<PAGE> 1
1997
================================================================================
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 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 September 30, 1997.
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 Small Business Issuer as Specified in Its Charter)
<TABLE>
<S> <C>
Massachusetts 04-2457335
- ------------------------------------------------------------------------------------------------------------------
(State or Other Jurisdiction of Incorporation or Organization (I.R.S. Employer Identification No.)
</TABLE>
One Patriots Park, Bedford, Massachusetts 01730-2396
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
781-275-6000
- --------------------------------------------------------------------------------
(Issuer's Telephone Number, Including Area Code)
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
--- ---
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date. There were 3,196,847 outstanding
shares of the issuer's only class of common equity, Common Stock, $.01 par
value, on October 31, 1997.
Transitional Small Business Disclosure Format (Check One): Yes No X
--- ---
<PAGE> 2
SPIRE CORPORATION
INDEX
<TABLE>
<CAPTION>
Page Number
-----------
<S> <C>
PART I - FINANCIAL INFORMATION
Condensed Consolidated Balance Sheets 3
September 30, 1997 (unaudited) and December 31, 1996
Condensed Consolidated Statements of Operations 4
For the Three Months Ended September 30, 1997 and 1996 and
For the Nine Months Ended September 30, 1997 and 1996 (unaudited)
Condensed Consolidated Statements of Cash Flows 5
For the Nine Months Ended September 30, 1997 and 1996 (unaudited)
Notes to Condensed Consolidated Financial Statements 6
Management's Discussion and Analysis of Financial 7 - 9
Condition and Results of Operations
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K. 9
</TABLE>
2
<PAGE> 3
SPIRE CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
------
September 30, December 31,
1997 1996
------------- ------------
(unaudited)
<S> <C> <C>
Current assets:
- ---------------
Cash and cash equivalents $ 1,402,548 $ 970,997
Accounts receivable, trade:
Amounts billed 1,807,393 2,333,588
Retainage 120,964 130,215
Unbilled costs 1,247,063 650,345
----------- -----------
3,175,420 3,114,148
Less allowance for doubtful accounts 85,000 100,000
----------- -----------
Net accounts receivable 3,090,420 3,014,148
----------- -----------
Inventories (Note 2) 1,667,631 1,020,928
Deferred income taxes (Note 3) 300,000 --
Prepaid expenses and other current assets 454,544 287,513
----------- -----------
Total current assets 6,915,143 5,293,586
----------- -----------
Property and equipment 23,559,710 22,919,385
Less accumulated depreciation and amortization 19,021,715 18,299,072
----------- -----------
Net property and equipment 4,537,995 4,620,313
----------- -----------
Computer software costs (less accumulated amortization,
$806,916 in 1997 and $795,637 in 1996) 54,685 31,735
Patents (less accumulated amortization,
$528,607 in 1997 and $697,119 in 1996) 274,511 385,245
Other assets 25,087 235,230
----------- -----------
354,283 652,210
----------- -----------
$11,807,421 $10,566,109
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
- --------------------
Accounts payable $ 1,148,725 $ 1,233,548
Accrued liabilities 770,689 654,232
Advances on contracts in progress 118,124 1,385,462
----------- -----------
Total current liabilities 2,037,538 3,273,242
----------- -----------
Stockholders' equity:
- ---------------------
Common stock, $.01 par value; shares authorized 20,000,000 in 1997
and 6,000,000 in 1996; issued 3,715,466 shares in 1997 and
3,567,185 shares in 1996 37,155 35,672
Additional paid-in capital 9,410,327 8,491,066
Retained earnings (deficit) 1,542,089 (34,808)
----------- -----------
10,989,571 8,491,930
Treasury stock at cost, 552,160 shares in 1997 and 547,160 shares in 1996 (1,219,688) (1,199,063)
----------- -----------
Total stockholders' equity 9,769,883 7,292,867
----------- -----------
$11,807,421 $10,566,109
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE> 4
SPIRE CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------- -----------------------------
1997 1996 1997 1996
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales and revenues:
- -----------------------
Contract research, service and license revenues $3,833,257 $2,826,892 $10,773,933 $ 8,384,894
Sales of manufacturing equipment 2,342,777 1,385,633 6,285,648 4,154,583
---------- ---------- ----------- -----------
Total sales and revenues 6,176,034 4,212,525 17,059,581 12,539,477
---------- ---------- ----------- -----------
Costs and expenses:
- -------------------
Cost of contract research, services and licenses 2,377,376 1,955,318 6,899,334 5,902,490
Cost of manufacturing equipment 1,597,626 1,576,976 4,213,078 3,977,156
Selling, general and administrative expenses 1,486,400 1,148,582 4,284,212 3,377,481
---------- ---------- ----------- -----------
Total costs and expenses 5,461,402 4,680,876 15,396,624 13,257,127
