<PAGE>

                       U.S. SECURITIES AND EXCHANGE COMMISSION
                                WASHINGTON, DC  20549

                                     FORM 10-QSB

(Mark One)
 X  Quarterly report under Section 13 or 15(d) of the Securities Exchange Act
    of 1934

    For the quarterly period ended June 30, 1997

    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 May 15, 1997 was
5,154,392

    Transitional Small Business Disclosure Format (check one):

Yes            No     X      .
   -----------   ------------

<PAGE>

                                 PHOTRAN CORPORATION

                                     FORM 10-QSB

                                  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                7
               Financial Condition and Results of
               Operations

 PART II       OTHER INFORMATION

 Item 1.       Legal Proceedings                                     12

 Item 6.       Exhibits and Reports on Form 8-K                      12

 Signature page                                                      13

 Exhibit Index                                                       14


                                          2
<PAGE>

PART I - FINANCIAL INFORMATION

ITEM 1 - FINANCIAL STATEMENTS

                                 PHOTRAN CORPORATION
                                   BALANCE SHEETS 


                                                        JUNE 30,    DECEMBER 31,
                                                          1997         1996
                                                       -----------  -----------
                                                       (UNAUDITED)
ASSETS

CURRENT ASSETS:
   Cash and cash equivalents                           $   374,644  $ 2,038,955
   Accounts receivable                                     445,517      606,500
   Inventory                                               495,646      754,572
   Equipment held for sale                                            1,547,426
   Prepaid expense                                         148,395      109,540
                                                       -----------  -----------
      Total current assets                               1,464,202    5,056,993

PROPERTY AND EQUIPMENT, net                             18,833,331   15,446,311

MARKETABLE SECURITIES, restricted                        2,250,000
                                                       -----------  -----------
                                                       $22,547,533  $20,503,304
                                                       -----------  -----------
                                                       -----------  -----------
LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES
   Current portion of long term debt,
    notes payable, and capital lease obligations           833,085       51,592
   Accounts payable                                        724,361      663,411
   Accrued expenses                                        446,631      758,915
   Customer advances                                     2,260,420    2,260,420
                                                       -----------  -----------
    Total current liabilities                            4,264,497    3,734,338

LONG TERM DEBT                                           3,803,433      327,813

COMMITMENTS AND CONTINGENCIES

SHAREHOLDERS' EQUITY
   Undesignated stock, no par value,  6,000,000 shares
    authorized, no shares issued
   Common stock, no par value, 24,000,000 shares
    authorized, 5,154,392 and 2,834,823 shares issued
    and outstanding, Respectively                       25,163,921   25,159,921
   Accumulated deficit                                 (10,684,318)  (8,718,768)
                                                       -----------  -----------
    Total shareholders' equity                          14,479,603   16,441,153
                                                       -----------  -----------

                                                       $22,547,533  $20,503,304
                                                       -----------  -----------
                                                       -----------  -----------

                          See notes to financial statements.


                                          3
<PAGE>

                                 PHOTRAN CORPORATION
                         STATEMENTS OF OPERATIONS (UNAUDITED)

<TABLE>
<CAPTION>
                                                                   Three months ended                     Six months ended
                                                                        June 30,                              June 30,
                                                            -----------------------------         -------------------------------
                                                               1997               1996               1997                 1996
                                                            ----------         ----------         -----------          ----------
<S>                                                         <C>                <C>                <C>                  <C>
REVENUES                                                    $  867,908         $  785,648         $ 1,391,777          $1,463,106
COST OF SALES                                                1,092,506            741,619           2,015,578           1,198,911
                                                            ----------         ----------         -----------          ----------

  Gross profit (loss)                                         (224,598)            44,029            (623,801)            264,195

OPERATING EXPENSES:
 Process and product development                                54,445             86,002             202,170             156,372
 General and administrative                                    492,403            149,525             769,021             299,716
 Selling and marketing                                          89,921            101,567             246,488             173,731
 Other nonrecurring charges (note 8)                                                                  198,710
                                                            ----------         ----------         -----------          ----------
   Total operating expenses                                    636,769            337,094           1,416,389             629,819
                                                            ----------         ----------         -----------          ----------

LOSS FROM OPERATIONS                                          (861,367)          (293,065)         (2,040,190)           (365,624)

