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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
CURRENT REPORT PURSUANT
TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) October 31, 1997
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PHOTRAN CORPORATION
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(Exact Name of Registrant as Specified in its Charter)
Minnesota
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(State or Other Jurisdiction of Incorporation)
000-20731 41-1697628
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(Commission File Number) (I.R.S. Employer Identification No.)
21875 Grenada Avenue, Lakeville, Minnesota 55044
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(Address of Principal Executive Offices) (Zip Code)
(612) 469-4880
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(Registrant's Telephone Number, Including Area Code)
Not Applicable
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(Former Name or Former Address, if Changed Since Last Report)
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ITEM 5. OTHER EVENTS.
On October 31, 1997, the Registrant announced that it had filed a lawsuit
in Dakota County District Court, Hastings, Minnesota against its former
president, David E. Stevenson, accusing him of fraud and asking the court to
freeze his assets pending the resolution of a shareholder lawsuit and an
investigation currently being conducted by the Securities and Exchange
Commission.
The Registrant also reported that it has reopened an internal investigation
into accounting irregularities related to Mr. Stevenson's activities while
employed by the Registrant. The Registrant indicated that its investigation is
presently focused on certain transactions which may have led to overstated
revenues in 1995 and certain other transactions occurring prior to 1996 by which
Mr. Stevenson may have paid for stock in the Registrant through overstated
capital equipment purchases.
As a result, the Registrant's previously issued financial statements and
related auditors' reports should not be relied on until the investigation can be
completed and the Registrant's financial statements can be restated, if
necessary.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(c) Exhibits. The following exhibit is included with this report on Form 8-K
pursuant to Item 601 of Regulation S-B:
(99) Press Release, dated October 31, 1997, including an announcement
of commencement of a lawsuit by the Registrant against its former
president alleging fraud. Also including an announcement of
potential restatement of previously issued financial statements.
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 hereunto duly authorized.
PHOTRAN CORPORATION
(Registrant)
Date: October 31, 1997 By: /s/ Paul T. Fink
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Paul T. Fink
Chief Executive Officer
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EXHIBIT INDEX
Exhibit 99 Press Release, dated October 31, 1997, including an announcement
of commencement of a lawsuit by the Registrant against its former
president alleging fraud. Also including an announcement of
potential restatement of previously issued financial statements.
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EXHIBIT 99
Contact: Meta Gaertnier
Lilja Inc.
(612) 893-7140
PHOTRAN SUES FORMER PRESIDENT FOR FRAUD
COMPANY ASKS COURT TO FREEZE STEVENSON ASSETS AND
CLAIMS FORMER PRESIDENT'S ACTIONS LED TO ACCOUNTING IRREGULARITIES;
PHOTRAN MAY RESTATE PREVIOUSLY ISSUED FINANCIAL STATEMENTS
MINNEAPOLIS _ (Oct. 31, 1997) _ Photran Corporation (NASDAQ: PTRN) today
said it has filed a lawsuit accusing its former president, David E. Stevenson,
of committing fraud and asking the court to freeze his assets pending the
resolution of a shareholder lawsuit and an investigation currently being
conducted by the Securities and Exchange Commission.
The company also indicated it has reopened its internal investigation,
begun in March 1997, regarding financial and accounting irregularities related
to Stevenson. Photran's investigation is presently focused on certain
transactions which may have led to overstated revenues in 1995, and certain
other transactions before 1996, whereby Stevenson may have paid for the Photran
stock he owns through inflated capital equipment purchases.
As a result, Photran's previously issued financial statements and any
related auditors' reports should not be relied upon until Photran's
investigation can be completed and its financial statements can be restated, if
necessary.
All of the transactions currently being investigated directly involved
Stevenson, Photran's founder and former president and chief executive officer,
the company said.
Based on its present information, Photran management does not expect the
potential adjustments to income statements for periods after 1995 to be
material. Photran, a Lakeville, Minn., firm which manufactures coated glass
products for the flat-panel display industry, conducted an initial public
offering in May 1996.
"We may need to make adjustments to the book value of capital assets,"
explained Photran President Paul T. Fink. "We're dealing with events that are
past history, and we've taken steps to address their origin.
"The possible restatements do not in any way diminish Photran's potential,
the market for our ITO-coated glass products nor our commitment to increase
sales and attain profitable growth," Fink said.
_ more _
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Photran Sues Former President . . . /2.
LAWSUIT CLAIMS STEVENSON COMMITTED FRAUD
Photran's lawsuit, filed against Stevenson in Dakota County District Court,
Hastings, Minn., holds him directly responsible for the financial and accounting
irregularities that caused Photran to previously restate its financial results
for the first, second and third quarters of 1996. It further alleges that
Stevenson is directly responsible for transactions involving improper revenue
recognition in 1995 and an overstatement of equipment costs before 1996.