---------- ---------- ----------- -----------
Earnings (loss) from operations 714,632 (468,351) 1,662,957 (717,650)
- -------------------------------
Interest income (expense), net 10,294 (3,406) 13,940 12,514
---------- ---------- ----------- -----------
Earnings (loss) before income taxes 724,926 (471,757) 1,676,897 (705,136)
Income tax expense -- 6,773 100,000 6,773
---------- ---------- ----------- -----------
Net earnings (loss) $ 724,926 $ (478,530) $ 1,576,897 $ (711,909)
- ------------------- ========== ========== =========== ===========
Earnings (loss) per share of common stock $ 0.22 $ (0.16) $ 0.48 $ (0.24)
- ----------------------------------------- ========== ========== =========== ===========
Weighted average number of common and
common equivalent shares outstanding 3,317,628 3,029,868 3,275,147 3,031,260
========== ========== =========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE> 5
SPIRE CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended September 30,
---------------------------------
1997 1996
----------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ 1,576,897 $ (711,909)
Adjustments to reconcile net earnings (loss) to
net cash provided by (used in) operating activities:
Depreciation and amortization 845,425 824,457
Deferred income taxes (300,000) --
Changes in assets and liabilities:
Accounts receivable (76,272) 174,021
Inventories (646,703) 181,688
Prepaid expenses and other current assets (167,031) (290,095)
Accounts payable and accrued liabilities 31,634 (328,402)
Advances on contracts in progress (1,267,338) 18,710
----------- ----------
Net cash provided by (used in) operating activities (3,388) (131,530)
----------- ----------
Cash flows from investing activities:
Additions to property and equipment (611,724) (547,029)
Increase in patent costs (29,370) (11,975)
Increase in software production costs (34,229) --
Other assets 210,143 (188,259)
----------- ----------
Net cash used in investing activities (465,180) (747,263)
----------- ----------
Cash flows from financing activities:
Payments on long-term borrowings -- (7,619)
Tax benefit of disqualifying dispositions of stock option exercises 377,763 --
Exercise of stock options 542,981 22,231
Repurchase of common stock (20,625) (24,375)
----------- ----------
Net cash provided by (used in) financing activities 900,119 (9,763)
----------- ----------
Net increase (decrease) in cash and cash equivalents 431,551 (888,556)
Cash and cash equivalents, beginning of period 970,997 1,130,428
----------- ----------
Cash and cash equivalents, end of period $ 1,402,548 $ 241,872
=========== ==========
Supplemental disclosures of cash flow information:
Cash paid during the quarter for:
Interest expense $ 5,118 $ 2,790
=========== ==========
Income taxes $ 75,895 $ 6,773
=========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE> 6
SPIRE CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1997
(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, 1997
and December 31, 1996 and the results of operations and changes in cash
flows for the nine months ended September 30, 1997 and 1996. The results
of operations for the nine months ended September 30, 1997 are not
necessarily indicative of the results to be expected for the fiscal year
ending December 31, 1997. Certain amounts from the second quarter 1997
financial statements have been reclassified to conform to the third
quarter 1997 presentation.
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, 1996.
The financial statements, with the exception of the December 31, 1996
balance sheet, are unaudited and have not been examined by independent
public accountants.
(2) INVENTORIES
<TABLE>
<CAPTION>
Inventories consist of the following: September 30, December 31,
1997 1996
------------- ------------
<S> <C> <C>
Raw materials $ 802,403 $ 572,309
Work in process 865,228 448,619
---------- ----------
$1,667,631 $1,020,928
========== ==========
</TABLE>
(3) INCOME TAXES
The amount recorded as a deferred income tax asset as of September 30,
1997 represents the amount of tax benefits of existing deductible
temporary differences or carryforwards that are more likely than not to be
realized through the generation of sufficient future taxable income within
the carryforward period. At September 30, 1997, based on the Company's
level of net income and projected earnings, the Company reduced the
valuation allowance by $581,651. The Company continually re-evaluates the
recoverability of deferred tax assets.
6
<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 September 30, 1997 increased 47% to
$6,176,000 compared to a decrease of 1% to $4,213,000 for the quarter ended
September 30, 1996. For the quarter ended September 30, 1997, the Company had
net earnings of $725,000 compared to a net loss of $479,000 for the quarter
ended September 30, 1996. The retained earnings were $1,542,000 as of September
30, 1997 compared to a $35,000 accumulated deficit as of December 31, 1996.
Working capital as of September 30, 1997 was $4,878,000 compared to $2,020,000
as of December 31, 1996, an increase of 141%.
