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1999
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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 June 30, 1999.
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
Incorporation or Organization Identification No.)
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 3,245,016
outstanding shares of the issuer's only class of common equity, Common Stock,
$.01 par value, on July 30, 1999.
Transitional Small Business Disclosure Format (Check One):
Yes No X
--- ---
<PAGE>
SPIRE CORPORATION
INDEX
Page Number
PART I - FINANCIAL INFORMATION -----------
- ------------------------------
Condensed Consolidated Balance Sheets at
June 30, 1999 (unaudited) and December 31, 1998 .................... 3
Condensed Consolidated Statements of Operations
For the Three Months Ended June 30, 1999 and 1998 and
For the Six Months Ended June 30, 1999 and 1998 (unaudited) ........ 4
Condensed Consolidated Statements of Cash Flows
For the Six Months Ended June 30, 1999 and 1998 (unaudited) ........ 5
Notes to Condensed Consolidated Financial Statements ............... 6
Management's Discussion and Analysis of Financial Condition
and Results of Operations .......................................... 7 - 11
PART II - OTHER INFORMATION
- ---------------------------
Item 1. Legal Proceedings ......................................... 12
Item 6. Exhibits and Reports on Form 8-K .......................... 12
2
<PAGE>
SPIRE CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
--------------- ---------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets
- --------------
Cash and cash equivalents $ 359,189 $ 121,866
Accounts receivable, trade:
Amounts billed 2,177,523 2,799,037
Retainage 62,173 62,173
Unbilled costs 380,732 355,716
--------------- ---------------
2,620,428 3,216,926
Less allowance for doubtful accounts 102,000 102,000
--------------- ---------------
Net accounts receivable 2,518,428 3,114,926
--------------- ---------------
Inventories (Note 2) 1,693,242 2,254,043
Prepaid expenses and other current assets 284,454 363,649
--------------- ---------------
Total current assets 4,855,313 5,854,484
--------------- ---------------
Property and equipment 26,143,515 25,675,700
Less accumulated depreciation and amortization 21,455,963 20,986,170
--------------- ---------------
Net property and equipment 4,687,552 4,689,530
--------------- ---------------
Patents (less accumulated amortization, $628,876 in 1999
and $611,650 in 1998) 196,471 214,758
Other assets 64,020 15,071
--------------- ---------------
260,491 229,829
=============== ===============
$ 9,803,356 $10,773,843
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
- -------------------
Accounts payable $ 1,245,008 $ 1,555,019
Accrued liabilities 903,404 836,846
Notes payable 1,400,000 850,000
Advances on contracts in progress 539,195 1,112,058
--------------- ---------------
Total current liabilities 4,087,608 4,353,923
--------------- ---------------
Stockholders' equity
- --------------------
Common stock, $.01 par value; shares authorized 20,000,000;
issued 3,797,176 shares in 1999 and 3,795,926 shares in 1998 37,972 37,959
Additional paid-in capital 9,783,768 9,780,494
Accumulated deficit (2,886,304) (2,178,845)
--------------- ---------------
6,935,436 7,639,608
Treasury stock at cost, 552,160 shares (1,219,688) (1,219,688)
--------------- ---------------
Total stockholders' equity 5,715,748 6,419,920
=============== ===============
$ 9,803,356 $10,773,843
=============== ===============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
SPIRE CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
------------------------------------ ------------------------------------
1999 1998 1999 1998
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Net sales and revenues
- ----------------------
Contract research, service and license revenues $ 2,227,249 $ 2,619,588 $ 4,882,346 $ 5,735,474
Sales of manufacturing equipment 454,329 825,703 1,616,948 2,152,343
--------------- --------------- --------------- ---------------
Total sales and revenues 2,681,578 3,445,291 6,499,294 7,887,817
--------------- --------------- --------------- ---------------
Costs and expenses
- ------------------
Cost of contract research, services and licenses 1,708,038 2,328,026 3,524,059 4,535,204
Cost of manufacturing equipment 395,849 763,599 1,402,274 1,567,360
Selling, general and administrative expenses 1,114,684 1,371,460 2,232,309 2,732,310
Other operating charges -- 763,700 -- 820,615
--------------- --------------- --------------- ---------------
Total costs and expenses 3,218,571 5,226,785 7,158,642 9,655,489
--------------- --------------- --------------- ---------------
Loss from operations (536,993) (1,781,494) (659,348) (1,767,672)
- --------------------
Interest income (expense), net (21,313) 6,150 (48,112) 18,487
--------------- --------------- --------------- ---------------
Loss before income taxes (558,306) (1,775,344) (707,460) (1,749,185)
Income tax expense -- -- -- 9,000
--------------- --------------- --------------- ---------------
Net loss $ (558,306) $(1,775,344) $ (707,460) $(1,758,185)
- -------- =============== =============== =============== ===============
Loss per share of common stock - basic $ (0.17) $ (0.55) $ (0.22) $ (0.54)
- -------------------------------------- =============== =============== =============== ===============
Loss per share of common stock - diluted $ (0.17) $ (0.55) $ (0.22) $ (0.54)
