<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 September 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 November 6, 1996
was 5,154,392
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 14
Signature page 15
Exhibit Index 16
2
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PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENT
PHOTRAN CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
AS RESTATED
(SEE NOTE 5)
(UNAUDITED)
------------- --------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 5,590,105 $ 1,532,361
Accounts receivable 494,247 808,549
Inventory 1,471,519 1,420,048
Equipment held for sale 6,024,661 3,203,314
Prepaid expense 63,457 14,527
------------- --------------
Total current assets 13,643,989 6,978,799
PROPERTY AND EQUIPMENT, net 10,489,719 6,995,381
DEFERRED FINANCING COSTS 191,990
OTHER ASSETS 26,485 26,485
------------- --------------
$24,160,193 $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 $ 284,462 1,041,547
Accounts payable 783,964 1,195,833
Accrued expenses 205,461 261,221
Customer advances 2,055,435 1,555,435
------------- --------------
Total current liabilities 3,329,322 10,195,516
LONG TERM DEBT 104,040 762,783
COMMITMENTS AND CONTINGENCIES (Note 6)
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,
5,154,392 and 2,834,823 shares issued and outstanding,
respectively 25,171,661 6,671,217
Accumulated deficit (4,444,830) (3,436,861)
------------- --------------
Total shareholders' equity 20,726,831 3,234,356
------------- --------------
$24,160,193 $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 Nine Months Ended
September 30, September 30,
--------------------------------- ---------------------------------
1996 1995 1996 1995
AS RESTATED AS RESTATED
(SEE NOTE 5) (SEE NOTE 5)
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
REVENUES $ 758,085 $ 1,438,203 $ 2,221,191 $ 2,107,146
COST OF SALES 855,589 1,036,856 2,054,501 1,580,562
------------- ------------- ------------- -------------
Gross (loss) profit (97,504) 401,347 166,690 526,584
OPERATING EXPENSES:
Process and product development 91,332 78,838 247,703 218,738
General and administrative 172,725 90,823 472,443 277,886
Selling and marketing 83,004 34,077 256,734 128,031
------------- ------------- ------------- -------------
Total operating expenses 347,061 203,738 976,880 624,655
------------- ------------- ------------- -------------
(LOSS) INCOME FROM OPERATIONS (444,565) 197,609 (810,190) (98,071)
INTEREST (INCOME) EXPENSE, net (77,649) 92,356 125,789 170,641
------------- ------------- ------------- -------------
(LOSS) INCOME BEFORE
EXTRAORDINARY ITEM (366,916) 105,253 (935,979) (268,712)
EXTRAORDINARY ITEM - loss on
extinguishment of debt - - (71,990) -
------------- ------------- ------------- -------------
NET (LOSS) INCOME $ (366,916) $ 105,253 $ (1,007,969) $ (268,712)
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
(LOSS) INCOME PER COMMON AND
COMMON EQUIVALENT SHARE
(Loss) income before extraordinary item $ (0.07) $ 0.03 $ (0.23) $ (0.08)
Extraordinary item - - (0.02) -
------------- ------------- ------------- -------------
Net (loss) income $ (0.07) $ 0.03 $ (0.25) $ (0.08)
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
WEIGHTED AVERAGE NUMBER OF
COMMON AND COMMON EQUIVALENT
SHARES OUTSTANDING 5,262,046 3,346,194 4,015,347 3,346,194
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
See notes to financial statements.
4
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PHOTRAN CORPORATION
STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
---------------------------------
1996 1995
AS RESTATED
(SEE NOTE 5)
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Loss before extraordinary item $ (935,979) $ (268,712)
Adjustments to reconcile net loss to cash used in
operating activities:
Depreciation and amortization - property and
equipment 357,268 190,588
Amortization of deferred financing costs 120,000
Changes in assets and liabilities that provided (used) cash:
Accounts receivable 314,302 (897,938)
Inventory (51,471) (580,477)
Equipment held for sale (2,821,347) (1,825,706)
Prepaid expenses (48,930) (127,968)
Accounts payable (411,869) 1,375,921
Accrued expenses (55,760) 50,372
Customer Advances 500,000
------------- -------------
Cash used in operating activities (3,033,786) (2,083,920)
CASH FLOWS FROM INVESTING ACTIVITIES
Property additions (3,851,606) (1,067,116)
------------- -------------
Cash used in investing activities (3,851,606) (1,067,116)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable and long-term debt 3,369,466
Payments of notes payable and long-term debt (7,557,308) (388,272)
Common stock issued 18,500,444 10,000
------------- -------------
Cash provided by financing activities 10,943,136 2,991,194
------------- -------------
INCREASE IN CASH 4,057,744 (159,842)
CASH AT BEGINNING OF PERIOD 1,532,361 173,160
------------- -------------
CASH AT END OF PERIOD $ 5,590,105 $ 13,318
------------- -------------
------------- -------------
</TABLE>
See notes to financial statements.
