<PAGE> 1
1998
================================================================================
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 March 31, 1998.
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)
Massachusetts 04-2457335
- --------------------------------------------------------------------------------
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
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 3,241,716
outstanding shares of the issuer's only class of common equity, Common Stock,
$.01 par value, on April 30, 1998.
Transitional Small Business Disclosure Format (Check One): Yes No X
--- ---
<PAGE> 2
SPIRE CORPORATION
INDEX
Page Number
-----------
PART I - FINANCIAL INFORMATION
Condensed Consolidated Balance Sheets at 3
March 31,1998 (unaudited) and December 31, 1997
Condensed Consolidated Statements of Operations 4
For the Three Months Ended March 31, 1998 and 1997 (unaudited)
Condensed Consolidated Statements of Cash Flows 5
For the Three Months Ended March 31, 1998 and 1997 (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 1. Legal Proceedings 10
Item 6. Exhibits and Reports on Form 8-K 10
2
<PAGE> 3
SPIRE CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 691,644 $ 1,695,727
Accounts receivable, trade:
Amounts billed 3,478,098 3,012,701
Retainage 73,392 69,772
Unbilled costs 523,807 621,760
----------- -----------
4,075,297 3,704,233
Less allowance for doubtful accounts 40,000 40,000
----------- -----------
Net accounts receivable 4,035,297 3,664,233
----------- -----------
Inventories (Note 2) 1,675,830 988,580
Deferred income taxes (Note 3) 300,000 300,000
Prepaid expenses and other current assets 644,812 501,650
----------- -----------
Total current assets 7,347,583 7,150,190
----------- -----------
Property and equipment 24,382,076 24,015,445
Less accumulated depreciation and amortization 19,464,148 19,242,437
----------- -----------
Net property and equipment 4,917,928 4,773,008
----------- -----------
Computer software costs (less accumulated amortization, $814,017 in 1998
and $810,466 in 1997) 47,585 51,135
Patents (less accumulated amortization, $556,227 in 1998 and $542,344 in 1997) 265,338 274,810
Other assets 17,771 19,679
----------- -----------
330,694 345,624
----------- -----------
$12,596,205 $12,268,822
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 888,461 $ 903,581
Accrued liabilities 843,021 859,093
Advances on contracts in progress 636,994 410,370
----------- -----------
Total current liabilities 2,368,476 2,173,044
----------- -----------
COMMITMENTS
STOCKHOLDERS' EQUITY
Common stock, $.01 par value; shares authorized 20,000,000;
issued 3,788,876 shares in 1998 and 3,757,082 shares in 1997 37,889 37,571
Additional paid-in capital 9,759,942 9,645,468
Retained earnings 1,649,586 1,632,427
----------- -----------
11,447,417 11,315,466
Treasury stock at cost, 552,160 shares (1,219,688) (1,219,688)
----------- -----------
Total stockholders' equity 10,227,729 10,095,778
----------- -----------
$12,596,205 $12,268,822
=========== ===========
</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 MARCH 31,
----------------------------
1998 1997
---------- ----------
<S> <C> <C>
NET SALES AND REVENUES
Contract research, service and license revenues $3,115,886 $3,133,491
Sales of manufacturing equipment 1,326,640 1,317,208
---------- ----------
Total sales and revenues 4,442,526 4,450,699
---------- ----------
COSTS AND EXPENSES
Cost of contract research, services and licenses 2,207,178 2,074,106
Cost of manufacturing equipment 803,761 856,108
Selling, general and administrative expenses 1,417,765 1,373,808
---------- ----------
Total costs and expenses 4,428,704 4,304,022
---------- ----------
EARNINGS FROM OPERATIONS 13,822 146,677
Interest income, net 12,337 3,617
---------- ----------
Earnings before income taxes 26,159 150,294
Income tax expense 9,000 --
---------- ----------
NET EARNINGS $ 17,159 $ 150,294
========== ==========
EARNINGS PER SHARE OF COMMON STOCK - BASIC $ 0.01 $ 0.05
========== ==========
EARNINGS PER SHARE OF COMMON STOCK - DILUTED $ 0.01 $ 0.05
========== ==========
Weighted average number of common shares outstanding - basic 3,216,869 3,020,025
========== ==========
Weighted average number of common and common equivalent
shares outstanding - diluted 3,350,910 3,020,025
========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE> 5
SPIRE CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1998 1997
----------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 17,159 $ 150,294
Adjustments to reconcile net earnings to net
cash used in operating activities:
Depreciation and amortization 239,144 309,250
Changes in assets and liabilities:
Accounts receivable (371,064) (505,986)
Inventories (687,250) (932,999)
Prepaid expenses and other current assets (143,162) (137,359)
Accounts payable and accrued liabilities (31,192) 24,997
Advances on contracts in progress 226,624 311,197
----------- ---------