- ---------------------------------------- =============== =============== =============== ===============
Weighted average number of common and common
shares outstanding - basic 3,244,183 3,241,291 3,243,945 3,227,989
=============== =============== =============== ===============
Weighted average number of common and common
equivalent shares outstanding - diluted 3,244,183 3,241,291 3,243,945 3,227,989
=============== =============== =============== ===============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
SPIRE CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
------------------------------------
1999 1998
--------------- ---------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (707,640) $(1,758,185)
Adjustments to reconcile net earnings (loss) to net cash used in
operating activities:
Depreciation and amortization 493,144 483,093
Changes in assets and liabilities:
Accounts receivable 596,498 698,098
Inventories 560,801 (761,361)
Prepaid expenses and other current assets 79,195 (94,042)
Accounts payable and accrued liabilities (243,453) 576,218
Advances on contracts in progress (572,863) 157,582
--------------- ---------------
Net cash provided by (used in) by operating activities 205,682 (698,597)
--------------- ---------------
Cash flows from investing activities:
Additions to property and equipment (467,815) (599,470)
Increase in patent costs (5,064) (12,482)
Other assets (48,949) 2,458
--------------- ---------------
Net cash used in investing activities (521,828) (609,494)
--------------- ---------------
Cash flows from financing activities:
Net receipts (payments) on short-term debt 550,000 --
Exercise of stock options 3,287 135,414
--------------- ---------------
Net cash provided by (used in) financing activities 553,287 135,414
--------------- ---------------
Net increase (decrease) in cash and cash equivalents 237,141 (1,172,677)
Cash and cash equivalents, beginning of period 121,866 1,695,727
=============== ===============
Cash and cash equivalents, end of period $ 359,189 $ 523,050
=============== ===============
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest expense $ 21,313 $ 723
=============== ===============
Income taxes $ 3,000 $ 44,400
=============== ===============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE>
SPIRE CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
(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, 1999 and
the results of operations and changes in cash flows for the six months
ended June 30, 1999 and 1998. The results of operations for the six
months ended June 30, 1999 are not necessarily indicative of the results
to be expected for the fiscal year ending December 31, 1999.
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, 1998.
The financial statements, with the exception of the December 31,
1998 balance sheet, are unaudited and have not been examined by
independent certified public accountants.
(2) Inventories
-----------
<TABLE>
<CAPTION>
Inventories consist of the following:
June 30, December 31,
1999 1998
----------------- -----------------
<S> <C> <C>
Raw materials $ 696,157 $ 776,933
Work in process 823,890 1,307,088
Finished goods 173,195 170,022
----------------- -----------------
$ 1,693,242 $ 2,254,043
================= =================
</TABLE>
(3) Earnings Per Share
------------------
The reconciliation of the denominators of the basic and diluted
earnings (loss) per share computations for the Company's reported
earnings (loss) is as follows:
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
------------------------------------ ------------------------------------
1999 1998 1999 1998
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Weighted average number of shares
outstanding - basic 3,244,183 3,241,291 3,243,945 3,227,989
Add net additional common shares
upon exercise of common -- -- -- --
=============== =============== =============== ===============
Adjusted weighted average common
shares outstanding - diluted 3,244,183 3,241,291 3,243,945 3,227,989
=============== =============== =============== ===============
</TABLE>
6
<PAGE>
(4) Operating Segments and Related Information
------------------------------------------
The following table presents certain operating division information
in accordance with the provisions of SFAS No. 131, "Disclosure about
Segments of an Enterprise and Related Information", which was adopted in
1998.
<TABLE>
<CAPTION>
Spire Spire Spire Total
Solar Optoelectronics Biomedical Company
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
For the Three Months Ended June 30, 1999
----------------------------------------
Net sales and revenues $ 715,898 $ 1,029,606 $ 936,074 $ 2,681,578
Earnings (loss) from operations (216,461) (271,509) (70,336) (558,306)
For the Three Months Ended June 30, 1998
----------------------------------------
Net sales and revenues $ 1,145,000 $ 1,358,000 $ 942,000 $ 3,445,000
Earnings from operations (538,000) (817,000) (421,000) (1,775,000)
For the Six Months Ended June 30, 1999
--------------------------------------
Net sales and revenues $ 2,193,298 $ 2,319,544 $ 1,986,452 $ 6,499,294
Earnings (loss) from operations (375,593) (300,427) (31,440) (707,460)
For the Six Months Ended June 30, 1998
--------------------------------------
Net sales and revenues $ 2,482,000 $ 3,376,000 $ 2,030,000 $ 7,888,000
Earnings from operations (591,000) (751,000) (417,000) (1,758,000)
</TABLE>
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 142
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.