INTEREST (INCOME) EXPENSE, net                                 (47,609)            58,600             (53,332)            203,438
OTHER (INCOME) EXPENSE, net                                    (21,308)                               (21,308)
                                                            ----------         ----------         -----------          ----------

NET LOSS BEFORE EXTRAORDINARY ITEM                            (792,450)          (351,665)        $(1,965,550)           (569,062)

EXTRAORDINARY ITEM - loss on debt
  extinguishment                                                                   71,990                                  71,990
                                                            ----------         ----------         -----------          ----------

NET LOSS                                                    $ (792,450)          (423,655)        $(1,965,550)           (641,052)
                                                            ----------         ----------         -----------          ----------
                                                            ----------         ----------         -----------          ----------

NET LOSS PER COMMON
 AND COMMON EQUIVALENT SHARE
 Loss before extraordinary item                             $    (0.15)        $    (0.09)        $     (0.38)        $     (0.17)
 Extraordinary item                                                                 (0.02)                                  (0.02)
                                                            ----------         ----------         -----------          ----------
                                                            $    (0.15)        $    (0.11)        $     (0.38)        $     (0.19)
                                                            ----------         ----------         -----------          ----------
                                                            ----------         ----------         -----------          ----------
WEIGHTED AVERAGE NUMBER OF
 COMMON AND COMMON EQUIVALENT
 SHARES OUTSTANDING                                          5,156,392          3,689,268           5,156,092           3,352,620
                                                            ----------         ----------         -----------          ----------
                                                            ----------         ----------         -----------          ----------
</TABLE>



                          See notes to financial statements.


                                          4
<PAGE>

                                 PHOTRAN CORPORATION
                         STATEMENTS OF CASH FLOWS (UNAUDITED)

                                                           Six Months Ended
                                                               June 30,
                                                      --------------------------
                                                          1997          1996
                                                      ------------  ------------
CASH FLOWS FROM OPERATING ACTIVITIES
   Loss before extraordinary item                     $(1,965,550)  $  (569,062)
   Adjustments to reconcile net loss to cash
    used in operating activities:
       Depreciation and amortization - property and
        equipment                                         423,063       196,312
       Interest expense associated with amortization
        of Deferred financing costs                                     120,000
   Changes in current assets and liabilities that
    provided (used) cash:
       Accounts receivable                                160,983       131,612
       Inventory                                          258,926      (116,332)
       Equipment held for sale                                       (1,859,959)
       Prepaid expenses                                   (38,855)      (79,601)
       Accounts payable                                    60,950      (317,059)
       Accrued expenses                                  (312,284)     (116,571)
       Customer advances                                                500,000
                                                      ------------  ------------
         Cash used in operating activities             (1,412,767)   (2,110,660)

CASH FLOWS FROM INVESTING ACTIVITIES
   Property additions                                  (2,262,657)   (2,397,419)
   Purchases of marketable securities                  (2,250,000)
                                                      ------------  ------------
         Cash used in investing activities             (4,512,657)   (2,397,419)
                                                      ------------  ------------
CASH FLOWS FROM FINANCING ACTIVITIES
   Proceeds from notes payable and long-term debt       4,500,000
   Payments of notes payable and long-debt               (242,887)   (7,546,485)
   Common stock issued                                      4,000    18,595,721
                                                      ------------  ------------
         Cash provided by financing activities          4,261,113    11,049,236
                                                      ------------  ------------

(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS       (1,664,311)    6,541,157

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD        2,038,955     1,532,361
                                                      ------------  ------------

CASH AND CASH EQUIVALENTS AT END OF PERIOD            $   374,644   $ 8,073,518
                                                      ------------  ------------
                                                      ------------  ------------


                          See notes to financial statements.


                                          5
<PAGE>

                                 PHOTRAN CORPORATION
                      NOTES TO FINANCIAL STATEMENTS (UNAUDITED)



1.  BASIS OF PRESENTATION

    The accompanying financial statements are unaudited and reflect all
    adjustments, consisting only 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, 1997 are not
    necessarily indicative of the results that may be expected for the year
    ended December 31, 1997.

    These financial statements should be read in conjunction with the financial
    statements and notes thereto for the year ended December 31, 1996,
    previously filed with the SEC as part of the Company's Annual Report on
    form 10-KSB.