5
<PAGE>
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 (except for the change from percentage
completion to the completed contract method of contract accounting as
discussed in Note 4), which are, in the opinion of management, necessary
for a fair presentation. Operating results for the three and nine month
periods ended September 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, which was declared effective by the Commission on
May 29, 1996.
2. INVENTORIES
Inventories consist of the following:
September 30, December 31,
1996 1995
---- ----
Raw materials and supplies $1,260,144 $1,420,048
Finished goods 211,375
---------- ----------
$1,471,519 $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 $16,025,444 after deducting offering costs, including underwriting
commissions, of $1,974,556.
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 (see Note 6) 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. 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 at the buyer's facility. The Company had
originally recorded revenue on the contract using the percentage-of-
completion method. The contract specified that the equipment was to 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 amendment to the contract has not yet been finalized and,
due to the associated uncertainties, the Company has determined that
revenue should be recognized only upon completion of the contract.
Accordingly, previously reported revenues of $1,140,000 and $2,050,000 for
the three and nine months ended September 30, 1996, respectively, and
costs of $756,070 and $1,366,120
6
<PAGE>
PHOTRAN CORPORATION
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
(CONTINUED)
for the same periods, respectively, have been reversed from amounts
originally reported and this quarterly filing has been restated to reflect
this change (see Note 5). These amounts reflect the reversal of the
second quarter 1996 revenue and costs which were reversed because the
Company had not met revenue recognition criteria as of June 30, 1996 and
change to the completed contract method of accounting.
5. RESTATEMENT
During the first quarter of 1997, an internal review by management
determined that revenue recognition criteria had not been met with respect
to one sale previously reported in the third quarter of 1996. In
addition, the Company determined that revenue recognition criteria had
been met in the third quarter on a portion of a sale which had originally
been recorded in the second quarter and was subsequently reversed (see
Note 6).
In order to properly reflect the above described findings and the change
in accounting method for the equipment sales contract discussed in Note 4,
the Company has restated its interim financial results for the quarter
ended September 30, 1996. The effects of the restatement are summarized
below.
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS:
3 Months Ended Sept. 30, 1996 9 Months Ended Sept. 30, 1996
----------------------------- -----------------------------
As As
Previously As Previously As
Reported Restated Reported Restated
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues $2,071,055 $ 758,085 $ 4,862,105 $ 2,221,191
Cost of sales 1,616,714 855,589 3,528,996 2,054,501
Gross profit (loss) 454,341 (97,504) 1,333,109 166,690
Income (loss) from operations 107,280 (444,565) 356,229 (810,190)
Interest (income) expense (77,649) (77,649) (34,870) 125,789
Extraordinary item - - - 71,990
Net income (loss) 184,929 (366,916) 391,099 (1,007,969)
Net income (loss) per share 0.03 (0.07) 0.09 (0.25)
BALANCE SHEET DATA
AS OF SEPTEMBER 30, 1996
As
Previously As
Reported Restated
-------- --------
<S> <C> <C>
Accounts receivable $ 1,085,161 $ 494,247
Costs & earnings in excess of billings 1,543,636
Inventory 1,343,144 1,471,519
Equipment held for sale 4,781,229 6,024,661
Property & equipment 10,626,044 10,489,720
Customer advances 1,555,435 2,055,435
Accumulated deficit (3,045,762) (4,444,830)
</TABLE>
7
<PAGE>
6. 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 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, the Company's restated Form 10-QSB/A
for the quarter ended June 30, 1996 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 affect the Company's business and
results of operations.
