<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 June 30, 1995
or -------------------
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the transition period from
to -------------------
-------------------
Commission File Number 0-12742
---------------------------------------------------------
SPIRE CORPORATION
--------------------------------------------------------------------------------
Exact name of registrant as specified in its charter
Massachusetts 04-2457335
--------------------------------------------------------------------------------
State or other jurisdiction (I.R.S. Employer
of incorporation or organization Identification No.)
One Patriots Park, Bedford, Massachusetts 01730-2396
--------------------------------------------------------------------------------
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
--- ---
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: As of July 31, 1995, there
were outstanding 3,065,200 shares of the issuer's common stock, $.01 par value.
<PAGE> 2
<TABLE>
SPIRE CORPORATION
INDEX
<CAPTION>
Page Number
-----------
<S> <C>
PART I - FINANCIAL INFORMATION
------------------------------
Condensed Consolidated Balance Sheets 3
June 30, 1995 and December 31, 1994
Condensed Consolidated Statements of Operations 4
For the Three Months Ended June 30, 1995 and 1994 and
For the Six Months Ended June 30, 1995 and 1994
Condensed Consolidated Statements of Cash Flows 5
For the Six Months Ended June 30, 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
---------------------------
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>
June 30, December 31,
1995 1994
------------- -------------
(Unaudited)
<S> <C> <C>
Current assets:
--------------
Cash $ 222,717 $ 166,567
Accounts receivable:
Amounts billed 2,292,840 3,136,544
Retainage 133,708 143,614
Unbilled costs 680,564 701,468
----------- -----------
3,107,112 3,981,626
----------- -----------
Less allowance for doubtful accounts 95,000 45,000
----------- -----------
Net accounts receivable 3,012,112 3,936,626
----------- -----------
Inventories (Note 2) 796,974 888,747
Prepaid expenses and other current assets 290,862 411,816
----------- -----------
Total current assets 4,322,665 5,403,756
----------- -----------
Property and equipment 21,767,615 21,590,475
Less accumulated depreciation and amortization 16,758,924 16,134,705
----------- -----------
Net property and equipment 5,008,691 5,455,770
----------- -----------
Computer software costs (less accumulated amortization,
$780,343 in 1995 and $776,524 in 1994) 26,471 26,381
Patents (less accumulated amortization,
$347,568 in 1995 and $319,060 in 1994) 508,097 475,015
Other assets 298,711 378,745
----------- -----------
833,279 880,141
----------- -----------
$10,164,635 $11,739,667
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
-------------------
Note payable - Bank $ 0 $ 750,000
Current portion of capital lease obligation 13,717 47,838
Accounts payable 1,146,065 1,788,215
Accrued liabilities 691,426 890,532
Advances on contracts in progress 275,087 229,710
----------- -----------
Total current liabilities 2,126,295 3,706,295
Capital lease obligation, net of current portion 9,635 9,635
------------------------------------------------
Stockholders' equity:
--------------------
Common Stock, $.01 par value; shares authorized
6,000,000; issued 3,560,360 shares in 1995 and
3,559,860 shares in 1994 35,604 35,604
Additional paid-in capital 8,468,903 8,468,903
Retained earnings 568,261 563,293
----------- -----------
9,072,768 9,067,800
Treasury stock at cost, 495,160 shares in 1995 and 1994 1,044,063 1,044,063
----------- -----------
Total stockholders' equity 8,028,705 8,023,737
----------- -----------
$10,164,635 $11,739,667
=========== ===========
</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 June 30, Six Months Ended June 30,
--------------------------- -------------------------
1995 1994 1995 1994
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales and revenues:
----------------------
Contract research and service revenues $3,355,067 $3,632,230 $6,813,682 $7,585,958
Sales of manufacturing equipment 1,303,563 623,891 2,428,170 1,296,316