2.  INVENTORIES

    Inventories consist of the following:

                                                 June 30,      December 31,
                                                   1996           1996
                                                   ----           ----
    Raw materials and supplies                   $495,646       $754,572
                                                 --------       --------
                                                 --------       --------

3.  SHAREHOLDERS' EQUITY

    INITIAL PUBLIC OFFERING - On May 29, 1996, the Company sold 2,000,000
    Common Shares in an initial public offering.  Net proceeds to the Company
    were approximately $16,025,444 after deducting offering costs, including
    underwriting commissions, of approximately $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
    approximately $2,470,000 after deducting offering costs, including
    underwriting commissions, of approximately $230,000.

4.  EQUIPMENT HELD FOR SALE

    In 1996 the Company entered into an agreement to sell ITO coating equipment
    to its largest customer  for a total contract price of $2,916,500.  The
    Company received a down payment of $500,000 which is recorded as a customer
    advance at June 30, 1997 and December 31, 1996.  During the second quarter
    of 1997, the Company reached an agreement with the customer whereby the
    Company will keep the equipment and refund the deposit previously 
    received via per sheet credits against future glass purchases by the 
    customer. The cost of this equipment has been reclassified to property and 
    equipment as of June 30, 1997.

5.   COMMITMENTS AND CONTINGENCIES

     During the quarter ended December 31, 1996, the Company was informed by 
     its Chinese joint venture partner, Shenzhen WABO Group Company Limited 
     (WABO) of their intention to dissolve the joint venture agreement 
     and cancel the related equipment purchase contract. In April 1997, the 
     Company received notice that arbitration proceedings have been 
     commenced against it by WABO in Shenzhen, China claiming approximately 
     $4.4 million plus legal fees and costs. This process is still in a very 
     early stage, and it is too soon to determine whether the Company will 
     be liable for any additional amounts beyond the return of amounts which 
     are recorded as customer advances. It is possible that additional 
     amounts due upon final dissolution of this agreement could be material 
     to the financial position and operating results of the Company.
     
     In connection with the coating equipment that the Company was building 
     for sale to the joint venture company, known as the Shenzhen Fortune 
     Conductive Glass Company, Ltd. (Fortune), the Company entered into a 
     contract with a third party to design and build power supplies to be sold
     under the equipment contract, as well as for the Company's own use. The 
     third party has asserted that the Company is liable to it for various costs
     incurred in connection with the production of the power supplies and has 
     demanded payment of $240,000 in addition to amounts the Company has already
     paid under the contract. Due to various defects in the contract as well as
     the third party's failure to perform its obligations, the Company has 
     rescinded the contract and demanded that the third party refund all 
     monies paid to it by the Company. Management, in consultation with the 
     company's legal counsel, is of the opinion that the Company has valid 
     defenses against the claims asserted by the third party. However, it is 
     possible that the Company will be liable for amounts in addition to 
     those already paid under the contract. Such amounts could be material 
     but the Company is unable to estimate what amounts, if any, will be 
     ultimately paid.
     
     The Securities and Exchange Commission (SEC) has informed the Company 
     that it is conducting a formal investigation with respect to certain 
     financial and accounting irregularities announced by the Company in 
     March 1997 relating to fiscal 1996. The investigation is in the 
     preliminary stages and it is impossible to determine what impact, if 
     any, the investigation will have on the Company's financial condition 
     or results of operations.

     In May of 1997 the company was served with two separate lawsuits 
     against the Company, certain officers and directors of the 
     Company and the Company's former president. These lawsuits were 
     filed by certain purchasers of the Company's common stock 
     alleging that the Company's actions with respect to the financial 
     and accounting irregularities announced by the Company in March 
     of 1997 artificially inflated its stock price between May 29, 
     1996 and March 24, 1997. The plaintiffs in these actions are 
     seeking class certification.

     Both suits were filed in the United States District Court for the 
     district in Minnesota. In July of 1997 the court consolidated 
     these lawsuits into a single action captioned IN RE PHOTRAN 
     CORPORATION SECURITIES LITIGATION. The Company has not yet 
     formally responded to this lawsuit, and it is not possible at 
     this time to determine what impact, if any, this lawsuit will 
     have on the Company's financial position or results of operations.

