-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TDmj4lRUHIPMCMQ+lI6JRSZfeTBKIVPQC/2qAXgmRsW7g5hVpvYf8zslxPAzeHQC 65mmKIFixQToHk9ZEx3wPQ== 0000912057-97-015964.txt : 19970508 0000912057-97-015964.hdr.sgml : 19970508 ACCESSION NUMBER: 0000912057-97-015964 CONFORMED SUBMISSION TYPE: 10QSB/A PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19970507 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: PHOTRAN CORP CENTRAL INDEX KEY: 0000894906 STANDARD INDUSTRIAL CLASSIFICATION: GLASS PRODUCTS, MADE OF PURCHASED GLASS [3231] IRS NUMBER: 411697628 STATE OF INCORPORATION: MN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-20731 FILM NUMBER: 97597285 BUSINESS ADDRESS: STREET 1: 21875 GRENADA AVE CITY: LAKEVILLE STATE: MN ZIP: 55044 BUSINESS PHONE: 6124694880 MAIL ADDRESS: STREET 1: 21875 GRENADA AVE CITY: LAKEVILLE STATE: MN ZIP: 55044 10QSB/A 1 FORM 10-QSB/A 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 . --------------- ------------------------ 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 PART I - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENT PHOTRAN CORPORATION BALANCE SHEETS
SEPTEMBER 30, DECEMBER 31, 1996 1995 AS RESTATED (SEE NOTE 5) (UNAUDITED) ------------- -------------- 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 ------------- -------------- ------------- --------------
See notes to financial statements. 3 PHOTRAN CORPORATION STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended Nine Months Ended September 30, September 30, --------------------------------- --------------------------------- 1996 1995 1996 1995 AS RESTATED AS RESTATED (SEE NOTE 5) (SEE NOTE 5) ------------- ------------- ------------- ------------- 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 ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
See notes to financial statements. 4 PHOTRAN CORPORATION STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine Months Ended September 30, --------------------------------- 1996 1995 AS RESTATED (SEE NOTE 5) ------------- ------------- 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 ------------- ------------- ------------- -------------
See notes to financial statements. 5 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 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.
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 -------- -------- -------- -------- 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 -------- -------- 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)
7 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 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 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 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 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 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 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 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 EXHIBIT INDEX EXHIBIT NUMBER PAGE NUMBER 11 Computation of Income (Loss) per Common and Common Equivalent Share 17 27 Financial Data Schedule 18 16 EX-11 2 EXH 11 EXHIBIT 11 PHOTRAN CORPORATION COMPUTATION OF INCOME (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE
Three Months Ended Nine Months Ended September 30, September 30, ----------------------------- --------------------------- 1996 1995 1996 1995 AS RESTATED AS RESTATED (SEE NOTE 5) (SEE NOTE 5) ------------- ------------ ------------ ------------ 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) ------------- ------------ ------------ ------------ ------------- ------------ ------------ ------------
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 EX-27 3 EXH 27
5 9-MOS DEC-31-1996 JAN-01-1996 SEP-30-1996 5,590,105 0 500,926 6,679 1,471,519 13,643,989 11,417,166 927,447 24,160,193 3,329,322 0 0 0 25,171,661 0 24,160,193 2,221,191 2,221,191 2,054,501 2,054,501 976,880 0 125,789 (935,979) 0 (935,979) 0 71,990 0 (1,007,969) (.25) (.25)
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