<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 (fee required) For the quarterly period ended September 30, 1996
------------------
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (no fee required) For the transition period
from to
------- -------
Commission file number 0-12742
---------------------------------------------------------
SPIRE CORPORATION
- --------------------------------------------------------------------------------
Exact name of small business issuer in its charter
Massachusetts 04-2457335
- --------------------------------------------------------------------------------
State or other jurisdiction of I.R.S. employer
incorporation or organization identification number
One Patriots Park, Bedford, Massachusetts 01730-2396
- --------------------------------------------------------------------------------
Address of principal executive offices Zip code
Issuer's telephone number 617-275-6000
------------------------------------------------------
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act 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. There were 3,020,025 shares of the
issuer's only class of common equity, Common Stock, $0.01 par value, on October
31, 1996.
Transitional Small Business Disclosure Format (check one) Yes No X
--- ---
<PAGE> 2
SPIRE CORPORATION
INDEX
PART I - FINANCIAL INFORMATION Page Number
- ------------------------------ -----------
Condensed Consolidated Balance Sheets 3
September 30, 1996 and December 31, 1995
Condensed Consolidated Statements of Operations 4
For the Three Months Ended September 30, 1996 and 1995 and
For the Nine Months Ended September 30, 1996 and 1995
Condensed Consolidated Statements of Cash Flows 5
For the Nine Months Ended September 30, 1996 and 1995
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
2
<PAGE> 3
<TABLE>
SPIRE CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
------
<CAPTION>
September 30, December 31,
1996 1995
----------- -----------
<S> <C> <C>
Current assets:
- ---------------
Cash and cash equivalents $ 241,872 $ 1,130,428
Accounts receivable:
Amounts billed 2,023,745 2,401,536
Retainage 78,553 97,350
Unbilled costs 626,757 449,188
----------- -----------
2,729,055 2,948,074
Less allowance for doubtful accounts 50,000 95,000
----------- -----------
Net accounts receivable 2,679,055 2,853,074
----------- -----------
Inventories (Note 2) 945,046 1,126,734
Prepaid expenses and other current assets 659,577 369,483
----------- -----------
Total current assets 4,525,550 5,479,719
----------- -----------
Property and equipment 22,527,152 21,980,123
Less accumulated depreciation and amortization 18,074,225 17,330,271
----------- -----------
Net property and equipment 4,452,927 4,649,852
----------- -----------
Computer software costs (less accumulated amortization,
$812,222 in 1996 and $786,862 in 1995) 174,998 36,719
Patents (less accumulated amortization,
$413,713 in 1996 and $376,076 in 1995) 492,425 518,087
Other assets 267,166 260,053
----------- -----------
934,589 814,859
----------- -----------
$ 9,913,066 $10,944,430
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
- --------------------
Current portion of capital lease obligation $ 2,782 $ 10,401
Accounts payable 1,431,919 1,494,877
Accrued liabilities 523,708 789,153
Advances on contracts in progress 774,465 755,756
----------- -----------
Total current liabilities 2,732,874 3,050,187
Stockholders' equity:
- ---------------------
Common Stock, $.01 par value; shares authorized
6,000,000; issued 3,567,185 shares in 1996 and
3,560,360 shares in 1995 35,670 35,604
Additional paid-in capital 8,491,068 8,468,903
Retained earnings (147,483) 564,424
----------- -----------
Treasury stock at cost, 544,660 shares in 1996
and 537,160 shares in 1995 1,199,063 1,174,688
----------- -----------
Total stockholders' equity 7,180,192 7,894,243
----------- -----------
$ 9,913,066 $10,944,430
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE> 4
<TABLE>
SPIRE CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
-------------------------------- -------------------------------
1996 1995 1996 1995
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales and revenues:
- -----------------------
Contract research and service revenues $2,826,892 $3,260,683 $ 8,384,894 $10,074,365
Sales of manufacturing equipment 1,385,633 1,014,441 4,154,583 3,442,611
---------- ---------- ----------- -----------
Total sales and revenues 4,212,525 4,275,124 12,539,477 13,516,976
---------- ---------- ----------- -----------
Costs and expenses:
- -------------------
Cost of contract research and services 1,955,318 2,247,203 5,902,490 7,121,052
Cost of manufacturing equipment 1,576,976 847,147 3,977,156 2,993,315
Selling, general and administrative expenses 1,148,582 1,079,650 3,377,481 3,258,343
---------- ---------- ----------- -----------
Total costs and expenses 4,680,876 4,174,000 13,257,127 13,372,710
---------- ---------- ----------- -----------
Earnings (loss) from operations (468,351) 101,124 (717,650) 144,266
- -------------------------------
Interest income (expense), net (3,406) 7,468 12,514 (30,706)