                                          6
<PAGE>

ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

FORWARD LOOKING STATEMENTS

THIS FORM 10-QSB 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, AND THE ACTUAL PERFORMANCE OF NEW 
MANUFACTURING EQUIPMENT, THE TIMELY COMPLETION, TESTING, ACCEPTANCE AND 
SHIPMENT OF EQUIPMENT MANUFACTURED FOR SALE, THE TIMELY DEVELOPMENT AND 
ACCEPTANCE OF NEW PRODUCTS, THE IMPACT OF PENDING AND THREATENED LITIGATION 
AND OTHER FACTORS DISCLOSED THROUGHOUT THIS FORM 10-QSB.  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, INCLUDING THE DISCUSSION SET FORTH IN THE 
SECTION TITLED "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION 
AND RESULTS OF OPERATIONS - - OTHER FACTORS THAT MAY AFFECT FUTURE OPERATING 
RESULTS", AND IN THE COMPANY'S OTHER REGISTRATION STATEMENTS AND REPORTS 
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION FROM TIME TO TIME 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

REVENUES

    For the quarter ended June 30, 1997 net sales increased to $ 867,908 from $
785,648 for the quarter ended June 30, 1996.  Revenues consisted primarily of
gross sales of TN grade ITO coated glass.  The increase in revenue is due
primarily to strong market demand for the Company's TN grade ITO coated glass
and  increased production on the Company's P-1 production line. Total production
for the quarter ended June 30, 1997 increased 286% over the quarter ended June
30, 1996. Revenue increases were not proportional to the increase in production,
however, due to a reduction in the general market price for TN grade ITO coated
glass and a change by the Company's principal customer to a smaller sheet size.
The market price reductions and change in sheet size had the combined effect of
reducing the unit price of the Company's TN grade ITO coated glass by
approximately 50% from the quarter ended June 30, 1996 to the quarter ended June
30, 1997.  In addition, during the first quarter of 1997, the Company's
principal customer began supplying the raw glass and paying only for the coating
applied by the Company.  Glass cost had been approximately 35% of the total unit
price.  Since the customer is supplying the glass, revenue has been reduced
accordingly.

    For the six months ended June 30, 1997 net sales decreased to $1,391,777 
from $1,463,106 for the six months ended June 30, 1996.  Revenues consisted 
primarily of gross sales of TN grade ITO coated glass.  The decrease in 
revenue is 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. The market price reductions and change in sheet size had 
the combined effect of reducing the unit price of the Company's TN grade ITO 
coated glass by approximately 50% from the six months ended June 30, 1996 to 
the six months ended June 30, 1997.  In addition, during the first quarter of 
1997, the Company's principal customer began supplying the raw glass and 
paying only for the coating applied by the Company.  Glass cost had been 
approximately 35% of the total unit price.  Since the customer is supplying 
the glass, revenue has been reduced accordingly.  The decreases in per unit 
revenue were partially offset by an increase in the number of units produced 
of approximately 121% during the six months ended June 30, 1997.

     The Company expects the market price for TN grade ITO coated glass will 
begin to recover in the second half of 1997.  The Company is also pursuing 
sales of larger size glass sheets that will provide increased revenue per 
unit for substantially the same coating cost per unit.  The Company also 
expects to continue to expand its productive capacity in 1997 with the 
addition of one or more thin film coating lines.  Based on recent discussions 
with its Asian selling agents and current

                                          7
<PAGE>

customers, management anticipates significant growth in revenue from the sale of
ITO coated glass in 1997 following the addition of productive capacity. During
the third quarter, the Company has negotiated a 17% per unit price increase with
its principal customer. The Company currently has a firm order backlog of
approximately $2.5 million.

      The Company's largest customer accounted for 85% of the Company's revenue
during both of the quarters ended June 30, 1997 and 1996. Based on recent
discussions with this customer, management currently expects the customer's
purchases of ITO coated glass in future periods to increase in comparison to
historical levels as the Company increases its production capacity, although no
long-term purchase commitments exist. As of June 30, 1997, this customer has 
placed firm orders totalling approximately $1.9 million.