<TABLE>
<CAPTION>
September 30, September 30, %
Revenues for the three months ended: 1997 1996 Change
- ----------------------------------- ------------- ------------- ------
<S> <C> <C> <C>
Contract research, service and license revenues $ 3,833,000 $2,827,000 36%
Manufacturing equipment sales 2,343,000 1,386,000 69%
----------- ----------
Net sales and revenues $ 6,176,000 $4,213,000 47%
=========== ==========
<CAPTION>
September 30, September 30, %
Revenues for the nine months ended: 1997 1996 Change
- ---------------------------------- ------------- ------------- ------
<S> <C> <C> <C>
Contract research, service and license revenues $10,774,000 $ 8,385,000 28%
Manufacturing equipment sales 6,286,000 4,155,000 51%
----------- -----------
Net sales and revenues $17,060,000 $12,540,000 36%
=========== ===========
</TABLE>
Net sales and revenues for contract research, service and license revenues for
the quarter ended September 30, 1997 increased 36% to $3,833,000 compared to a
decline of 13% to $2,827,000 in 1996. The increase in these revenues in 1997 is
due to the Company's focus on specific technologies that meet its long-term
strategic goals. Manufacturing equipment sales increased 69% to $2,343,000
compared to an increase of 37% to $1,386,000 in the same period of 1996, due to
increased sales of photovoltaic equipment resulting from the expansion of the
photovoltaics industry.
<TABLE>
<CAPTION>
September 30, % of September 30, % of %
Cost of sales for the three months ended: 1997 Revenues 1996 Revenues Change
- ---------------------------------------- ------------- -------- ------------- -------- ------
<S> <C> <C> <C> <C> <C>
Contract research, service and licenses
cost of sales $2,377,000 62% $1,955,000 69% (7%)
Manufacturing equipment cost of sales 1,598,000 68% 1,577,000 114% (46%)
---------- ----------
Total cost of sales $3,975,000 64% $3,532,000 84% (20%)
========== ==========
<CAPTION>
September 30, % of September 30, % of %
Cost of sales for the nine months ended: 1997 Revenues 1996 Revenues Change
- --------------------------------------- ------------- -------- ------------- -------- ------
<S> <C> <C> <C> <C> <C>
Contract research, service and licenses
cost of sales $ 6,899,000 64% $5,902,000 70% (6%)
Manufacturing equipment cost of sales 4,213,000 67% 3,977,000 96% (29%)
----------- ----------
Total cost of sales $11,112,000 65% $9,879,000 78% (13%)
=========== ==========
</TABLE>
7
<PAGE> 8
The cost of contract research, service and license revenues decreased to 64% for
the nine months ended September 30, 1997 compared to 70% for the nine months
ended September 30, 1996. Cost of manufacturing equipment decreased to 67% for
the nine months ended September 30, 1997 compared to 96% for the nine months
ended September 30, 1996. The decrease in total cost of sales is due to
increased efficiencies in the manufacturing process, product mix and higher
volume.
Selling, general and administrative expenses for the three months and nine
months ended September 30, 1997 were 24% and 25% of sales compared to 27% of
sales for the three months and nine months ended September 30, 1996,
respectively. Selling, general and administrative expenses decreased as a
percentage of sales due to a 47% and 36% increase in the sales base for the
three months and nine months ended September 30, 1997, respectively.
Depreciation and amortization expenses for the nine months ended September 30,
1997 increased 3% to $845,000 compared to $824,000 in 1996. Expenditures for
capital equipment increased 12% to $612,000 for the nine months ended September
30, 1997 compared to $547,000 for the nine months ended September 30, 1996.
The Company recorded tax expense of $400,000 for the nine months ended September
30, 1997. This expense was partially offset by a deferred income tax asset of
$300,000, which represents the amount of tax benefits of existing deductible
temporary differences or carryforwards that are more likely than not to be
realized through the generation of sufficient furture taxable income within the
carryforward period. At September 30, 1997, the Company has approximately
$753,000 of general business tax credits available to offset future taxable
income which expire through 2001. The Company also has approximately $340,000 of
alternative minimum tax credits to offset future taxable income.
LIQUIDITY AND CAPITAL RESOURCES
On April 4, 1997, the Company amended and extended its revolving credit
agreement with Silicon Valley Bank. This agreement established a $2 million
revolving credit facility, subject to the availability of 80% 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 line has been secured by all
assets of the Company. Interest on the line is at prime. The line contains
restrictive covenants including provisions relating to profitability and net
worth. As of September 30, 1997, 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.
NEW ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share." SFAS 128
establishes a different method of computing net income per share than is
currently required under the provisions of Accounting Principles Board Opinion
No. 15. Under SFAS 128, the Company will be required to present both basic net
income per share and diluted net income per share. Basic net income per share is
expected to be higher than the currently presented net income per share as the
effect of dilutive stock options will not be considered in computing basic net
income per share. The impact on diluted net income per share is not expected to
be material. The Company plans to adopt SFAS 128 in its fiscal quarter ending
December 31, 1997 and at that time all historical net income per share data
presented will be restated to conform to the provisions of SFAS 128.
