<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB/A
(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 Identification No.)
Incorporation or Organization)
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 X No ____
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 10-QSB/A
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 Analysis of Financial 8
Condition and Results of Operations
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 12
Signature page 13
Exhibit Index 14
2
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PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
PHOTRAN CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
AS RESTATED
(SEE NOTE 5)
(UNAUDITED)
-------------- --------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 8,073,518 $ 1,532,361
Accounts receivable 676,937 808,549
Inventory 1,536,380 1,420,048
Equipment held for sale 5,063,273 3,203,314
Prepaid expense 94,128 14,527
------------ ------------
Total current assets 15,444,236 6,978,799
PROPERTY AND EQUIPMENT, net 9,196,488 6,995,381
DEFERRED FINANCING COSTS 191,990
OTHER ASSETS 26,485 26,485
------------ ------------
$ 24,667,209 $ 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 878,774 1,195,833
Accrued expenses 144,650 261,221
Customer advances 2,055,435 1,555,435
------------ ------------
Total current liabilities 3,325,458 10,195,516
LONG TERM DEBT 152,726 762,783
COMMITMENTS AND CONTINGENCIES (Note 7)
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 (4,077,913) (3,436,861)
------------ ------------
Total shareholders' equity 21,189,025 3,234,356
------------ ------------
$ 24,667,209 $ 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
AS RESTATED AS RESTATED
(SEE NOTE 5) (SEE NOTE 5)
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUES $ 785,648 $ 451,349 $ 1,463,106 $ 668,943
COST OF SALES 741,619 446,775 1,198,911 543,706
------------ ------------ ------------ ------------
Gross profit 44,029 4,574 264,195 125,237
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 FROM OPERATIONS (293,065) (217,974) (365,624) (295,680)
INTEREST EXPENSE, net 58,600 60,962 203,438 78,285
------------ ------------ ------------ ------------
LOSS BEFORE EXTRAORDINARY ITEM (351,665) (278,936) (569,062) (373,965)
EXTRAORDINARY ITEM - loss on
extinguishment of debt 71,990 - 71,990 -
------------ ------------ ------------ ------------
NET LOSS $ (423,655) $ (278,936) $ (641,052) $ (373,965)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
LOSS PER COMMON AND
COMMON EQUIVALENT SHARE
Loss before extraordinary item $ (0.09) $ (0.08) $ (0.17) $ (0.11)
Extraordinary item (0.02) - (0.02) -
------------ ------------ ------------ ------------
Net loss $ (0.11) $ (0.08) $ (0.19) $ (0.11)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
WEIGHTED AVERAGE NUMBER OF
COMMON AND COMMON EQUIVALENT
SHARES OUTSTANDING 3,689,268 3,346,194 3,352,620 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
---------------------------
1996 1995
AS RESTATED
(SEE NOTE 5)
------------ ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Loss before extraordinary item $(569,062) $(373,965)
Adjustments to reconcile net loss to cash
used in operating activities:
Depreciation and amortization - property and
equipment 196,312 104,739
Amortization of deferred financing costs 120,000
Changes in assets and liabilities that provided (used) cash:
Accounts receivable 131,612 1,052
Inventory (116,332) (1,205,287)
Equipment held for sale (1,859,959) (950,044)
Prepaid expenses (79,601) (74,358)
Accounts payable (317,059) 967,973
Accrued expenses (116,571) 38,451
Customer advances 500,000
------------ ------------
Cash used in operating activities (2,110,660) (1,491,439)
CASH FLOWS FROM INVESTING ACTIVITIES
Property additions (2,397,419) (798,295)
------------ ------------
Cash used in investing activities (2,397,419) (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-term 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, except for the December 31, 1995
balance sheet, 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 $1,264,700 $1,420,048
Finished goods 271,680
---------- ----------
$1,536,380 $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 $16,125,721 after deducting offering costs, including underwriting
commissions, of $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
$2,470,000 after deducting offering costs, including underwriting
commissions, of $230,000.
