<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended March 31, 1995
-----------------------------------------
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
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Commission File Number 0-12742
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SPIRE CORPORATION
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Exact name of registrant as specified in its charter
Massachusetts 04-2457335
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State or other jurisdiction (I.R.S. Employer
of incorporation or organization Identification No.)
One Patriots Park, Bedford, Massachusetts 01730-2396
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Address of principal executive offices Zip Code
Registrant's telephone number, including area code: 617-275-6000
----------------------------
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
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
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State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: As of April 30, 1995, there
were outstanding 3,065,200 shares of the issuer's common stock, $.01 par value.
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<TABLE>
SPIRE CORPORATION
INDEX
<CAPTION>
Page Number
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<S> <C>
PART I - FINANCIAL INFORMATION
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Condensed Consolidated Balance Sheets 3
March 31, 1995 and December 31, 1994
Condensed Consolidated Statements of Operations 4
For the Three Months Ended March 31, 1995 and 1994
Condensed Consolidated Statements of Cash Flows 5
For the Three Months Ended March 31, 1995 and 1994
Notes to Condensed Consolidated Financial Statements 6
Management's Discussion and Analysis of Financial 7 & 8
Condition and Results of Operations
PART II - OTHER INFORMATION
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Item 1. Legal Proceedings. 9
Item 6. Exhibits and Reports on Form 8-K. 9
</TABLE>
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<TABLE>
SPIRE CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
------
<CAPTION>
March 31, December 31,
1995 1994
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(Unaudited)
<S> <C> <C>
Current assets:
- ---------------
Cash $ 2,682 $ 166,567
Accounts receivable:
Amounts billed 3,373,646 3,136,544
Retainage 143,614 143,614
Unbilled costs 613,682 701,468
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4,130,942 3,981,626
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Less allowance for doubtful accounts 45,000 45,000
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Net accounts receivable 4,085,942 3,936,626
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Inventories (Note 2) 974,506 888,747
Prepaid expenses and other current assets 404,107 411,816
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Total current assets 5,467,237 5,403,756
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Property and equipment 21,692,697 21,590,475
Less accumulated depreciation and amortization 16,448,864 16,134,705
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Net property and equipment 5,243,833 5,455,770
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Computer software costs (less accumulated amortization,
$778,708 in 1995 and $776,524 in 1994) 27,030 26,381
Patents (less accumulated amortization,
$333,313 in 1995 and $319,060 in 1994) 482,800 475,015
Other assets 368,293 378,745
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878,123 880,141
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$11,589,193 $11,739,667
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LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
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Note payable - Silicon Valley Bank $ 925,000 $ 750,000
Current portion of capital lease obligation 30,869 47,838
Accounts payable 993,010 1,788,215
Accrued liabilities 1,166,232 890,532
Advances on contracts in progress 437,906 229,710
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Total current liabilities 3,553,017 3,706,295
Capital lease obligation, net of current portion 9,635 9,635
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Stockholders' equity:
- ----------------------
Common Stock, $.01 par value; shares authorized
6,000,000; issued 3,560,360 shares in 1995 and 1994 35,604 35,604
Additional paid-in capital 8,468,903 8,468,903
Retained earnings 566,097 563,293
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9,070,604 9,067,800
Treasury stock at cost, 495,160 shares in 1995 and 1994 1,044,063 1,044,063
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Total stockholders' equity 8,026,541 8,023,737
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$11,589,193 $11,739,667
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</TABLE>
See accompanying notes to consolidated financial statements.