---------- ---------- ---------- ----------
4,658,630 4,256,121 9,241,852 8,882,274
---------- ---------- ---------- ----------
Costs and expenses:
------------------
Cost of contract research and service 2,412,826 2,796,624 4,875,214 5,731,460
Cost of manufacturing equipment 1,150,212 394,238 2,144,979 725,322
Research and development expenses 1,018 49,692 (176) 71,052
Selling, general and administrative expenses 1,071,871 1,296,507 2,178,693 2,551,129
---------- ---------- ---------- ----------
4,635,927 4,537,061 9,198,710 9,078,963
---------- ---------- ---------- ----------
Earnings (loss) from operations 22,703 (280,940) 43,142 (196,689)
-------------------------------
Interest expense, net 20,540 32,037 38,174 56,477
---------- ---------- ---------- ----------
Earnings (loss) before income taxes 2,163 (312,977) 4,968 (253,166)
Income tax expense/(benefit) 0 (18,000) 0 --
---------- ---------- ---------- ----------
Net earnings (loss) $ 2,163 $ (294,977) $ 4,968 $ (253,166)
========== ========== ========== ===========
Earnings (loss) per share of Common Stock $ 0.00 $ (0.10) $ 0.00 $ (0.08)
----------------------------------------- ========== ========== ========== ===========
Weighted average number of common and
common equivalent shares outstanding 3,065,722 3,065,200 3,068,394 3,064,852
</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>
Six Months Ended June 30,
----------------------------------
1995 1994
--------------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings (net loss) $ 4,968 $ (253,166)
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 672,823 673,672
Changes in assets and liabilities:
Accounts receivable 924,514 1,399,389
Inventories 91,773 (76,635)
Prepaid expense and other current assets 120,954 (191,293)
Accounts payable and accrued liabilities (841,256) (205,430)
Advances on contracts in progress 45,377 426,557
----------- -----------
Net cash used for operating activities 1,019,153 1,773,094
----------- -----------
Cash flows from investing activities:
Additions to property and equipment (177,140) (993,052)
Increase in patent costs (61,590) (8,299)
Other assets 59,848 (187,522)
----------- -----------
Net cash used for investing activities (178,882) (1,188,873)
----------- -----------
Cash flows from financing activities:
Net payments on short-term debt (750,000) --
Payments on long-term borrowing (34,121) (536,263)
Exercise of stock options 0 1,250
----------- -----------
Net cash used for financing activities (784,121) (535,013)
----------- -----------
Net increase in cash and cash equivalents 56,150 49,208
Cash, beginning of period 166,567 46,543
----------- -----------
Cash, end of period $ 222,717 $ 95,751
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the quarter for:
Interest expense $ 38,174 $ 29,789
=========== ===========
Income taxes $ 0 $ 0
=========== ===========
</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 June 30, 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 June 30, 1995 and
December 31, 1994 and the results of operations and changes in cash flows
for the six months ended June 30, 1995 and 1994. The results of
operations for the six months ended June 30, 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.
(2) Inventories
-----------
<TABLE>
<CAPTION>
Inventories consist of the following: June 30, December 31,
1995 1994
----------- ------------
(Unaudited)
<S> <C> <C>
Raw materials $411,588 $400,519
Work in process 385,386 488,228
-------- --------
$796,974 $888,747
======== ========
</TABLE>
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<PAGE> 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS OF OPERATIONS.
----------------------
Results of Operations
---------------------
Net sales and revenues for the quarter ended June 30, 1995 increased 9% to
$4,659,000 compared to $4,256,000 for the quarter ended June 30, 1994. For the
quarter ended June 30, 1995, the Company had net earnings of $2,000 compared to
a net loss of $295,000 for the quarter ended June 30, 1994. Retained earnings
were $568,000 as of June 30, 1995 compared to $563,000 as of December 31, 1994.
Working capital as of June 30, 1995 was $2,196,000 compared to $1,697,000 as of
December 31, 1994.