4. EQUIPMENT HELD FOR SALE
Equipment held for sale includes the equipment which was to be sold to the
joint venture and the equipment discussed below.
In July 1996, the Company completed negotiating an agreement to sell
refurbished ITO coating equipment for a total contract price of
$2,916,500. Subsequent to June 30, 1996 the Company received a down
payment of $500,000. The contract specified that $2,000,000 was to be
paid upon completion of the in-factory acceptance test and shipment by
the Company and that the final payment of $416,500 was payable upon
completion of the installation and the final acceptance test. The
contract specified that the equipment ship by October 18, 1996. The
equipment did not ship on schedule and as of April 30, 1997, the Company
is negotiating contract amendments with the customer. The Company
had originally recorded as of June 30, 1996 the used coating equipment
it was in the process of refurbishing using the percentage-of-completion
method of revenue recognition. The Company has determined revenue
recognition criteria had not been met as of June 30, 1996. Previously
reported revenues of $910,000 and costs of $610,050 for the three
and six month periods ending June 30, 1996 have been reversed and
this quarterly filing has been restated to reflect this change (see
Note 5).
6
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PHOTRAN CORPORATION
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
5. RESTATEMENT
During the first quarter of 1997, an internal review by management of 1996
interim financial statements determined revenue recognition criteria had not
been met on one previously reported product sale and the equipment sale
discussed in Note 4. However, the Company did meet revenue recognition criteria
in the second quarter on one product sale which had originally been recorded in
the first quarter and was subsequently reversed (see Note 6). In addition, a
pricing concession granted to another customer during the quarter had not been
recorded. The Company had also incorrectly calculated the amount of interest it
capitalized to construction in progress, and had not classified the loss on debt
extinguishment as an extraordinary item. In addition, an error in the cost
of raw materials used was identified.
In order to properly reflect the above described findings, the Company has
restated its interim financial results for its quarter ended June 30, 1996.
Year to date results include the effects of a restatement of the first
quarter interim financial results (see Note 6). The effects of the
restatement are summarized below:
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS:
3 Months ended June 30, 1996 6 Months ended June 30, 1996
As As
Previously As Previously As
Reported Restated Reported Restated
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues $ 1,653,101 $ 785,648 $ 2,791,050 $ 1,463,106
Cost of sales 1,206,923 741,619 1,912,281 1,198,911
Gross profit 446,178 44,029 878,769 264,195
Income (loss) from operations 109,084 (293,065) 248,950 (365,624)
Interest (income) expense (18,059) 58,600 42,779 203,438
Extraordinary item - 71,990 - 71,990
Net income (loss) 127,143 (423,655) 206,171 (641,052)
Net income (loss) per share 0.03 (0.11) 0.06 (0.19)
</TABLE>
<TABLE>
<CAPTION>
BALANCE SHEET DATA
AS OF JUNE 30, 1996
As
Previously As
Reported Restated
-------- --------
<S> <C> <C>
Accounts receivable $ 1,094,881 $ 676,937
Costs & earnings in excess
of billings 410,000
Inventory 1,347,700 1,536,380
Equipment held for sale 4,569,547 5,063,273
Property & equipment 9,332,813 9,196,488
Accounts payable 813,414 878,774
Customer deposits 1,555,435 2,055,435
Accumulated deficit (3,230,690) (4,077,913)
</TABLE>
7
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6. PRIOR PERIOD ITEMS
During the first quarter of 1997, an internal review by management of 1996
interim financial statements determined that revenue recognition criteria had
not been met for three product sales previously reported in the first quarter
of 1996. The Company had also incorrectly calculated the amount of interest
expense it capitalized to construction-in-progress. In addition an error was
made in the valuation of raw materials inventory.
In order to properly reflect the above described findings, the Company has
restated its interim financial results for the quarter ended March 31, 1996.