RESULTS OF OPERATIONS
8
<PAGE>
REVENUES
Three Months Ended September 30,
--------------------------------
1996 1995 % Change
---- ---- --------
Revenues $ 758,085 1,438,203 (47)%
Nine Months Ended September 30,
-------------------------------
1996 1995 % Change
---- ---- --------
Revenues $ 2,221,191 2,107,146 5%
Revenues consist of sales of coated products. Revenue from the sale of TN
grade ITO coated glass for the quarter ended September 30, 1996 was 47% less
than the 1995 quarter. This decrease is primarily due to a combination of a
general market price reduction for TN grade ITO coated glass and a change by the
Company's principal customer to a smaller sheet size. These changes had the
combined effect of reducing the unit price of the Company's TN grade ITO coated
glass by 41% during the quarter. The Company expects the market price for TN
grade ITO coated glass will not recover for several quarters and that its
principal customer for this product will continue to order the smaller sheet
size.
During the 1996 quarter, the Company dedicated a significant portion of its
available production time on the P-1 line to the development of full scale
production processes for enhanced reflection mirrors and it's LCM brand STN
grade ITO coated glass. Management believes because of the change in the market
for TN grade ITO it is necessary to accelerate the shift in product mix from TN
grade ITO to these products. The Company is providing samples to prospective
customers and is working with its independent sales representatives to develop
customers for these products.
Revenues from the sale of coated products for the nine months ended
September 30, 1996 increased compared to the first nine months of 1995 because
the Company did not commence production of TN grade ITO glass until the third
quarter of 1995 and 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 in 1994 to redesign and modify its equipment.
Revenues for the first nine months of 1996 were less than expected because
of the lower market price for TN grade ITO glass and the change in sheet size by
the Company's major customer. In addition, the Company commenced sample
production runs of its enhanced reflection mirror and LCM brand STN grade ITO
coated glass and devoted a significant portion of its available production
capacity to the development of commercial scale production processes for these
products.
The Company has purchased the equipment and completed the engineering for
its second production line. The installation of this line has been delayed
until completion of the equipment fabrication projects in process. The Company
expects to have this line operational by the end of the third quarter of 1997.
Risks that could cause actual revenues to differ from expected revenues
include the Company's ability to reduce its dependence on its TN grade ITO
coated glass product and successfully develop and market new products, 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
and the loss of a major customer.
GROSS PROFIT
Three Months Ended September 30,
--------------------------------
1996 % Of Sales 1995 % Of Sales
---- ---------- ---- ----------
Gross profit (loss) $(97,504) (13)% $ 401,347 28%
Nine Months Ended September 30,
--------------------------------
1996 % Of Sales 1995 % Of Sales
---- ---------- ---- ----------
Gross profit $ 166,690 8% $ 526,584 25%
9
<PAGE>
Cost of sales consists of substrate costs, target material costs, and
direct labor and overhead related to the Company's manufacturing operations.
The decrease in gross profit on coated products in the third quarter of 1996
compared to the same period in 1995 both as a percentage of sales and in
real dollar terms was due primarily to the reduced revenue and the market and
unit price decreases discussed above. In addition, cost of sales for coated
products includes the costs associated with the enhancement of commercial
scale production processes for the manufacture of the Company's LCM brand STN
grade ITO coated glass and improvements in the process for enhanced
reflection mirrors. The production of these products requires ultra clean
substrates and must be performed in a clean room environment to achieve
acceptable production yields. Because of the change in the market for TN
grade ITO coated glass, management made the decision to commence production
of these products on the P-1 line prior to the installation of the clean room
and material handling and cleaning upgrades. As a result production yields
were significantly reduced and scrap cost increased.
Gross profit on coated products as a percentage of sales decreased during
the first nine months of 1996 due to the costs associated with sample and
process development runs and the market and unit price decreases discussed
above.
PROCESS AND PRODUCT DEVELOPMENT
Three Months Ended September 30,
--------------------------------
1996 1995 % Change
---- ---- --------
Process and product development $ 91,332 $ 78,838 16%
As a percentage of revenues 12% 5%
Nine Months Ended September 30,
--------------------------------
1996 1995 % Change
---- ---- --------
Process and product development $ 247,703 $ 218,738 13%
As a percentage of revenues 11% 10%
Process and product development expenses consist of personnel costs, consulting,
testing, supplies and depreciation expenses. The increase in process and
product development expenses for the third quarter and nine months ended
September 30, 1996 compared to the same periods in 1995 was due primarily to
increased personnel and consulting fees incurred for the purpose of expanding
the Company's product line and to a lesser extent to increased expenses for
supplies and occupancy costs.
