an aggregate of 125 hours
during the six day test period and further if the aggregate production
output equals a minimum of 90,000 pieces of ITO coated glass which meets
the specification in Appendix B of this agreement. The acceptable output
quantity and production yield will be reduced be the number of defective
pieces attributable to defects in materials or due to defects caused by
Buyers cleaning or handling equipment or personnel. Upon successful
completion of the acceptance test by SELLER the BUYER shall sign the
acceptance affidavit acknowledging acceptance of the machine and the
corresponding liability for final payment.
9.0 WARRANTY. SELLER warrants that the PVAC system will comply with the
specifications set forth in the Specification in Appendix A to this
agreement. SELLER further warrants that for a period of twelve months from
the date of acceptance of the PVAC system it will be free from functional
defects in materials and workmanship. This warranty is subject to the
limitation that the PVAC system and its components are operated in
accordance with the SELLER'S recommendations and that regular periodic
maintenance and service is performed and that appropriate consumable
replacement parts are installed in accordance with instructions provided by
SELLER.
This warranty shall not apply to any components or parts which have been
repaired or replaced by other than SELLER or SELLER'S representative or as
a result of written notification from SELLER for such alterations. This
warranty does not apply to disposable parts normally requiring periodic
replacement.
The BUYER'S sole and exclusive remedy under the above warranty is limited
to the repair or replacement of defective parts by the SELLER or the
SELLER'S representative. This warranty shall only apply if the defect has
been properly reported to the SELLER, and if so advised by the SELLER the
BUYER returns the part or component to the SELLER within twenty-one days
after such notification. The SELLER shall be responsible for promptly
repairing or replacing any defective item and for paying the cost of
transportation charges to and from the BUYER. Prior to shipment of any
defective or damaged component BUYER will be responsible for obtaining
return authorization from the SELLER.
10.0 LIMITATION OF LIABILITY. SELLER'S liability shall be limited solely to its
responsibilities under the warranty as set forth in Section 9 above and
further to the remedy for late delivery as set forth in Section 3. IN NO
EVENT SHALL THE SELLER BE LIABLE FOR INDIRECT, SPECIAL, INCIDENTAL OR
CONSEQUENTIAL DAMAGES ARISING FROM ANY SOURCE SUCH AS, BUT NOT LIMITED TO,
THE MANUFACTURE, USE, DELIVERY, INCLUDING LATE DELIVERY, OR TRANSPORTATION
OF THE PVAC SYSTEM, ITS PARTS OR COMPONENTS WHETHER SUCH DAMAGES ARE CAUSED
BY THE SELLER'S NEGLIGENCE OR OTHERWISE, PROVIDED HOWEVER THAT SELLER SHALL
BE RESPONSIBLE FOR ITS INTENTIONAL MISCONDUCT AND GROSS NEGLIGENCE.
FURTHER SELLER SHALL NOT BE LIABLE FOR COST OF CAPITAL, COST OF SUBSTITUTE
EQUIPMENT TO THE PVAC SYSTEM, COST OF SERVICES, REPAIRS, COMPONENTS OR
PARTS, LOSS OF PROFIT OR REVENUE, COST OF ELECTRICAL POWER OR UTILITIES
WHETHER PURCHASED OR PRODUCED BY THE BUYER, LOSS OF USE OF THE PVAC SYSTEM
OR ANY PART THEREOF OR ANY OTHER PROPERTY OWNED BY THE SELLER. SELLER
SHALL NOT BE LIABLE FOR CLAIMS OR COSTS OF BUYER'S CUSTOMERS OR DAMAGES TO
ANY PROPERTY. IN ANY EVENT THE MAXIMUM LIABILITY FOR WHICH THE SELLER CAN
BE HELD LIABLE SHALL BE LIMITED TO THE AMOUNT PAID BY THE BUYER FOR THE
PVAC SYSTEM.