---------- ---------- ----------- -----------
Earnings (loss) before income taxes (471,757) 108,592 (705,136) 113,560
Income tax expense (benefit) (6,773) 47,700 (6,773) 47,700
---------- ---------- ----------- -----------
Net earnings (loss) $ (478,530) $ 60,892 $ (711,909) $ 65,860
- ------------------- ========== ========== =========== ===========
Earnings (loss) per share of common stock $ (0.16) $ 0.02 $ (0.24) $ 0.02
- ----------------------------------------- ========== ========== =========== ===========
Weighted average number of common and
common equivalent shares outstanding 3,029,868 3,067,462 3,031,260 3,068,043
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE> 5
<TABLE>
SPIRE CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
Nine Months Ended September 30,
-------------------------------
1996 1995
---------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ (711,909) $ 65,860
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 824,457 986,179
Changes in assets and liabilities:
Accounts receivable 174,021 861,334
Inventories 181,688 207,501
Prepaid expense and other current assets (290,095) 39,511
Accounts payable and accrued liabilities (328,402) (1,128,433)
Federal and state taxes payable 0 47,700
Advances on contracts in progress 18,710 525,855
---------- -----------
Net cash provided by (used in) operating activities (131,530) 1,605,507
---------- -----------
Cash flows from investing activities:
Additions to property and equipment (547,029) (286,583)
Increase in patent costs (11,975) (80,223)
Other assets (188,259) 60,442
---------- -----------
Net cash used in investing activities (747,263) (306,364)
---------- -----------
Cash flows from financing activities:
Net payments on short-term debt 0 (750,000)
Payments on long-term borrowing (7,619) (43,555)
Exercise of stock options 22,231 0
Repurchase of common stock (24,375) (53,125)
---------- -----------
Net cash used in financing activities (9,763) (846,680)
---------- -----------
Net increase (decrease) in cash and cash equivalents (888,556) 452,463
Cash and cash equivalents, beginning of period 1,130,428 166,567
---------- -----------
Cash and cash equivalents, end of period $ 241,872 $ 619,030
========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the quarter for:
Interest expense $ 2,790 $ 43,731
=========== ===========
Income taxes $ 6,773 $ 0
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE> 6
SPIRE CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(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 September 30, 1996
and December 31, 1995 and the results of operations and changes in cash
flows for the nine months ended September 30, 1996 and 1995. The results of
operations for the nine months ended September 30, 1996 are not necessarily
indicative of the results to be expected for the fiscal year ending
December 31, 1996.
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, 1995.
The financial statements, with the exception of the December 31, 1995
balance sheet, are unaudited and have not been examined by independent
public accountants.
(2) Inventories
-----------
<TABLE>
Inventories consist of the following:
<CAPTION>
September 30, December 31,
1996 1995
-------- ----------
<S> <C> <C>
Raw materials $698,002 $ 487,255
Work in process 247,044 639,479
-------- ----------
$945,046 $1,126,734
======== ==========
</TABLE>
6
<PAGE> 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- -------------------------------------------------------------------------------
OF OPERATIONS.
- -------------
Results of Operations
- ---------------------
<TABLE>
Net sales and revenues for the quarter ended September 30, 1996 decreased 1% to
$4,213,000 compared to $4,275,000 for the quarter ended September 30, 1995. For
the quarter ended September 30, 1996, the Company had net losses of $479,000
compared to net earnings of $61,000 for the quarter ended September 30, 1995.
The accumulated deficit was $147,000 as of September 30, 1996 compared to
retained earnings of $564,000 as of December 31, 1995. Working capital as of
September 30, 1996 was $1,793,000 compared to $2,430,000 as of December 31,
1995.
<CAPTION>
September 30, September 30, %
Revenues for the three months ended: 1996 1995 Change
- ----------------------------------- ------------- ------------- ------
<S> <C> <C> <C>
Contract research and service revenues $2,827,000 $3,261,000 (13%)
Manufacturing equipment sales 1,386,000 1,014,000 37%
----------- -----------
Net sales and revenues $4,213,000 $4,275,000 (1%)
========== ==========
<CAPTION>
September 30, September 30, %
Revenues for the nine months ended: 1996 1995 Change
- ---------------------------------- ------------- ------------- ------
Contract research and service revenues $ 8,385,000 $10,074,000 (17%)
Manufacturing equipment sales 4,155,000 3,443,000 21%
----------- -----------
Net sales and revenues $12,540,000 $13,517,000 (7%)
=========== ===========
</TABLE>
<TABLE>
Net sales and revenues for contract research and services for the quarter ended
September 30, 1996 declined 13% to $2,827,000 compared to $3,261,000 in 1995.