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<TABLE>
SPIRE CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<CAPTION>
Three Months Ended March 31,
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1995 1994
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<S> <C> <C>
Net sales and revenues:
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Contract research and service revenues $3,458,614 $3,984,773
Sales of manufacturing equipment 1,124,607 641,380
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4,583,221 4,626,153
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Costs and expenses:
- -------------------
Cost of contract research and service 2,462,878 2,934,836
Cost of manufacturing equipment 994,276 331,084
Research and development expenses (1,193) 21,360
Selling, general and administrative expenses 1,106,822 1,254,622
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4,562,783 4,541,902
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Earnings from operations 20,438 84,251
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Interest expense, net 17,634 24,440
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Earnings before income taxes 2,804 59,811
Income tax expense -- 18,000
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Net earnings $ 2,804 $ 41,811
========== ==========
Earnings per share of Common Stock $ 0.00 $ 0.01
- ---------------------------------- ========== ==========
Weighted average number of common and
common equivalent shares outstanding 3,066,166 3,086,633
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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<TABLE>
SPIRE CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
Three Months Ended March 31,
----------------------------
1995 1994
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<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 2,804 $ 41,811
Adjustments to reconcile net earnings to
net cash (used for) provided by operating activities:
Depreciation and amortization 338,811 335,942
Changes in assets and liabilities:
Accounts receivable (149,316) (122,238)
Inventories (85,759) 31,820
Prepaid expense and other current assets 7,709 (91,393)
Accounts payable and accrued liabilities (519,505) (484,017)
Federal and State taxes payable 0 18,000
Advances on contracts in progress 208,196 67,973
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Net cash used for operating activities (197,059) (202,102)
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Cash flows from investing activities:
Additions to property and equipment (102,222) (328,546)
Increase in patent costs (22,038) (11,587)
Other assets (596) (43,228)
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Net cash used for investing activities (124,856) (383,361)
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Cash flows from financing activities:
Net borrowings on short-term debt 175,000 900,000
Payments on long-term borrowing (16,969) (277,252)
Exercise of stock options 0 1,250
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Net cash provided by financing activities 158,031 623,998
Net increase (decrease) in cash and cash equivalents (163,884) 38,535
Cash, beginning of period 166,567 46,543
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Cash, end of period $ 2,682 $ 85,078
========== =========
Supplemental disclosures of cash flow information:
Cash paid during the quarter for:
Interest expense $ 17,634 $ 28,422
========== =========
Income taxes $ 0 $ 138,000
========== =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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SPIRE CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Three Months Ended March 31, 1995 and 1994
(1) Interim Financial Statements
----------------------------
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements contain all adjustments necessary to
fairly present the Company's financial position as of March 31, 1995 and
December 31, 1994 and the results of operations and changes in cash
flows for the three months ended March 31, 1995 and 1994. The results of
operations for the three months ended March 31, 1995 are not necessarily
indicative of the results to be expected for the fiscal year ended
December 31, 1995.
The accounting policies followed by the Company are set forth in Note 2 to
the Company's consolidated financial statements in its Annual
Report on Form 10-KSB for the year ended December 31, 1994.
The financial statements, with the exception of the December 31, 1994
balance sheet, are unaudited and have not been examined by independent
public accountants.
<TABLE>
(2) Inventories
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<CAPTION>
Inventories consist of the following: March 31, December 31,
1995 1994
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(Unaudited)
<S> <C> <C>
Raw materials $435,774 $400,519
Work in process 538,732 488,228
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$974,506 $888,747
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</TABLE>
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- ------------------------------------------------------------------------
RESULTS OF OPERATIONS.
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<TABLE>
Results of Operations
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Net sales and revenues for the quarter ended March 31, 1995 decreased 1% to
$4,583,000 compared to $4,626,000 for the quarter ended March 31, 1994. For the
quarter ended March 31, 1995, the Company had net earnings of $2,800 compared to
$42,000 for the quarter ended March 31, 1994. Retained earnings were $566,000
as of March 31, 1995 compared to $563,000 as of December 31, 1994. Working
capital as of March 31, 1995 was $1,914,000 compared to $1,697,000 as of
December 31, 1994.