GROSS PROFIT (LOSS)

     Gross loss was $ 224,598 for the quarter ended June 30, 1997, compared 
to gross profit of $ 44,029 for the quarter ended June 30, 1996.  The gross 
loss was due to a combination of factors, including the shift to a smaller 
sheet size by the Company's largest customer, loss of margin on glass 
substrates which are now being supplied by the customer, and the market and 
unit price decreases discussed above. Target material expense increased by 
approximately $ 80,000 because the Company was using reprocessed scrap 
material in the second quarter of 1996 which had previously been devalued as 
it was believed to be worthless.  Depreciation expense increased by $61,000 
due to a change in estimate used in computing depreciation.  In addition, the 
Company incurred approximately $120,000 in manufacturing overhead for 
facilities which were not included in cost of sales in 1996. Cost of sales 
consists of substrate costs, target material costs, labor and overhead 
related to the Company's manufacturing operations.

    Gross loss was $ 623,801 for the six months ended June 30, 1997, compared
to gross profit of $ 264,195 for the six months ended June 30, 1996.  The gross
loss was due to a combination of factors, including the shift to a smaller sheet
size by the Company's largest customer, loss of margin on glass substrates which
are now being supplied by the customer, and the market and unit price decreases
discussed above. Target material expense increased by approximately $ 180,000
because the Company was using reprocessed scrap material in the first and second
quarters of 1996.  Depreciation expense increased by $100,000 due to a change in
estimate used in computing depreciation which the Company adopted in the fourth
quarter of 1996.  In addition, the Company incurred approximately $200,000 in
manufacturing overhead for facilities which were not included in cost of sales
in 1996. Cost of sales consists of substrate costs, target material costs, labor
and overhead related to the Company's manufacturing operations.

    The Company expects that the combination of per unit price increases
negotiated with its largest customer, higher margin orders from new customers
and increased production from its new production line will provide positive
gross margins in the second half of 1997.

PROCESS AND PRODUCT DEVELOPMENT

     Process and product development expenses decreased to $ 54,445 for the
quarter ended June 30, 1997 from $ 86,002 for the quarter ended June 30, 1996.
These expenses consisted of personnel costs, consulting, testing, supplies and
depreciation expenses.  The decrease was due primarily to a reduction in
research personnel associated with projects that did not relate to the Company's
core technology or markets.

    Process and product development expenses increased to $ 202,170 for the 
six months ended June 30, 1997 from $ 156,372 for the six months ended June 
30, 1996. The increase was due primarily to costs of projects that did not 
relate to the Company's core technology or markets and were discontinued at 
the end of the first quarter of 1997.

    The Company expects that product and process development expenditures for
new product research and improvements in its core deposition technology will
continue at approximately their current level during the second half of 1997


GENERAL AND ADMINISTRATIVE EXPENSES

     General and administrative expenses increased to $492,403 for the 
quarter ended June 30, 1997 from $ 149,525 for the quarter ended June 30, 
1996.  These expenses consist primarily of compensation expenses for 
administration, finance, and general management personnel, as well as office 
supplies, depreciation, bad debt and professional fees.  The increase is 
primarily a result of professional fees incurred in connection with the 
restatement of the Company's quarterly financial results for 1996 and the 
shareholder lawsuits that were filed as a result, as well as the legal fees 
related to a dispute with the Company's Chinese joint venture partner. 
Additional professional fees will be incurred in the second half of 1997 in 
connection with these matters as well as

                                          8
<PAGE>

certain litigation described in Part II, Item 1. Legal Proceedings, and it is
possible that such fees could be material.

     General and administrative expenses increased to $ 769,021 for the six 
months ended June 30, 1997 from $ 299,716 for the six months ended June 30, 
1996. The increase is primarily a result of professional fees incurred in 
connection with an internal investigation of certain financial and accounting 
irregularities, the restatement of the Company's quarterly financial results 
for 1996 and the shareholder lawsuits that were filed as a result, as well as 
the legal fees related to a dispute with the Company's Chinese joint venture 
partner. Additional professional fees will be incurred in 1997 connection 
with these matters as well as certain litigation described in Part II, Item 
1. Legal Proceedings, and it is possible that such fees could be 
material.

SELLING AND MARKETING

    Selling and marketing expenses decreased to $89,121 for the quarter ended
June 30, 1997 from $101,567 for the quarter ended June 30, 1996.  These expenses
consisted principally of compensation costs for sales personnel, commissions,
travel expenses, trade show expenses, and freight out costs.  The decrease is
due to reduction of sales and customer support staff and decreases in trade show
costs, partially offset by increases in sales commissions paid to independent
sales representatives on sales to new customers.