Net cash used in operating activities (749,741) (780,606)
----------- ---------
Cash flows from investing activities:
Additions to property and equipment (366,631) (135,435)
Increase in patent costs (4,411) (315)
Increase in software production costs -- (34,229)
Other assets 1,908 219,292
----------- ---------
Net cash provided by (used in) investing activities (369,134) 49,313
----------- ---------
Cash flows from financing activities:
Exercise of stock options 114,792 --
Repurchase of common stock -- (20,625)
----------- ---------
Net cash provided by (used in) financing activities 114,792 (20,625)
----------- ---------
Net decrease in cash and cash equivalents (1,004,083) (751,918)
Cash and cash equivalents, beginning of period 1,695,727 970,997
=========== =========
Cash and cash equivalents, end of period $ 691,644 $ 219,079
=========== =========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest expense $ 723 $ --
=========== =========
Income taxes $ 44,400 $ --
=========== =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE> 6
SPIRE CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1998
(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, 1998 and
the results of operations and changes in cash flows for the three months
ended March 31, 1998 and 1997. The results of operations for the three
months ended March 31, 1998 are not necessarily indicative of the results
to be expected for the fiscal year ending December 31, 1998.
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, 1997.
The financial statements, with the exception of the December 31, 1997
balance sheet, are unaudited and have not been examined by independent
public accountants.
(2) INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
---------- ------------
<S> <C> <C>
Raw materials $ 903,100 $736,930
Work in process 772,730 251,650
---------- --------
$1,675,830 $988,580
========== ========
</TABLE>
6
<PAGE> 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Spire develops, manufactures and markets highly-engineered photovoltaic
module manufacturing equipment and optoelectronic products and provides
biomedical processing services. Spire is the world's leader in the design and
manufacture of specialized equipment for the production of terrestrial
photovoltaic modules from solar cells, with its equipment installed in 136
factories and in 38 countries. The Company also offers certain optoelectronic
products and is continuing to develop additional advanced optoelectronic
products for telecommunications, biomedical and electronics applications,
including solar cells used to power satellites. Spire's value-added biomedical
processing services offer surface treatments to enhance the durability or the
antimicrobial characteristics of orthopedic and other medical devices.
The Company's net sales and revenues for the quarter ended March 31, 1998
declined slightly, compared to the quarter ended March 31, 1997. The Company's
Optoelectronics business showed growth, our Photovoltaic equipment sales were
the same and Biomedical revenues showed some decline in net sales and revenues
compared to the first quarter of 1997.
RESULTS OF OPERATIONS
The following table sets forth certain items as a percentage of net sales
and revenues for the periods presented:
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1998 1997
------ -------
<S> <C> <C>
Net sales and revenues 100.0% 100.0%
Cost of sales and revenues 67.8 65.8
----- -----
Gross profit 32.2 34.2
Selling, general and administrative expenses 31.9 30.9
----- -----
Earnings from operations 0.3 3.3
Earnings before income taxes 0.6 3.4
Income tax expense 0.2 0.0
----- -----
Net earnings 0.4% 3.4%
===== =====
</TABLE>
QUARTER ENDED MARCH 31, 1998 COMPARED TO QUARTER ENDED MARCH 31, 1997
Net Sales and Revenues
Net sales and revenues decreased $8,000 or less than 1% for the quarter
ended March 31, 1998 to $4,443,000, compared to $4,451,000 for the quarter ended
March 31, 1997. Contract research, service and license revenues decreased
$18,000 or 1% to $3,116,000 for the quarter ended March 31, 1998 compared to
$3,134,000 for 1997. Manufacturing equipment sales increased $10,000 or 1% to
$1,327,000 for 1998, compared to $1,317,000 for 1997. The following table
categorizes the Company's net sales and revenues for the periods presented:
<TABLE>
<CAPTION>
Three Months Ended March 31,
--------------------------------------
1998 1997 Change
---------- ---------- ---------
<S> <C> <C> <C>
Contract research, service and license revenues $3,116,000 $3,134,000 (1%)
Manufacturing equipment sales 1,327,000 1,317,000 1%
---------- ----------
Net sales and revenues $4,443,000 $4,451,000 (<1%)
========== ==========
</TABLE>
7
<PAGE> 8
Cost of Sales and Revenues
The cost of sales and revenues increased $81,000 to $3,011,000, and
increased to 68% of net sales and revenues, for the quarter ended March 31,
1998, compared to $2,930,000 or 66% of net sales and revenues for the quarter
ended March 31, 1997.