Spire's value-added biomedical processing services offer surface treatments to
enhance the durability or antimicrobial characteristics of orthopedic and other
medical devices.
The Company's net sales and revenues for the three and six months ended
June 30, 1999 declined, compared to the three and six months ended June 30,
1998.
7
<PAGE>
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 June 30, Six Months Ended June 30,
---------------------------------- ----------------------------------
1999 1998 1999 1998
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Net sales and revenues 100.0% 100.0% 100.0% 100.0%
Cost of sales and revenues 78.5 89.7 75.8 77.4
-------------- -------------- -------------- --------------
Gross profit 21.5 10.3 24.2 22.6
Selling, general and administrative expenses 41.6 39.8 34.3 34.6
Other operating charge -- 22.2 -- 10.4
-------------- -------------- -------------- --------------
Loss from operations (20.0) (51.7) (10.1) (22.4)
Loss before income taxes (20.8) (51.5) (10.9) (22.2)
Income tax expense -- -- -- 0.1
============== ============== ============== ==============
Net loss (20.8%) (51.5%) (10.9%) (22.3%)
============== ============== ============== ==============
</TABLE>
THREE AND SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO THREE AND SIX MONTHS ENDED
JUNE 30, 1998
Net Sales and Revenues
Net sales and revenues decreased $763,000 or 22% for the three months
ended June 30, 1999 to $2,682,000, compared to $3,445,000 for the three months
ended June 30, 1998. Contract research, service and license revenues decreased
$392,000 or 15% to $2,227,000 for the three months ended June 30, 1999 compared
to $2,619,000 for 1998. Manufacturing equipment sales decreased $372,000 or 45%
to $454,000 for 1999, compared to $826,000 for 1998. The following table
categorizes the Company's net sales and revenues for the periods presented:
<TABLE>
<CAPTION>
Three Months Ended June 30,
----------------------------------------------------
1999 1998 % Change
-------------- -------------- --------------
<S> <C> <C> <C>
Contract research, service and license revenues $2,227,000 $2,619,000 (15%)
Manufacturing equipment sales 454,000 826,000 (45%)
-------------- --------------
Net sales and revenues $2,682,000 $3,445,000 (22%)
============== ==============
</TABLE>
Net sales and revenues decreased $1,389,000 or 18% for the six months
ended June 30, 1999 to $6,499,000, compared to $7,888,000 for the six months
ended June 30, 1998. Contract research, service and license revenues decreased
$854,000 or 15% to $4,882,000 for the six months ended June 30, 1999 compared to
$5,736,000 for 1998. Manufacturing equipment sales decreased $535,000 or 25% to
$1,617,000 for 1999, compared to $2,152,000 for 1998.
The following table categorizes the Company's net sales and revenues for
the periods presented:
<TABLE>
<CAPTION>
Six Months Ended June 30,
----------------------------------------------------
1999 1998 % Change
-------------- -------------- --------------
<S> <C> <C> <C>
Contract research, service and license revenues $4,882,000 $5,736,000 (15%)
Manufacturing equipment sales 1,617,000 2,152,000 (25%)
-------------- --------------
Net sales and revenues $6,499,000 $7,888,000 (18%)
============== ==============
</TABLE>
The decline in manufacturing equipment sales for the three and six month
periods ended June 30, 1999 is primarily due to limited capacity expansion in
photovoltaic module production. The decline in contract research, service and
license revenues for the three and six month periods ended June 30, 1999 is
primarily due to a decline in new awards experienced during the latter part of
1998 as more of the Company's development efforts went toward commercial
products. The Company's inability to complete a commercial order on schedule
delayed revenue on that order and caused the Company to incur substantial
non-reimbursable cost, which otherwise would have been applied to chargeable
contract research activities.
8
<PAGE>
Cost of Sales and Revenues
The cost of sales and revenues decreased $988,000 to $2,104,000, and
decreased to 78% of net sales and revenues, for the quarter ended June 30, 1999,
compared to $3,092,000 or 90% of net sales and revenues for the quarter ended
June 30, 1998.