<TABLE>
<CAPTION>
June 30, June 30, %
Revenues for the quarter ended: 1995 1994 Change
------------------------------ -------------- ------------- ------
<S> <C> <C> <C>
Contract research and service revenues $3,355,000 $3,632,000 (8%)
Manufacturing equipment sales 1,304,000 624,000 109%
---------- -----------
Net sales and revenues $4,659,000 $4,256,000 9%
========== ==========
</TABLE>
<TABLE>
<CAPTION>
June 30, June 30, %
Revenues for the six months ended: 1995 1994 Change
--------------------------------- -------------- ------------- ------
<S> <C> <C> <C>
Contract research and service revenues $6,814,000 $7,586,000 (10%)
Manufacturing equipment sales 2,428,000 1,296,000 87%
---------- -----------
Net sales and revenues $9,242,000 $8,882,000 4%
========== ==========
</TABLE>
Net sales and revenues for contract research and services declined 16% in 1995
to $3,355,000 compared to $3,632,000 in 1994. 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 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 increased 103% to
$1,304,000 compared to $624,000 in the same period of 1994 primarily due to
increased interest in photovoltaic lines.
<TABLE>
<CAPTION>
June 30, % of June 30, % 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 $2,413,000 72% $2,797,000 77% (5%)
Manufacturing equipment
cost of sales 1,150,000 88% 394,000 63% 25%
---------- ----------
Total cost of sales $3,563,000 76% $3,191,000 75% 1%
========== ==========
</TABLE>
<TABLE>
<CAPTION>
June 30, % of June 30, % of %
Cost of Sales for the six months ended: 1995 Revenues 1994 Revenues Change
-------------------------------------- ---------- -------- ---------- -------- ------
<S> <C> <C> <C> <C> <C>
Contract research and service
cost of sales $4,875,000 72% $5,732,000 76% (4%)
Manufacturing equipment
cost of sales 2,145,000 88% 725,000 56% 32%
---------- ----------
Total cost of sales $7,020,000 76% $6,457,000 73% 3%
========== ==========
</TABLE>
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<PAGE> 8
The cost of contract research and service revenues decreased to 72% for the six
months ended June 30, 1995 compared to 76% for the six months ended June 30,
1994. The decrease in cost of research and service sales is attributable to
cost reduction steps management implemented in 1994 and 1995. Cost of
manufacturing equipment was 88% compared to 56% for the six months ended June
30, 1994. Cost of manufacturing equipment was lower in the prior year
primarily due to the sale of a photovoltaic module line including technology
transfer.
Selling, general and administrative expenses for the six months ended June 30,
1995 were 24% of sales compared to 29% of sales for the six months ended June
30, 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 expenses for the
six months ended June 30, 1995 decreased .2% to $673,000 compared to $674,000
in 1994. Expenditures for capital equipment were $177,000 for the six months
ended June 30, 1995 compared to $993,000 for the six months ended June 30,
1994. Management continues on its efforts to control capital spending. The
Company incurred interest expense of $38,000 in the first six months of 1995
and $70,000 in the same period of 1994, of which $500 was capitalized in 1995
compared to $14,000 in 1994 in connection with internally constructed machinery
and equipment.
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 is 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 June 30, 1995, the Company had
no outstanding balance 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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<PAGE> 9
PART II - OTHER INFORMATION
---------------------------
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
June 30, 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 11 August 1995
---------------------------------- -----------------
Roger G. Little Date
President & CEO and
Chairman of the Board
By: /s/ Richard S. Gregorio 11 August 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 THE
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS AND STATEMENTS OF OPERATION ON
FORM 10Q-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> APR-01-1995
<PERIOD-END> JUN-30-1995
<EXCHANGE-RATE> 1
<CASH> 222,717
<SECURITIES> 0
<RECEIVABLES> 3,107,112
<ALLOWANCES> 95,000
<INVENTORY> 796,974
<CURRENT-ASSETS> 4,322,665
<PP&E> 21,767,615
<DEPRECIATION> 16,758,924
<TOTAL-ASSETS> 10,164,635
<CURRENT-LIABILITIES> 2,126,295
<BONDS> 0
<COMMON> 35,604
0
0
<OTHER-SE> 8,468,903
<TOTAL-LIABILITY-AND-EQUITY> 10,164,635
<SALES> 0
<TOTAL-REVENUES> 4,658,630
<CGS> 0
<TOTAL-COSTS> 3,563,038
<OTHER-EXPENSES> 1,072,889
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 20,540
<INCOME-PRETAX> 2,163
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,163
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,163
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