17
<PAGE>
11.0 RESOLUTION OF DISPUTES. Any dispute or controversy or claim relating to
any matter within this agreement which cannot be resolved amicably by the
parties within twenty-one days after written notice by either party of the
existence of such dispute shall be settled by arbitration under the rules
of the American Arbitration Association before a board of three arbitrators
appointed in accordance with said rules. Provided, however, that the
arbitration shall be completed within thirty consecutive days thereof and
the arbitrator shall have no authority to award damages or to change the
express terms of this agreement. The arbitration proceedings shall be held
at the location chosen by the party against whom the claim or complaint is
made. The decision of the arbitrator shall be final and binding upon the
parties but shall be dispositive only of the issue of whether the PVAC
system complies with the specifications if such issue is raised before any
court of competent jurisdiction.
12.0 TRAINING. Upon completion of the acceptance test and acceptance of the
PVAC system by the BUYER the SELLER will provide qualified personnel to
assist BUYER in training of BUYER'S personnel in the operation and
maintenance of the PVAC system. Such training shall consist of four weeks
of on-site training by the SELLER'S personnel. In no event shall the
SELLER be responsible for damage to the PVAC system caused by BUYER'S
personnel during the training and start-up period.
13.0 AFTER INSTALLATION SERVICE. After the installation has been completed and
the acceptance and training activity fulfilled SELLER shall provide to
BUYER appropriate after installation service. In no event, however, shall
SELLER be liable or responsible for damage or losses caused by its failure
to meet its obligations for after-installation service.
14.0 DESIGN CHANGES FROM SPECIFICATION. The PVAC system will be designed and
manufactured in accordance with the specification in Appendix A to this
agreement. Notwithstanding the SELLER reserves the right to change its
specifications, drawings and any component to such an extent that it sees
fit provided, however, that such change will not impair the performance of
the system or its ability to meet the acceptance test as specified in this
agreement. Such changes will be made by the SELLER at its own expense. If
the SELLER determines that a change involving a material amount of
additional expense would provide a significant improvement to the
performance of the PVAC system it will notify BUYER of the nature of the
change and the additional time required to implement the change (if any)
and the price of the change. BUYER shall have the option to approve the
change and agree to pay any additional purchase price by executing an
appropriate amendment to this agreement reflecting the increased price and
the change in the estimated delivery date.
15.0 LOCAL GOVERNMENT CODES. The PVAC system is not designed to meet specific
requirements of any country, state, province, city, or other governmental
body. Specification in Appendix A to this agreement does not specify any
equipment or approval testing. BUYER is responsible for carefully
reviewing the specification and seeking clarification from the SELLER of
any such matters prior to executing this agreement. Further the BUYER
shall have a period of twenty-one days after the execution of this
agreement to notify the SELLER of any specific governmental requirements
which the PVAC system must comply. SELLER shall have a period of fourteen
days after receiving such notification to notify BUYER whether such
requirements can be complied with without additional cost or, if not, what
the additional cost will be as well as any changes in delivery times which
such compliance will cause. BUYER shall have fourteen days upon receipt of
such notification to accept or reject the additional costs and changed
delivery caused by such compliance requirements. If the BUYER accepts such
additional costs or delivery delays he shall execute an appropriate
amendment to this agreement reflecting such. If the BUYER does not accept
such additional costs or delivery delays he will notify the SELLER in
writing of his desire to cancel this contract and to pay a cancellation
charge of $50,000. Such cancellation charge to be paid promptly upon
receipt of invoice from the SELLER.
Any delays or changes which occur subsequent to such notification will be
for BUYER'S account. Any extra costs incurred to meet such requirements
will be added to the purchase price together with a profit not to exceed
10% thereof.
18
<PAGE>
16.0 PVAC SYSTEM DOCUMENTATION. SELLER will deliver to BUYER a preliminary
operating manual and supporting documentation concerning the operation and
maintenance of the PVAC system not later than the completion of the
installation of the system. Within one month after the acceptance of the
PVAC system by the BUYER the SELLER will provide the BUYER with final
documentation concerning the operation and maintenance of the system.
17.0 PATENTS. SELLER indemnifies the BUYER against any claims by third parties
related to the infringement of patents rights for any component of the PVAC
system. Concurrent with the execution of this agreement BUYER agrees to
execute the technology license agreement between Photran Corporation and
the BUYER.