    Selling and marketing expenses increased to $ 246,488 for the six months 
ended June 30, 1997 from $173,731 for the six months ended June 30, 1996. The 
increase is due primarily to the addition of sales and customer support staff 
and increases in trade show, travel and freight costs for the quarter ended 
March 31, 1997, some of which were curtailed during the second quarter.

OTHER NONRECURRING CHARGES

In the fourth quarter of 1996, the Company's China joint venture partner
notified the Company of its intention to cancel the joint venture agreement and
a related equipment purchase contract with the Company.  In connection with the
cancellation of the equipment purchase contract, the Company determined that
certain equipment which was to have been sold to the joint venture and equipment
that was under development for the Company's use was no longer economically
feasible or did not fit the Company's current manufacturing needs.  This
equipment, which the Company determined had no foreseeable future value, was
written off, resulting in charges to the quarter ended March 31, 1997 of
$110,788.

In addition, the Company determined that as a result of refocusing its
operations, a facility it had been leasing was no longer necessary.  Leasehold
improvements of $34,270 were written off in connection with the termination of
the lease agreement.  Equipment, which was determined to have no future value to
the Company at March 31, 1997, was written down to its fair value, resulting in
an impairment charge of $53,652.

NET INTEREST EXPENSE

    For the quarter ended June 30, 1997, the Company had interest income net 
of interest expense of $47,609 compared to interest expense net of interest 
income of $58,600 for the quarter ended June 30, 1996.  The change was due to 
the earnings from the investment of half of the proceeds from the lease 
financing on the P-1000 line in the first quarter of 1997.  In addition, the 
Company retired substantially all of its outstanding debt in June 1996 after 
its initial public offering.

    For the six months ended June 30, 1997, the Company had interest income 
net of interest expense of $53,332 compared to interest expense net of 
interest income of $203,438 for the six months ended June 30, 1996.  The 
change was due to the earnings from the investment of half of the proceeds 
from the lease financing on the P-1000 line in the first quarter of 1997.  In 
addition, the Company retired substantially all of its outstanding debt in 
June 1996 after its initial public offering.

NET INCOME (LOSS)

    The increase in net loss to $792,450 for the quarter ended June 30, 1997 
compared to the net loss of $423,655 for the quarter ended June 30, 1996 was 
primarily due to the increased professional fees and  the decrease in the 
unit revenues discussed above.

    The increase in net loss to $1,965,550 for the six months ended June 30,
1997 compared to the net loss of $641,052 for the six months ended June 30, 1996
was primarily due to the increased professional fees, the non-recurring charges
and  the decrease in the unit revenues discussed above.


                                          9
<PAGE>

NET OPERATING LOSS CARRYFORWARDS

    In accordance with Section 382 of the Internal Revenue Code of 1986, as
amended (the "Code"), a change in ownership of greater than 50% of the Company
within a three year period results in an annual limitation on the Company's
ability to utilize its net operating loss ("NOL") carryforwards which accrued
during the tax periods prior to the change in ownership.  As of  December 31,
1996, the Company had an NOL carryforward of approximately $6 million, which
expires in 2006 through 2010.  Due to certain ownership changes which occurred
during the year ended December 31, 1993, the NOL carryforwards of $700,000
incurred through February 1993, which can be utilized by the Company on an
annual basis, are limited to approximately $50,000.  The annual limitation may
be increased for any built-in gains recognized within five years of the date of
the ownership change.  Utilization of the approximately $5.3 million of NOL
carryforwards incurred after February 1993 is not limited under Section 382 of
the Code.  However, the Company's ability to use its NOL carryforwards may be
further limited by subsequent issuances of common stock.

CHINA JOINT VENTURE

      In 1994 the Company entered into a joint venture agreement with the
Shenzhen WABO Group Company Limited ("WABO"), of Shenzhen, China.  The agreement
is governed by the laws of the People's Republic of China.  The joint venture
company, known as the Shenzhen Fortune Conductive Glass Company, Ltd.
("Fortune"), was created to produce TN grade ITO coated glass for the Asian
market.