The effects of such corrections were to decrease sales by $460,491, decrease
cost of sales by $248,066, and increase interest expense by $84,000. Net
earnings decreased from $79,029 to a loss of $217,396. Earnings per share
decreased from $0.02 to a net loss per share of ($0.07).
7. SUBSEQUENT EVENT
During the quarter ended December 31, 1996, the Company was informed by its
Chinese joint venture partner, Shenzhen WABO Group Company, Limited (WABO), of
WABO's intention to dissolve the joint venture agreement. The Company had been
building a glass coating system for sale to the joint venture. The sale was
being recorded under the completed contract method. Accordingly, a deposit of
$1,530,000 which had been received was recorded as a customer advance. All
costs incurred in connection with the building of the system had been
capitalized as equipment held for sale. The Company intends to keep the glass
coating system and is currently in the process of modifying the system for its
own use. All costs incurred for the machine were reclassified to
construction-in-progress during the quarter ended December 31, 1996. In April
1997 the Company received notification that WABO has commenced arbitration
proceedings, claiming approximately $4.4 million plus legal fees. This process
is still in a very early stage, and it is too soon to estimate what, if any,
liability the Company will incur. It is possible that additional amounts due
upon final resolution of this matter could be material to the financial
position, cash flows and operating results of the Company.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD LOOKING INFORMATION
This Form 10-QSB/A contains forward-looking statements as defined in
Section 21E of the Securities and Exchange Act of 1934, as amended. These
forward-looking statements involve a number of risks and uncertainties,
including demand from major customers, effects of competition, changes in the
product or customer mix or revenues and in the level of operating expenses,
rapidly changing technologies and the Company's ability to respond
thereto, the impact of competitive products and pricing, the timely
completion of construction and installation of new manufacturing equipment,
the timely completion, testing, acceptance and shipment of equipment
manufactured for sale, the timely development and acceptance of new products
and other factors disclosed throughout this Form 10-QSB/A and the Company's
registration statement on Form SB-2 which became effective May 29, 1996. The
actual results that the Company achieves may differ materially from any
forward-looking statements due to such risks and uncertainties. The Company
undertakes no obligation to revise any forward-looking statements in order to
reflect events or circumstances that may arise after the date of this report.
Readers are urged to carefully review and consider the various disclosures
made by the Company in this report and in the Company's other reports filed
with the Securities and Exchange Commission that attempt to advise interested
parties of the risks and factors that may effect the Company's business 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 $785,648 compared
to $451,349 for the second quarter of 1995, an increase of 74%. Revenues for
the 1996 quarter include approximately $83,000 of enhanced reflection mirror
revenue, and $24,000 of STN grade ITO coated glass revenue. The balance 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 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.
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.
GROSS PROFIT. The gross profit for the second quarter of 1996 was $44,029
or 6% of revenues compared to $4,574 or 1% of revenues in 1995. The increase
is due largely to increased operational efficiencies achieved as a result of
higher volume levels.
8
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OPERATING EXPENSES. Operating expenses increased to $337,094 for the three
months ended June 30, 1996, compared to $222,548 for the same period in 1995.
This increase is due partially to additional accounting and administrative
salaries, as well as an increase in freight delivery costs on higher volumes of
products sold.
NET INTEREST EXPENSE. Interest expense for the second quarter of 1996 was
$58,600 compared to $60,962 for the second quarter of 1995. The level of
interest remained fairly stable from 1995 to 1996 because earnings from the
investment of the proceeds from the Company's initial public offering were
minimal in the second quarter of 1996 and the repayment of debt from the
initial public offering proceeds did not occur until June 1996.
EXTRAORDINARY ITEM. Upon repayment of the Company's bridge notes in June
1996, the remaining unamortized balance of $71,990 in deferred financing fees
was written off. This loss on extinguishment has been classified as an
extraordinary item in the Statement of Operations for the three months ended
June 30, 1996.