GENERAL AND ADMINISTRATIVE EXPENSES
Three Months Ended September 30,
--------------------------------
1996 1995 % Change
---- ---- --------
General and administrative 172,725 90,823 90%
As a percentage of revenues 23% 6%
Nine Months Ended September 30,
-------------------------------
1996 1995 % Change
---- ---- --------
General and administrative 472,443 277,886 70%
As a percentage of revenues 21% 13%
General and administrative expenses consist primarily of compensation
expenses for administration, finance, and general management personnel, as well
as office supplies, depreciation and professional fees. The increase in general
and administrative expenses for the three and nine months ended September 30,
1996 compared to the same periods for 1995 is primarily a result of increased
staffing. In addition, expenses for office supplies, depreciation, consulting
and professional fees increased during the three and nine months ended September
30, 1996 compared to the same periods in 1995. These increased costs are the
reason for the increase in general and administrative expense as a percentage of
revenue for the three months ended September 30, 1996 compared to the same
period in 1995.
10
<PAGE>
SELLING AND MARKETING EXPENSES
Three Months Ended September 30,
--------------------------------
1996 1995 % Change
---- ---- --------
Selling and marketing 83,004 34,077 144%
As a percentage of revenues 11% 2%
Nine Months Ended September 30,
-------------------------------
1996 1995 % Change
---- ---- --------
Selling and marketing 256,734 128,031 101%
As a percentage of revenues 12% 6%
Selling expenses consist principally of compensation costs for sales and
marketing personnel, commissions, travel expenses, trade show expenses, and
freight out costs. The addition of sales and customer support staff and
increases in trade show, travel and freight costs are the primary reasons for
the increase in selling expenses for the three and nine months ended September
30, 1996 compared to the same period in 1995. These increased costs are the
reason selling expenses increased as a percentage of revenues for the three
months ended September 30, 1996 compared to the same period in 1995.
NET INTEREST (INCOME) EXPENSE
Three Months Ended September 30,
--------------------------------
1996 1995 % Change
---- ---- --------
Interest (income) expense, net $ (77,649) $ 92,356 184%
As a percentage of revenues (10)% 6%
Nine Months Ended September 30,
-------------------------------
1996 1995 % Change
---- ---- --------
Interest expense, net $ 125,789 $ 170,641 (50)%
As a percentage of revenues 6% 8%
For the three months ended September 30, 1996 the Company had interest income
compared to net interest expense for the same period in 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 in June of 1996 after its initial public offering.
This caused net interest expense for the nine months ended September 30, 1996
to be lower than 1995 levels.
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 nine months ended
September 30, 1996.
NET INCOME (LOSS)
Three Months Ended September 30,
--------------------------------
1996 1995 % Change
---- ---- --------
Net (Loss) Income $ (366,916) $ 105,253 420%
As a percentage of revenues (48)% 7%
Nine Months Ended September 30,
--------------------------------
1996 1995 % Change
---- ---- --------
Net Loss $ (1,007,969) $ (268,712) 222%
As a percentage of revenues (45)% (13)%
The decrease (increase) in net income (loss) for the three and nine months
ended September 30, 1996 compared to 1995 is primarily due to lower per unit
revenues on coated products with substantially the
11
<PAGE>
same coating cost per unit, as well as increased selling and general and
administrative expenses as the company continues to grow.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1996, the Company's principal sources of liquidity
included cash and cash equivalents of $5,590,105 and net accounts receivable of
$494,247. 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 12 months.
The net cash used in operating activities for the first nine months of 1996
was $3,033,786 primarily for increases in work in process for the sale of
equipment to the Chinese joint venture and another customer of $2,821,347.
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.
During the three months ended September 30, 1996 the Company began
exporting TN grade ITO coated glass to select customers on open credit terms.
The Company has relied on letters of credit to secure payment in the past.
At September 30, 1996 accounts receivable included approximately $123,000 of
receivables from foreign customers that were not secured by letters of
credit.
In July 1996 the Company completed negotiating an agreement to sell 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. An
additional $2,000,000 was to be paid upon completion of the in factory
acceptance test. The final payment of $416,500 was payable upon completion
of the installation and the final acceptance test. Revenue from the equipment
contract was 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
considered expended costs to be the best available measure of progress on
uncompleted contracts. The contract specified that the equipment was to 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 amendment to the contract has not yet been finalized and, due to the
associated uncertainties, the Company has determined that revenues should be
recognized only upon completion of the contract. See Note 4 to financial
statements for the effects of the change in revenue recognition methods.
Cash used in investing activities was $3,851,606 during the first nine
months of 1996 and $1,067,116 in the first nine 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 $2,246,316 and $1,102,229 were capitalized or
charged to construction-in-process during the first nine months of 1996 and
1995, respectively.