The decline in contract revenue is a result of the Company focusing on specific
technologies that meet the long-term strategic goals of the Company. The Company
is still experiencing pricing pressure from competition in the orthopeadic
processing business. Manufacturing equipment sales increased 37% to $1,386,000
compared to $1,014,000 in the same period of 1995, due to increased market
demand for photovoltaics equipment.
<CAPTION>
September 30, % of September 30, % of %
Cost of sales for the three months ended: 1996 Revenues 1995 Revenues Change
- ---------------------------------------- ------------ -------- ------------- -------- ------
<S> <C> <C> <C> <C> <C>
Contract research and service
cost of sales $1,955,000 69% $ 2,247,000 69% 0%
Manufacturing equipment
cost of sales 1,577,000 114% 847,000 84% 30%
---------- ------------
Total cost of sales $3,532,000 84% $ 3,094,000 72% 12%
========== ============
<CAPTION>
September 30, % of September 30, % of %
Cost of sales for the nine months ended: 1996 Revenues 1995 Revenues Change
- --------------------------------------- ------------ -------- ------------- -------- ------
Contract research and service
cost of sales $5,841,000 70% $ 7,116,000 71% (1%)
Manufacturing equipment
cost of sales 3,977 ,000 96% 2,993,000 87% 12%
---------- ------------
Total cost of sales $9,818,000 78% $10,109,000 75% 4%
========== ===========
</TABLE>
7
<PAGE> 8
The cost of contract research and service revenues decreased to 70% for the nine
months ended September 30, 1996 compared to 71% for the nine months ended
September 30, 1995. Cost of manufacturing equipment increased to 96% for the
nine months ended September 30, 1996 compared to 87% for the nine months ended
September 30, 1995. The increase in cost of sales of manufacturing equipment is
due to costs associated with the manufacture and shipment of new products within
the Company's photovoltaics line.
Selling, general and administrative expenses for the nine months ended September
30, 1996 were 27% of sales compared to 24% of sales for the nine months ended
September 30, 1995. Selling, general and administrative expenses increased as a
percentage of sales due to the lower sales volume. Depreciation and amortization
expenses for the nine months ended September 30, 1996 decreased 20% to $825,000
compared to $986,000 in 1995. Expenditures for capital equipment were $547,000
for the nine months ended September 30, 1996 compared to $287,000 for the nine
months ended September 30, 1995. The Company incurred interest income of $3,000
in the first nine months of 1996 compared to an interest expense of $43,000 in
the same period of 1995.
Liquidity and Capital Resources
- -------------------------------
On April 5, 1996, the Company extended its 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. Interest on the loan is at
prime. The note contains restrictive covenants including provisions relating to
profitability and net worth. As of September 30, 1996, the Company was in
default of these covenants but has subsequently received a waiver. As of
September 30, 1996, 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.
8
<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, tortuous 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 declamatory 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 September
30, 1996.
9
<PAGE> 10
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
SPIRE CORPORATION
(Registrant)
By: /s/ Roger G. Little 13 November 1996
---------------------------------- -----------------
Roger G. Little Date
President, Chief Executive Officer
and Chairman of the Board
By: /s/ Richard S. Gregorio 13 November 1996
----------------------------------- -----------------
Richard S. Gregorio Date
Vice President and Chief Financial
Officer, Treasurer, Clerk and
Principal Accounting Officer
10
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM UNAUDITED
CONDENSED CONSOLIDATED BALANCE SHEETS AND STATEMENTS OF OPERATIONS ON FORM
10-QSB AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-QSB.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<CASH> 241,872
<SECURITIES> 0
<RECEIVABLES> 2,729,055
<ALLOWANCES> 50,000
<INVENTORY> 945,046
<CURRENT-ASSETS> 4,525,550
<PP&E> 22,527,152
<DEPRECIATION> 18,074,225
<TOTAL-ASSETS> 9,913,066
<CURRENT-LIABILITIES> 2,732,874
<BONDS> 0
<COMMON> 35,670
0
0
<OTHER-SE> 7,144,522
<TOTAL-LIABILITY-AND-EQUITY> 9,913,066
<SALES> 0
<TOTAL-REVENUES> 12,539,477
<CGS> 0
<TOTAL-COSTS> 9,879,646
<OTHER-EXPENSES> 3,377,481
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,515
<INCOME-PRETAX> (705,136)
<INCOME-TAX> (6,773)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> (711,909)
<NET-INCOME> (0.24)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