NET LOSS. The Company reported a net loss of $423,655 for the second
quarter of 1996 compared to a net loss of $278,936 for the second quarter of
1995. The increase in the net loss was primarily due to increases in selling
and general and administrative expense and interest and amortization expense
partially offset by increased revenue from the sales of ITO coated glass.
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 $1,463,106
compared to $668,943 for the first six months of 1995, an increase of 119%.
Revenue for the first six months of 1996 include approximately $83,000 from
sales of enhanced reflection mirrors and $24,000 from STN grade ITO coated
glass. The balance 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.
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
reflection 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 reflection 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.
GROSS PROFIT. The gross profit for the first six months of 1996 was
$264,195 compared to $125,237 for the first six months of 1995. The primary
reasons for the increase are the revenue increases discussed above.
OPERATING EXPENSES. Operating expenses increased to $629,819 for the six
months ended June 30, 1996, compared to $420,917 for the same period in 1995.
This increase is due partially to additional accounting and administrative
salaries, as well as an increase in freight delivery costs on higher volumes of
products sold and additional trade show expense as the Company attempted to
increase the market for its products.
NET INTEREST EXPENSE. Interest expense for the first six months of 1996
was $203,438 compared to $78,285 for the first six months of 1995. The increase
is due to the amortization of deferred financing costs.
EXTRAORDINARY ITEM. Upon repayment of the Company's bridge notes in June
1996, the remaining unamortized balance of $71,990 in deferred financing fees
was written off. This loss on extinguishment has
9
<PAGE>
been classified as an extraordinary item in the Statement of Operations for
the three and six months ended June 30, 1996.
NET LOSS. The Company reported a net loss of $641,052 for the first six
months of 1996 compared to a net loss of $373,965 for the first six months of
1995. This increase in the net loss was primarily due to increases in operating
expenses as the Company continues to grow, and the increased interest and
amortization expense discussed above.
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 $676,937.
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 15 months.
The net cash used in operating activities for the first six months of 1996
was $2,110,660 compared to $1,491,439 for the first six months of 1995. Work in
process for the sale of equipment to the Company's Chinese joint venture and to
a customer increased $1,859,959. During the quarter ended December 31, 1996,
the Company was informed by its Chinese joint venture partner, Shenzhen WABO
Group Company, Limited (WABO), of WABO's intention to dissolve the joint venture
agreement. The Company had been building a glass coating system for sale to the
joint venture. The sale was being recorded under the completed contract method.
Accordingly, a deposit of $1,530,000 which had been received was recorded as a
customer advance, and all costs incurred in connection with the building of the
system had been capitalized as equipment held for sale. The Company intends to
keep the glass coating system and is currently in the process of modifying the
system for its own use. All costs incurred for the machine were reclassified to
construction-in-progress during the quarter ended December 31, 1996. In April
1997 the Company received notification that WABO has commenced arbitration
proceedings, claiming approximately $4.4 million plus legal fees. This process
is still in a very early stage, and it is too soon to estimate what, if any,
liability the Company will incur. It is possible that additional amounts due
upon final resolution of this matter could be material to the financial
position, cash flows and operating results of the Company.
In July 1996, the Company completed negotiating an agreement to sell
refurbished ITO coating equipment to its major customer for a total contract
price of $2,916,500. The Company has received a down payment of $500,000.
The contract specified that $2,000,000 was to be paid upon completion of the
in factory acceptance test and shipment by the Company and that the final
payment of $416,500 was payable upon completion of the installation and the
final acceptance test. The contract specified that the equipment ship by
October 18, 1996. The equipment did not ship on schedule and, as of April
30, 1997 the Company was negotiating contract amendments with the customer.
The Company had originally recorded the used coating equipment it was in the
process of refurbishing using the percentage-of-completion method of revenue
recognition, The Company has determined revenue recognition criteria had
not been met as of June 30, 1996 and has reversed previously reported
revenues of $910,000 and costs of $610,050 for the three and six month
periods ending June 30, 1996. This quarterly filing has been restated to
reflect this change (see Note 5).