Photran's suit also names Stevenson's brother, Mark A. Stevenson of Harbor
Springs, Mich., as an additional defendant.
"Over the past seven months, Photran's board and new management team have
acted decisively to bring the company to profitability and serve the best
interests of our shareholders," said Steven King, chairman of the Photran board
of directors.
"This lawsuit is a step in that direction," he said.
In its suit, Photran asks the court to award it damages in excess of $1
million; to order Stevenson to pay all costs, expenses and damages that may be
awarded against Photran as a result of Stevenson's actions; and to order that
his assets be frozen pending a trial. Those assets include about 325,000 shares
of Photran stock held in Stevenson's name and which are currently in Photran's
possession.
Minnesota law provides for a prejudgment attachment of assets in cases
where there is reason to believe that the defendant has committed an intentional
fraud.
"Without court intervention, we have no confidence that the stock in David
Stevenson's name will be available for the benefit of our shareholders," Fink
said.
Photran's claim notes that Stevenson, as president, served as Photran's
principal salesperson and made decisions on the recognition of revenue and other
accounting issues.
The court papers contend, among other things, that in 1996, Stevenson
caused certain items to be reported as sales, when in fact they were not; that
in March 1997, he unsuccessfully attempted to have Photran wire money to a bank
account under his control; and that in early 1997 he entered into the
continuation of an unfavorable agreement with an outside vendor, without the
board's knowledge.
_ more _
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Photran Sues Former President . . . /3.
Photran's lawsuit also alleges that Stevenson and his brother set up bank
accounts in the names of other corporations which purchased equipment at low
prices, and sold them to Photran at high prices. According to the lawsuit's
claims, the two then used a major portion of the profit from those equipment
transactions to pay for alleged sales to a Photran customer, even though that
customer had not ordered any product. The lawsuit alleges that Stevenson caused
these non-existent orders to be recorded as sales in 1995. These 1995 sales
transactions were recorded as paid in full by the end of 1995, the Photran
complaint says.
LAWSUIT QUESTIONS STEVENSON'S RIGHT TO STOCK
In addition to its claim that the stock in Stevenson's name should be
attached for the benefit of its shareholders because of Stevenson's fraudulent
conduct, the lawsuit challenges whether Stevenson fully paid for his Photran
stock investments, or whether he paid for them with funds obtained through
fraudulent transactions. Stevenson previously had served Photran with a
lawsuit seeking return of the stock certificates. Photran said it began
investigating transactions involving Stevenson's claim that he paid cash for his
sizable share of Photran stock once the company was served with Stevenson's
lawsuit. The company recently discovered additional documents that led to the
reopening of its investigation.
In March 1997, Photran's board of directors suspended Stevenson pending an
internal investigation into certain financial and accounting irregularities. On
March 19, Stevenson and his wife, Kathleen V. Stevenson, Photran director and
corporate secretary, both resigned.
In May 1997, Photran restated results for the first three quarters of 1996
and indicated that the SEC had undertaken a formal investigation. The initial
recording of the transactions which led to these restatements also are the
subject of a shareholder lawsuit.
Since Stevenson's resignation, Photran management has refocused operations
and acted to move the company toward profitability. The company has cut costs,
stopped work on non-core product lines, added a second manufacturing line and
added a number of new customers.
_ more _
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Photran Sues Former President . . . /4.
Photran Corporation develops, manufactures and markets high performance
optical and electrically conductive thin film coated products using proprietary
process technologies. The company produces products for the flat-panel display
industry.
FORWARD-LOOKING STATEMENTS
IN ADDITION TO HISTORIC INFORMATION, THIS PRESS RELEASE 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 THE OUTCOME OF THE COMPANY'S INTERNAL INVESTIGATION AND
THE SECURITY AND EXCHANGE COMMISSION'S FORMAL INVESTIGATION, THE OUTCOME OF
PENDING LITIGATION AND ARBITRATION PROCEEDINGS, THE TIMELY COMPLETION OF
CONSTRUCTION, INSTALLATION AND FULL OPERATION OF MANUFACTURING EQUIPMENT, THE
SELLING PRICE AND MARKET DEMAND FOR THE COMPANY'S ITO-COATED GLASS, AND OTHER
FACTORS DISCLOSED THROUGHOUT THE COMPANY'S FILINGS WITH THE SECURITIES AND
EXCHANGE COMMISSION. 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 PRESS RELEASE. READERS ARE URGED TO CAREFULLY
REVIEW AND CONSIDER THE VARIOUS DISCLOSURES MADE BY THE COMPANY IN THIS RELEASE,
AND IN THE COMPANY'S PAST AND FUTURE 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, FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
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