The cost of contract research, service and license revenues increased
$133,000 to $2,207,000, and increased to 71% of related revenues, for the
quarter ended March 31, 1998, compared to $2,074,000 or 66% of related revenues
for the quarter ended March 31, 1997. Cost of manufacturing equipment sales
decreased $52,000 to $804,000, and decreased to 61% of related sales, for the
quarter ended March 31, 1998, compared to $856,000 or 65% of related sales, for
the quarter ended March 31, 1997. The increase in total cost of sales and
revenues as a percentage of related sales and revenues is due to product mix,
and increased product development cost.
The following table categorizes the Company's cost of sales and revenues
for the periods presented, stated in dollars and as a percentage of related
sales and revenues:
<TABLE>
<CAPTION>
Three Months Ended March 31,
--------------------------------------
1998 % 1997 %
---------- --- ---------- ---
<S> <C> <C> <C> <C>
Contract research, service and license revenues $2,207,000 71% $2,074,000 66%
Manufacturing equipment sales 804,000 61% 856,000 65%
---------- ----------
Total cost of sales and revenues $3,011,000 68% $2,930,000 66%
========== ==========
</TABLE>
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the quarter ended March
31, 1998 increased $44,000 to $1,418,000, and increased to 32% of sales and
revenues, compared to $1,374,000 or 31% of sales and revenues for the quarter
ended March 31, 1997. Selling, general and administrative expenses increased due
to increases in sales and marketing and legal costs.
Depreciation and Amortization Expenses
Depreciation and amortization expenses for the quarter ended March 31, 1998
decreased $70,000 or 23% to $239,000, compared to $309,000 for the quarter ended
March 31, 1997. Capital expenditures increased $231,000 or 171% to $367,000 for
the quarter ended March 31, 1998, compared to $136,000 for the quarter ended
March 31, 1997.
Interest
The Company earned $13,000 in interest income for the quarter ended March
31, 1998, compared to $2,000 for the quarter ended March 31, 1997. The Company
incurred insignificant interest expense in both periods.
Income Taxes
The Company recorded income tax expense of $9,000 for the quarter ended
March 31, 1998 and no income tax expense for the quarter ended March 31, 1997.
At March 31, 1998, the Company had gross deferred tax assets 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 future taxable income within the
carryforward period.
Net Earnings
The Company reported net earnings for the quarter ended March 31, 1998 of
$17,000, compared to net earnings of $150,000 for the quarter ended March 31,
1997. The decline in the Company's profitability resulted in large part from
flat net sales and revenues when compared with the prior period, and an increase
in product development costs, sales and marketing expenses and legal costs in
the first quarter of 1998.
8
<PAGE> 9
LIQUIDITY AND CAPITAL RESOURCES
The Company has been able to fund its liquidity requirements using cash
from operations and available lines of credit. On April 4, 1997, the Company
amended and extended its revolving credit agreement with Silicon Valley Bank.
This agreement provides for a $2 million revolving credit facility, based upon
eligible accounts receivable requirements. 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
is secured by all assets of the Company. Interest on the line is at the Bank's
prime rate plus one-half of one percent. The line contains covenants including
provisions relating to profitability and net worth. As of March 31, 1998, the
Company had no outstanding debt under this revolving credit facility, which is
in the process of being renewed under the existing terms and conditions. The
Company has also entered into a $1 million equipment leasing line with Silicon
Valley Bank.
The Company believes it has sufficient resources to finance its current
operations for the foreseeable future through working capital, its existing line
of credit and available lease arrangements. Cash and cash equivalents decreased
$1,004,000, to $692,000 at March 31, 1998, from $1,696,000 at December 31, 1997.
This decrease was primarily due to the Company's funding a $687,000 increase in
its raw materials and in process inventories from December 31, 1997 to March 31,
1998, and first quarter 1998 capital purchases of $367,000. To date there are no
material commitments by the Company for capital expenditures. At March 31, 1998,
the Company's retained earnings were $1,650,000, compared to retained earnings
of $1,632,000 as of December 31, 1997. Working capital as of March 31, 1998
increased less than 1% to $4,979,000, compared to $4,977,000 as of December 31,
1997.