Cash flows from financing activities during the nine months ended September
30, 1996 consisted primarily of the $18,500,444 in proceeds from the Company's
initial public stock offering in May of 1996. In addition, 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.
12
<PAGE>
OTHER FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS
The Company's operating results may fluctuate due to factors such as the
timing of new product announcements and introductions by the Company, its major
customer and its competitors, market acceptance of new or enhanced versions of
the company's products, changes in the product or customer mix of revenues,
changes in the level of operating expenses, competitive pricing pressures, the
gain or loss of significant customers, increased product and process development
costs associated with new product introductions, the timely completion of
construction and installation of new manufacturing equipment, the timely
completion, testing, acceptance and shipment of equipment manufactured for sale
and general economic conditions. All of the above factors are difficult for the
Company to forecast, and these or other factors can materially adversely affect
the Company's business and operating results for one quarter or a series of
quarters. The Company's expense levels are based in part on its expectations
regarding future revenues and in the short term are fixed to a large extent.
Therefore, the Company may be unable to adjust spending in a timely manner
to compensate for any unexpected revenue shortfall. Accordingly, any
significant decline in demand relative to the Company's expectations or any
material delay of customer orders would have a material adverse effect on the
company's business and operating results.
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 has 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.
13
<PAGE>
PART II. OTHER INFORMATION
ITEM 6.
a. Exhibits
11. Computation of Income (Loss) per Common and Common Equivalent Share
27. Financial Data Schedule
b. Reports on Form 8-K
No Current Reports on Form 8-K were filed during the fiscal quarter ended
September 30, 1996.
14
<PAGE>
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
/s/ Paul T. Fink
Dated May 7, 1997 -----------------------------------
Paul T. Fink
Chief Financial Officer, Treasurer
and Director
15
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER PAGE
NUMBER
11 Computation of Income (Loss) per Common and
Common Equivalent Share 17
27 Financial Data Schedule 18
16
<PAGE>
EXHIBIT 11
PHOTRAN CORPORATION
COMPUTATION OF INCOME (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 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
5,152,854 2,837,323 3,837,155 2,837,323
Common stock equivalents from assumed
exercise of options and warrants
109,192 508,871 178,192 508,871
------------- ------------ ------------ ------------
Total shares
5,262,046 3,346,194 4,015,347 3,346,194
------------- ------------ ------------ ------------
------------- ------------ ------------ ------------
NET (LOSS) INCOME BEFORE
EXTRAORDINARY ITEM
(366,916) 105,253 (935,979) (268,712)
EXTRAORDINARY ITEM - loss on
extinguishment of debt
- - (71,990) -
NET (LOSS) INCOME $ (366,916) $ 105,253 $1,007,969 $ (268,712)
------------- ------------ ------------ ------------
------------- ------------ ------------ ------------
(LOSS) INCOME PER COMMON AND
COMMON EQUIVALENT SHARE
(Loss) income before extraordinary item $ (0.07) $ 0.03 $ (0.23) $ (0.08)
Extraordinary item - - (0.02) -
------------- ------------ ------------ ------------
Net (loss) income $ (0.07) $ 0.03 $ (0.25) $ (0.08)
------------- ------------ ------------ ------------
------------- ------------ ------------ ------------
</TABLE>
Fully diluted net income per common and common equivalent share is not
separately presented because the effects of including outstanding 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.
17
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 5,590,105
<SECURITIES> 0
<RECEIVABLES> 500,926
<ALLOWANCES> 6,679
<INVENTORY> 1,471,519
<CURRENT-ASSETS> 13,643,989
<PP&E> 11,417,166
<DEPRECIATION> 927,447
<TOTAL-ASSETS> 24,160,193
<CURRENT-LIABILITIES> 3,329,322
<BONDS> 0
0
0
<COMMON> 25,171,661
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 24,160,193
<SALES> 2,221,191
<TOTAL-REVENUES> 2,221,191
<CGS> 2,054,501
<TOTAL-COSTS> 2,054,501
<OTHER-EXPENSES> 976,880
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 125,789
<INCOME-PRETAX> (935,979)
<INCOME-TAX> 0
<INCOME-CONTINUING> (935,979)
<DISCONTINUED> 0
<EXTRAORDINARY> 71,990
<CHANGES> 0
<NET-INCOME> (1,007,969)
<EPS-PRIMARY> (.25)
<EPS-DILUTED> (.25)
</TABLE>