In June 1997, the Financial Accounting Standards Board issued SFAS 130,
"Reporting Comprehensive Income," which establishes standards for reporting and
display of comprehensive income and its components in a full set of
general-purpose financial statements. Under this concept, all revenues,
expenses, gains and losses recognized during the period are included in income,
regardless of whether they are considered to be results of operations of the
period. SFAS 130, which becomes effective for the Company in its year ending
December 31, 1998, is not expected to have a material impact on the consolidated
financial statements of the Company.
In June 1997, the Financial Accounting Standards Board issued SFAS 131,
"Disclosures about Segments of an Enterprise and Related Information," which
establishes standards for the way that public business enterprises report
selected information about operating segments in annual financial statements and
requires that those enterprises report selected information about operating
segments in interim financial reports to shareholders. It also establishes
standards for related disclosures about products and services, geographic areas
and major customers. SFAS 131, which becomes effective for
8
<PAGE> 9
the Company in its year ending December 31, 1998, is currently not expected to
have a material impact on the Company's consolidated financial statements and
footnote disclosures.
THE FOREGOING STATEMENTS MAY INCLUDE FORWARD-LOOKING STATEMENTS SUBJECT TO RISKS
AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM
THOSE INDICATED IN THE FORWARD-LOOKING STATEMENTS. FACTORS THAT MIGHT CAUSE SUCH
A DIFFERENCE INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED OR REFERRED TO IN
THIS REPORT AND IN ITEM 6 OF THE ANNUAL REPORT ON FORM 10-KSB FOR THE YEAR ENDED
DECEMBER 31, 1996.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
A. The following exhibits are filed herewith:
11 Statement Regarding Computation of Per Share Earnings.
27 Financial Data Schedule.
B. During the quarter ended September 30, 1997, the Company filed no reports
on Form 8-K.
9
<PAGE> 10
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
SPIRE CORPORATION
(Registrant)
13 November 1997 By: /s/ Roger G. Little
- ----------------------------- ----------------------------------------
Date Roger G. Little
President, Chief Executive Officer and
Chairman of the Board
13 November 1997 By: /s/ Richard S. Gregorio
- ----------------------------- ----------------------------------------
Date Richard S. Gregorio
Vice President and Chief Financial
Officer, Treasurer, Clerk and
Principal Accounting Officer
10
<PAGE> 1
EXHIBIT 11
SPIRE CORPORTION
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Nine Months Ended Seprtember 30,
------------------------------------
1997 1996
---------- ----------
<S> <C> <C>
Primary:
- --------
Net income (loss) $1,576,897 $ (711,909)
========== ==========
Weighted average number common shares outstanding 3,052,263 3,031,260
Add: additional common shares issued upon assumed
exercise of common stock options 128,204 --
---------- ----------
Weighted average common and common equivalent
shares outstanding 3,180,467 3,031,260
========== ==========
Primary net income (loss) per share $ 0.50 $ (0.24)
========== ==========
Fully Diluted:
- --------------
Net income (loss) $1,576,897 $ (711,909)
========== ==========
Weighted average number common shares outstanding 3,052,263 3,031,260
Add: additional common shares issued upon assuming
exercise of common stock options 222,884 --
---------- ----------
Weighted average common and common equivalent
shares outstanding 3,275,147 3,031,260
========== ==========
Fully diluted net income (loss) per share $ 0.48 $ (0.24)
========== ==========
</TABLE>
<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-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<EXCHANGE-RATE> 1
<CASH> 1,402,548
<SECURITIES> 0
<RECEIVABLES> 3,175,420
<ALLOWANCES> 85,000
<INVENTORY> 1,667,631
<CURRENT-ASSETS> 6,915,143
<PP&E> 23,559,710
<DEPRECIATION> 19,021,715
<TOTAL-ASSETS> 11,807,421
<CURRENT-LIABILITIES> 2,037,538
<BONDS> 0
0
0
<COMMON> 37,155
<OTHER-SE> 9,732,728
<TOTAL-LIABILITY-AND-EQUITY> 11,807,421
<SALES> 0
<TOTAL-REVENUES> 17,059,581
<CGS> 0
<TOTAL-COSTS> 11,112,412
<OTHER-EXPENSES> 4,284,212
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,940
<INCOME-PRETAX> 1,676,897
<INCOME-TAX> 100,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,576,897
<EPS-PRIMARY> 0.50
<EPS-DILUTED> 0.48
</TABLE>