<CAPTION>
March 31, March 31, %
Revenues for the quarter ended: 1995 1994 Change
- ------------------------------- ---------- ---------- ------
<S> <C> <C> <C>
Contract research and service revenues $3,459,000 $3,985,000 (13%)
Manufacturing equipment sales 1,124,000 641,000 75%
---------- ----------
Net sales and revenues $4,583,000 $4,626,000 (1%)
========== ==========
</TABLE>
Net sales and revenues for contract research and services decreased during the
quarter. The decline in contract revenues is largely the result of the
government's move toward programs requiring significant cost sharing, which
management has elected to pursue cautiously. The Company's laser
operation has experienced manufacturing difficulties resulting in lower
revenues. The orthopaedic processing service business has experienced price
pressures due to competition and changes in the health care market which have
negatively affected revenues and margins. Manufacturing equipment sales were
up, primarily due to increased interest in photovoltaic lines.
<TABLE>
<CAPTION>
March 31, % of March 31, % of %
Cost of Sales for the quarter ended: 1995 Revenues 1994 Revenues Change
- ------------------------------------ ---------- -------- ---------- -------- ------
<S> <C> <C> <C> <C> <C>
Contract research and service
cost of sales $2,463,000 71% $2,934,000 74% (3%)
Manufacturing equipment
cost of sales 994,000 88% 331,000 52% 36%
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Total cost of sales $3,457,000 75% $3,265,000 71% 4%
========== ==========
</TABLE>
The cost of contract research and service revenues decreased to 71% for the
three months ended March 31, 1995 compared to 74% for the three months ended
March 31, 1994. The decrease in cost of research and service sales is
attributed to cost reduction steps management implemented in 1994 and 1995.
Cost of manufacturing equipment was 88% compared to 52% for the three months
ended March 31, 1994. Cost of manufacturing equipment was lower during the
first quarter of 1994 primarily due to a sale of a photovoltaic module line
including technology transfer.
Selling, general and administrative expenses for the three months ended
March 31, 1995 were 24% of sales compared to 27% of sales for the three months
ended March 31, 1994. The decrease in selling, general and administrative
expenses as a percentage of sales is attributable to cost reduction steps
management implemented in 1994 and 1995. Depreciation and amortization expense
s for the three months ended March 31, 1995 increased 1% to $339,000 compared
to $336,000 in 1994. Expenditures for capital equipment were $102,000 for the
three months ended March 31, 1995 compared to $329,000 for the three months
ended March 31, 1994. The Company incurred interest expense of $18,000 in the
first three months of 1995 and $28,000 in the same period of 1994, of which
zero was capitalized in 1995 compared to $3,800 in 1994 in connection with
internally constructed machinery and equipment.
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Liquidity and Capital Resources
- -------------------------------
On September 30, 1993, the Company entered into a revolving credit facility with
a bank. This agreement established a $2 million revolving credit agreement,
subject to the availability of eligible accounts receivable. This line of
credit has been established to provide the Company with resources for general
working capital purposes and Standby Letter of Credit guarantees for foreign
customers. The loan has been secured by all assets of the Company. This loan
has now been extended through April 5, 1996. Interest on the loan is now at the
prime rate. The note contains restrictive covenants including provisions
relating to profitability and net worth. As of March 31, 1995, the Company had
an outstanding balance of $925,000 under this revolving credit line.
The Company believes it has sufficient resources to finance its anticipated
capital expenditures through working capital, existing lines of credit or
available lease arrangements.
Impact of Inflation and Changing Prices
- ---------------------------------------
Historically, the Company's business has not been materially impacted by
inflation. Manufacturing equipment sales are generally quoted, manufactured and
shipped within a cycle of less than six months, allowing for orderly pricing
adjustments to the cost of labor and purchased parts. The Company has not
experienced any negative effects from the impact of inflation on long-term
contracts. The Company's service business is not expected to be seriously
affected by inflation, with typically a two-week to several month
procurement-production cycle and prices generally not fixed for more than one
year. Contracted research and development usually includes cost escalation
provisions.
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PART II - OTHER INFORMATION
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ITEM 1. LEGAL PROCEEDINGS.