      The Company had agreed to sell to Fortune an ITO glass coating system and
technology limited to the production of  TN grade ITO coated glass for the gross
purchase price of $10,145,000.  The Company had also agreed to provide a royalty
free license to Fortune for the use of certain of the Company's proprietary
technology for the production of TN grade ITO coated glass.  The Company was
obligated to provide 40% of the $11,645,000 total capitalization of the joint
venture.  This 40% contribution, totaling $4,658,000, was deducted from the
gross purchase price of the coating system.  This was to result in the Company
receiving a net purchase price of $5,487,000 for the equipment sold to the joint
venture

      The equipment was originally scheduled to be shipped by November 6, 1995.
The project was delayed for several months due to a delay by WABO in delivering
a required letter of credit and the Company's resulting inability to obtain
working capital financing on a timely basis.  The project schedule was
subsequently extended by mutual agreement between the parties.  WABO failed to
deliver a required extension of the letter of credit on a timely basis, which
further delayed the project and prevented the Company from shipping the
equipment by April 15, 1996.  The Company was subject to certain contractual
penalties for failure to ship by April 15, including the refund of Fortune's
advance of approximately $1.5 million, which amount had been recorded as a
current liability of the Company.  WABO orally agreed to waive these penalties
provided the equipment was shipped no later than June 30, 1996.  The equipment
did not ship by June 30, 1996.

      During the quarter ended December  31, 1996, the Company attempted to
resolve the issues regarding payment of penalties as well as payment for various
technical modifications.  The Company had negotiated with representatives of
WABO and had drafted an amendment to the agreement to resolve these issues.  The
Company was subsequently informed by WABO of their intention to dissolve the
joint venture agreement.

      The Company will keep the glass coating system, and plans to modify and 
install the equipment for its own use.  In the fourth quarter of 1996, the 
Company has recorded an additional liability of approximately $200,000 
related to glass that was provided by WABO for use in testing the system.  In 
April 1997, the Company received notice that arbitration proceedings have 
been commenced against it by WABO, claiming damages of or reimbursement of 
approximately $4.4 million plus legal fees.  This process is still in a very 
early stage, and it is too soon to determine whether the Company will be 
liable for any additional amounts.  It is possible, however, that additional 
amounts due upon final dissolution of the joint venture could have a material 
adverse effect on the financial position and operating results of the Company.

LIQUIDITY AND CAPITAL RESOURCES

      As of June 30, 1997, the Company's principal sources of liquidity 
included cash and cash equivalents of $ 374,644 and net accounts receivable 
of $445,517. The Company believes that its existing sources of liquidity and 
anticipated funds from operations and a pending $1 million private debt 
placement will satisfy the Company' projected working capital and capital 
expenditure requirements for 1997.  The Company has reached an agreement in 
principal with the Chairman of the board of directors to loan the Company $1 
million. Management is, however, also investigating the possibility of 
obtaining working capital financing, although there can be no assurance that 
such financing will be available or be available on terms acceptable to the 
Company.

      The net cash used in operating activities for the six months ended June
30, 1997 and 1996 was $ 1,412,767 and $2,110,660 respectively. This decrease was
due principally to the $1.8 million in expenditures on equipment held for sale


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<PAGE>

which is now classified as equipment purchases as the Company will now keep 
the machine it was previously holding for sale. This decrease in 1997 is 
partially offset by a larger net loss than in 1996.

      In 1996, the Company entered into an agreement to sell ITO coating
equipment to its largest customer for a total contract price of $2,916,500.  The
Company received a down payment of $500,000 which is recorded as a customer
advance at June 30, 1997.  Delivery of the equipment was originally scheduled
for the fourth quarter of 1996. During the second quarter of 1997, the Company
reached an agreement with the customer whereby the Company will keep the
equipment and refund the deposit previously received via a per-unit credit
against future glass purchases.

      Cash used in investing activities was $ 4,512,656 for the six months 
ended June 30, 1997 compared to $ 2,397,419 for the six months ended June 30, 
1996. In both periods this cash was used for the purchase of equipment and 
leasehold improvements.  This increase in 1997 was due to the purchase of 
$2,250,000 in restricted investments resulting from the Company's $4,500,000 
sale-leaseback of the coating equipment that was originally intended to be 
sold to Fortune. These investments are required to be retained by the Company 
for the term of the lease. Thus these funds are not available for use by the 
Company.