RECENT ACCOUNTING PRONOUNCEMENTS
In December 1997, the Company adopted Financial Accounting Standards Board
Statement No. 128, "Earnings per Share." (SFAS 128). All previously reported net
earnings per share data have been restated to conform to the provisions of SFAS
No. 128. Under SFAS 128, basic earnings per share are computed by dividing net
earnings available to common stockholders by the weighted average number of
common shares outstanding for the period. Diluted earnings per share reflect the
maximum dilution that would have resulted from the assumed exercise and share
repurchase related to dilutive stock options and are computed by dividing net
earnings by the weighted average number of common shares and all dilutive
securities outstanding.
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. The Company adopted SFAS 130 in March 1998, and it had no 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 stockholders. It also establishes
standards for related disclosures about products and services, geographic areas
and major customers. SFAS 131, which becomes effective for the Company in its
year ending December 31, 1998, is not expected to have a material impact on the
Company's results of operations. The Company is in the process of determining
the impact of SFAS 131 on its footnote disclosures.
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use" (SOP 98-1), which establishes
guidelines for the accounting for the costs of all computer software developed
or obtained for internal use. SOP 98-1 is effective for the Company in 1999 and
is not expected to have a material effect on the Company's financial statements.
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, 1997.
9
<PAGE> 10
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On March 2, 1998 the Company received a letter from the Office of the
United States Attorney for the Eastern District of Virginia stating that it was
considering the commencement of a civil action concerning seven research
initiatives undertaken by the Company in the period from 1990 to the present.
The letter alleged that, in certain instances, the Company had failed to inform
the government of pending or previously submitted proposals for work the
government alleges was related to proposals which were funded. The Company is in
the process of reviewing the allegations, and gathering the information
necessary to respond. The Company is unable to determine at this time what
effect, if any, this matter will have on the Company's financial condition or
results of operations.
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 March 31, 1998, the Company filed no reports on
Form 8-K.
10
<PAGE> 11
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)
14 May 1998 By: /s/ Roger G. Little
- ------------------- ----------------------------------------
Date Roger G. Little
President, Chief Executive Officer and
Chairman of the Board
14 May 1998 By: /s/ Richard S. Gregorio
- ------------------- ----------------------------------------
Date Richard S. Gregorio
Vice President and Chief Financial
Officer, Treasurer, Clerk and
Principal Accounting Officer
11
<PAGE> 1
EXHIBIT 11
SPIRE CORPORATION
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1998 1997
---------- ----------
<S> <C> <C>
NET EARNINGS PER COMMON SHARE - (BASIC)
Net earnings $ 17,159 $ 150,294
========== ==========
Weighted average number common shares outstanding 3,216,869 3,020,025
========== ==========
Net earnings per common share - (basic) $ 0.01 $ 0.05
========== ==========
NET EARNINGS PER COMMON SHARE - (DILUTED)
Net earnings $ 17,159 $ 150,294
========== ==========
Weighted average number common shares outstanding 3,216,869 3,020,025
Add net additional common shares upon exercise of common stock options 134,041 0
---------- ----------
Adjusted average common shares outstanding 3,350,910 3,020,025
========== ==========
Net earnings per common share - (diluted) $ 0.01 $ 0.05
========== ==========
</TABLE>
12
<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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<EXCHANGE-RATE> 1
<CASH> 691,644
<SECURITIES> 0
<RECEIVABLES> 4,075,297
<ALLOWANCES> 40,000
<INVENTORY> 1,675,830
<CURRENT-ASSETS> 7,347,583
<PP&E> 24,382,076
<DEPRECIATION> 19,464,148
<TOTAL-ASSETS> 12,596,205
<CURRENT-LIABILITIES> 2,368,476
<BONDS> 0
0
0
<COMMON> 37,889
<OTHER-SE> 10,189,840
<TOTAL-LIABILITY-AND-EQUITY> 12,596,205
<SALES> 1,326,640
<TOTAL-REVENUES> 4,442,526
<CGS> 803,761
<TOTAL-COSTS> 4,428,704
<OTHER-EXPENSES> 12,337
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 26,159
<INCOME-TAX> 9,000
<INCOME-CONTINUING> 17,159
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 17,159
<EPS-PRIMARY> 0.01
<EPS-DILUTED> 0.01
</TABLE>