Cash used in investing activities was $2,397,419 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 ended June 30, 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 $16,125,721 after deducting
offering costs, including underwriting commissions, of $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 $2,470,000 after deducting offering
costs, including underwriting commissions, of $230,000.
10
<PAGE>
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 line 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 was required to be adopted for reporting purposes by the
Company in fiscal 1996. The Company elected to adopt only the disclosure
provisions of SFAS 123. The fair value recognition and measurement provisions
of SFAS 123 for stock-based arrangements with nonemployees did not have a
significant impact on the Company.
11
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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 (Loss) 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
12
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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.
/s/ Paul T. Fink
Dated May 7, 1997 ----------------------------
Paul T. Fink
Chief Financial Officer, Treasurer
and Director
13
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EXHIBIT INDEX
EXHIBIT PAGE
NUMBER NUMBER
10 Sale Agreement Between Photran Corporation and Wintek Corporation 15
dated June 28, 1996
11 Computation of Net Income (Loss) per Share 22
27 Financial Data Schedule 23
14
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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
15
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25 Commence production
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, cranage 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.
16
<PAGE>
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.
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
17
<PAGE>
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 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,
18
<PAGE>
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.
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
19
<PAGE>
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.
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.
20
<PAGE>
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
---------------------- -------------------------
21
<PAGE>
EXHIBIT 11
PHOTRAN CORPORATION
COMPUTATION OF EARNINGS (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------------- --------------------------------
1996 1995 1996 1995
As Restated As Restated
See Note 5) (See Note 5)
------------ ------------ ------------ ------------
<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
186,390 508,871 184,358 508,871
------------ ------------ ------------ ------------
Total shares
3,689,268 3,346,194 3,352,620 3,346,194
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
NET LOSS BEFORE EXTRAORDINARY ITEM (351,665) (278,936) (569,062) (373,965)
EXTRAORDINARY ITEM - loss on
extinguishment of debt (71,990) - (71,990) -
------------ ------------ ------------ ------------
NET LOSS $ (423,655) $ (278,936) $ (641,052) $ (373,965)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
LOSS PER COMMON AND
COMMON EQUIVALENT SHARE
Loss before extraordinary item $ (0.09) $ (0.08) $ (0.17) $ (0.11)
Extraordinary item (0.02) - (0.02) -
------------ ------------ ------------ ------------
Net loss $ (0.11) $ (0.08) $ (0.19) $ (0.11)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
Fully diluted net income per common and common equivalent share is not
separately presented because the effects of including common stock
equivalents would be anti-dilutive. Calculations include certain options
and warrants granted prior to the Company's initial public offering in
accordance with Securities and Exchange Commission (SEC) regulations
although contrary to Accounting Principles Board (APB) Opinion No. 15
because they produce anti-dilutive results.
22
<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> 683,616
<ALLOWANCES> 6,679
<INVENTORY> 1,536,380
<CURRENT-ASSETS> 15,444,236
<PP&E> 9,962,978
<DEPRECIATION> 766,490
<TOTAL-ASSETS> 24,667,209
<CURRENT-LIABILITIES> 3,325,458
<BONDS> 0
0
0
<COMMON> 25,266,938
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 24,667,209
<SALES> 1,463,106
<TOTAL-REVENUES> 1,463,106
<CGS> 1,198,911
<TOTAL-COSTS> 1,198,911
<OTHER-EXPENSES> 629,819
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 203,438
<INCOME-PRETAX> (569,062)
<INCOME-TAX> 0
<INCOME-CONTINUING> (569,062)
<DISCONTINUED> 0
<EXTRAORDINARY> 71,990
<CHANGES> 0
<NET-INCOME> (641,052)
<EPS-PRIMARY> (.19)
<EPS-DILUTED> (.19)
</TABLE>