      Cash flows from financing activities of  $ 4,261,112 for six months ended
June 30, 1997 consisted primarily of  $4,500,000 in proceeds from the Company's
sale-leaseback for the coating equipment that was originally intended to be sold
to Fortune.  Under the terms of the agreement, which will be treated as a
financing transaction, the Company received proceeds of $4,500,000 of which
$2,250,000 is restricted and $2,250,000 is available to the Company.

OTHER FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS

       The Company's future operating results may fluctuate significantly 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, changes in the level of operating expenses, inventory obsolescence and
asset impairments, 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, and general economic
conditions.  All of the above factors are difficult for the Company to forecast,
and these and other factors may materially adversely affect the Company's
business and operating results for one quarter or a series of quarters. The
Company's current 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 financial condition
and operating results.


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<PAGE>

PART II.  OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

    During the quarter ended December 31, 1996, the Company was informed by 
WABO of their intention to dissolve the joint venture agreement and cancel 
the related equipment purchase contract.  In April 1997, the Company received 
notice that arbitration proceedings have been commenced against it by WABO in 
Shenzhen, China claiming approximately $4.4 million plus legal fees and 
costs.  This process is still in a very early stage, and it is too soon to 
determine whether the Company will be liable for any additional amounts 
beyond the return of amounts which are recorded as customer advances.   It is 
possible that additional amounts due upon final dissolution of this agreement 
could be material to the financial position and operating results of the 
Company.

    In connection with the coating equipment that the Company was building for
sale to Fortune, the Company entered into a contract with a third party to
design and build power supplies to be sold under the equipment contract, as well
as for the Company's own use.  The third party has asserted that the Company is
liable to it for various costs incurred in connection with the production of the
power supplies and has demanded payment of $240,000 in addition to amounts the
Company has already paid under the contract.  Due to various defects in the
contract as well as the third party's failure to perform its obligations, the
Company has rescinded the contract and demanded that the third-party refund all
monies paid to it by the Company.  Management, in consultation with the
company's legal counsel, is of the opinion that the Company has valid defenses
against the claims asserted by the third party.  However, it is possible that
the Company will be liable for amounts in addition to those already paid under
the contract.  Such amounts could be material but the Company is unable to
estimate what amounts, if any, will be ultimately paid.

    The Securities and Exchange Commission (SEC) has informed the Company that
it is conducting a formal investigation with respect to certain financial and
accounting irregularities announced by the Company in March 1997 relating to
fiscal 1996. The investigation is in the preliminary stages and it is impossible
to determine what impact, if any, the investigation will have on the Company's
financial condition or results of operations.

    In May of 1997 the company was served with two separate lawsuits against 
the Company, certain officers and directors of the Company and the Company's 
former president. These lawsuits were filed by certain purchasers of the 
Company's common stock alleging that the Company's actions with respect to 
the financial and accounting irregularities announced by the Company in March 
of 1997 artificially inflated its stock price between May 29, 1996 and March 
24, 1997. The plaintiffs in these actions are seeking class certification.

     Both suits were filed in the United States District Court for the 
district in Minnesota. In July of 1997 the court consolidated these lawsuits 
into a single action captioned IN RE PHOTRAN CORPORATION SECURITIES 
LITIGATION. The Company has not yet formally responded to this lawsuit, and 
it is not possible at this time to determine what impact, if any, this 
lawsuit will have on the Company's financial position or results of 
operations.

ITEM 6.

 a.  Exhibits

     11.   Computation of Net Loss per Share

     27.   Financial Data Schedule

 b.  Reports on Form 8-K

     None.


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<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.





                                       /s/ Paul T. Fink
Dated August 15, 1997              ----------------------------
                                       Paul T. Fink, President
                                       Chief Executive Officer, Treasurer,
                                       Secretary and Director

                                       /s/ Judith E. Tucker
                                   ----------------------------
                                       Judith E. Tucker,
                                       Vice President for Finance and
                                       Administration, Chief Financial Officer


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<PAGE>

                                    EXHIBIT INDEX

EXHIBIT                                                                   PAGE
NUMBER                                                                   NUMBER

11       Computation of Net Loss per Share                                15

27       Financial Data Schedule                                          16


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