18.0 ASSIGNMENT. This agreement may not be assigned by either party without the
express written consent of the other party. However this agreement may be
assigned by either party to any successor who assumes substantially the
entirety of such party's business.
19.0 CONTRACT IN THE ENTIRETY. This agreement and the technology license
agreement constitute the entire contract and understanding between the
parties concerning all matters related to the sale of the PVAC system and
the licensing of Photran's technology. Both parties agree that they have
not relied upon any other representation or agreement or undertaking not
expressly set forth in this agreement. Catalogs, literature, proposals,
reports and other documentation which the SELLER may have provided to the
BUYER were provided solely for general information and shall not be deemed
to modify the provisions of this agreement.
20.0 TAXES AND DUTIES. It shall be the BUYER'S responsibility to pay any import
duties or taxes levied related to the purchase of the PVAC system. Further
it shall be the BUYER'S responsibility to obtain the appropriate
governmental approvals for the importation of the PVAC system to the
Republic of China.
21.0 BUYER'S RESPONSIBILITY TO SELLER'S PERSONNEL. When SELLER'S personnel are
present at BUYER'S facility SELLER shall provide such personnel with
reasonable office space and telephone service.
22.0 LIMITATION OF CLAIMS. No action or suit shall be brought by either party
for damages arising out of the purchase, manufacture, use, delivery or
transportation of the PVAC system whether such suit or action is for breach
of contract, breach of warranty or otherwise unless such action is
commenced within twelve months after the cause of action has occurred.
23.0 GOVERNING LAW AND VENUE. Except as expressly set forth in this agreement
any action, arbitration or suit relating to this agreement for the PVAC
system shall be commenced before a court within the jurisdiction in which
the defendant resides. This agreement and the rights of the parties shall
be interpreted and governed by the laws of the State of Minnesota.
In witness thereof the parties have caused this agreement to be executed by
their duly authorized officers as of the date shown below.
SELLER BUYER
By /S/ David E. Stevenson By /S/ H. Huang
---------------------- ----------------------
Name David E. Stevenson Name H. Huang
---------------------- ----------------------
Title President Title M.D.
---------------------- ----------------------
Date June 28, 1996 Date June 28, 1996
---------------------- ----------------------
19
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT 11
PHOTRAN CORPORATION
COMPUTATION OF EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------------- -----------------------------
1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
PRIMARY
Weighted average number of
common shares outstanding 3,502,879 2,837,323 3,168,262 2,837,323
Common stock equivalents from assumed
exercise of options and warrants 525,696 508,871 525,696 508,871
---------- ---------- ---------- ----------
Total shares 4,028,574 3,346,194 3,693,958 3,346,194
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Net income applicable to common shareholders $ 127,143 $ (278,936) $ 206,171 $ (373,965)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Net income per common and common
equivalent share $ 0.03 $ (0.08) $ 0.06 $ (0.11)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Fully diluted net income per common and common equivalent share is not separately presented because it is substantially the same as
primary net income per common and common equivalent share.
</TABLE>
20
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 8,073,518
<SECURITIES> 0
<RECEIVABLES> 1,511,560
<ALLOWANCES> 6,679
<INVENTORY> 1,347,597
<CURRENT-ASSETS> 16,199,824
<PP&E> 9,469,253
<DEPRECIATION> 746,490
<TOTAL-ASSETS> 24,949,072
<CURRENT-LIABILITIES> 2,760,098
<BONDS> 0
0
0
<COMMON> 25,266,938
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 24,949,072
<SALES> 2,791,050
<TOTAL-REVENUES> 2,791,050
<CGS> 1,912,281
<TOTAL-COSTS> 1,912,281
<OTHER-EXPENSES> 629,819
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 42,779
<INCOME-PRETAX> 206,171
<INCOME-TAX> 0
<INCOME-CONTINUING> 206,171
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 206,171
<EPS-PRIMARY> .06
<EPS-DILUTED> .06
</TABLE>