- ---------------------------
In May, 1985, Electronic Space Systems Corporation ("ESSCO") filed suit against
the Company in the Commonwealth of Massachusetts, Middlesex County, Civil Action
No. 85-3126. ESSCO sought to recover for, INTER ALIA, alleged breach of
contract, breach of implied covenant of good faith and fair dealing, breach of
fiduciary duty and for alleged unfair or deceptive acts or practices in
violation of Massachusetts General Laws Chapter 93A ("M.G.L. Ch. 93A") in
connection with ESSCO's allegation that the Company wrongfully repudiated
certain contractual obligations and a partnership agreement for the marketing of
photovoltaic products in the People's Republic of China and certain other
markets. The Company filed an answer denying liability to ESSCO and also filed
counterclaims against ESSCO alleging, INTER ALIA, ESSCO's breach of contract,
misrepresentation, breach of fiduciary duty, tortious interference with the
Company's contracts, interference with the Company's advantageous business
relationships and unfair or deceptive practices in violation of M.G.L. Ch. 93A
and seeking a declaratory judgment that certain agreements between the Company
and ESSCO relating to the marketing of photovoltaic products are void. The
trial to determine the liability of the parties commenced on March 11, 1992, and
on March 27, 1992, the jury returned a verdict that, INTER ALIA, each party had
breached various obligations to the other. Various post-trial motions by both
parties were rejected in all material respects by the Court.
A trial to assess the compensation due as a result of the liability
determinations made by the first jury was held from September 27, 1993 to
October 15, 1993. The Company was awarded compensation on one claim; ESSCO's
previously agreed upon base compensation was reduced by the full amount of the
Company's counterclaim on a second issue; and the jury was unable to reach a
verdict on the third issue, involving ESSCO's misuse of the Company's
proprietary information. The Company intends to pursue vigorously its claim for
damages resulting from ESSCO's misuse of the Company's proprietary information.
A retrial date has not yet been established. The net result of the two trials
to date is that neither party has a material liability to the other, although
the Company's claim for damages resulting from ESSCO's misuse of the Company's
proprietary information and the parties' M.G.L. Ch. 93A claims against each
other have yet to be decided. A hearing on the M.G.L. Ch. 93A issues was held
in December 1993, but the Court has not yet ruled on those issues. Based on the
proceedings to date and discussion with legal counsel, the Company believes that
the outcome of this matter will not have a material negative effect on the
Company's financial position and results of operations but may have a positive
impact.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
- ------------------------------------------
A. Exhibits - No exhibits have been included.
B. The Company filed no reports on Form 8-K during the quarter ended
March 31, 1995.
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<PAGE> 10
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
SPIRE CORPORATION
(Registrant)
By: /s/ Roger G. Little May 10, 1995
------------------------- ----------------
Roger G. Little Date
President & CEO and
Chairman of the Board
By: /s/ Richard S. Gregorio May 10, 1995
------------------------- ----------------
Richard S. Gregorio Date
Vice President & CFO, Treasurer,
Assistant Clerk and Principal
Accounting Officer
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM UNAUDITED
CONDENSED CONSOLIDATED BALANCE SHEETS AND STATEMENTS OF OPERATION ON FORM
10-Q-SB AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10Q-SB
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<EXCHANGE-RATE> 1
<CASH> 2,682
<SECURITIES> 0
<RECEIVABLES> 4,130,942
<ALLOWANCES> 45,000
<INVENTORY> 974,506
<CURRENT-ASSETS> 5,467,237
<PP&E> 21,692,697
<DEPRECIATION> 16,448,864
<TOTAL-ASSETS> 11,589,193
<CURRENT-LIABILITIES> 3,553,017
<BONDS> 0
<COMMON> 35,604
0
0
<OTHER-SE> 7,990,937
<TOTAL-LIABILITY-AND-EQUITY> 8,026,541
<SALES> 0
<TOTAL-REVENUES> 4,583,221
<CGS> 0
<TOTAL-COSTS> 3,457,154
<OTHER-EXPENSES> 1,105,629
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 17,634
<INCOME-PRETAX> 2,804
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,804
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,804
<EPS-PRIMARY> .00
<EPS-DILUTED> .00
</TABLE>