The cost of contract research, service and license revenues decreased
$530,000 to $1,708,000, and decreased to 77% of related revenues, for the
quarter ended June 30, 1999, compared to $2,328,000 or 89% of related revenues
for the quarter ended June 30, 1999. The decline is due to cost reduction steps
the Company undertook in 1998 and 1999. Cost of manufacturing equipment sales
decreased $368,000 to $396,000, and increased to 87% of related sales, for the
quarter ended June 30, 1999, compared to $764,000 or 92% of related sales, for
the quarter ended June 30, 1998. Cost of manufacturing equipment sales decreased
due to a decrease in sales volume.
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 June 30,
--------------------------------------------------------
1999 % 1998 %
-------------- ------- -------------- -------
<S> <C> <C> <C> <C>
Contract research, service and license revenues $ 1,708,000 77% $ 2,328,000 89%
Manufacturing equipment sales 396,000 87% 764,000 92%
============== ==============
Total cost of sales and revenues $ 2,104,000 78% $ 3,092,000 90%
============== ==============
</TABLE>
The cost of sales and revenues decreased $1,125,000 to $4,978,000, or 77%
of net sales and revenues, for the six months ended June 30, 1999, compared to
$6,103,000 or 77% of net sales and revenues for the quarter ended June 30, 1998.
The cost of contract research, service and license revenues decreased
$1,011,000 to $3,524,000, and decreased to 72% of related revenues, for the six
months ended June 30, 1999, compared to $4,535,000 or 79% of related revenues
for the six months ended June 30, 1999. The decline is due to cost reduction
steps the Company undertook in 1998 and 1999. Cost of manufacturing equipment
sales decreased $166,000 to $1,402,000, and increased to 87% of related sales,
for the six months ended June 30, 1999, compared to $1,568,000 or 73% of related
sales, for the six months ended June 30, 1998. Cost of manufacturing equipment
sales decreased due to a decrease in sales volume.
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>
Six Months Ended June30,
--------------------------------------------------------
1999 % 1998 %
-------------- ------- -------------- -------
<S> <C> <C> <C> <C>
Contract research, service and license revenues $ 3,524,000 72% $ 4,535,000 79%
Manufacturing equipment sales 1,402,000 87% 1,568,000 73%
============== ==============
Total cost of sales and revenues $ 4,926,000 76% $ 6,103,000 77%
============== ==============
</TABLE>
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the quarter ended June
30, 1999 decreased $1,021,000 to $1,114,000, and increased to 42% of sales and
revenues, compared to $1,371,000 or 40% of sales and revenues for the quarter
ended June 30, 1998, primarily due to lower sales volume. For the quarter ended
June 30, 1999, the Company had no Other operating charges compared to $764,000
in the quarter ended June 30, 1998.
Depreciation and Amortization Expenses
Depreciation and amortization expenses for the six months ended June 30,
1999 increased $11,000 or 2% to $494,000, compared to $483,000 for the six
months ended June 30, 1998. Capital expenditures decreased $131,000 or 22% to
$468,000 for the six months ended June 30, 1999, compared to $599,000 for the
six months ended June 30, 1998.
9
<PAGE>
Interest
The Company earned no interest income for the quarter ended June 30,
1999, compared to $6,150 interest income for the quarter ended June 30, 1998.
The Company incurred interest expense of $21,313 in the second quarter of 1999,
primarily due to its borrowings under a revolving line of credit. The Company
incurred insignificant interest expense for the quarter ended June 30, 1998.
Income Taxes
The Company recorded no income tax expense or benefit for the quarters
ended June 30, 1999 sand 1998.
Net Earnings (Loss)
The Company reported a net loss for the quarter ended June 30, 1999 of
$558,000, compared to $1,775,000 for the quarter ended June 30, 1998. The
decline in the Company's loss resulted from no Other operating charges in 1999,
and from cost reductions implemented by the Company in 1998.
LIQUIDITY AND CAPITAL RESOURCES
To date the Company has been able to fund its liquidity requirements
using cash from operations and available lines of credit. On March 19, 1999, 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 percent. The line contains covenants including provisions
relating to profitability and net worth. As of June 30, 1999, the Company was in
default under this line, but has agreed to a new credit facility which resets
the covenant and expands debt capacity. As of June 30, 1999, the Company had
$1,400,000 outstanding debt under this revolving credit facility.
Cash and cash equivalents increased $237,000 to $359,000 at June 30,
1999, from $122,000 at December 31, 1998. To date there are no material
commitments by the Company for capital expenditures. At June 30, 1999, the
Company's accumulated deficit was $2,886,000, compared to an accumulated deficit
of $2,179,000 as of December 31, 1998. Working capital as of June 30, 1999
decreased 49% to $768,000, compared to $1,501,000 as of December 31, 1998.
Although no assurances can be made, the Company expects that cash flow from
operations, the existing line of credit with its bank, and available lease
arrangements, will be sufficient to meet its needs for working capital. However,
the Company believes it has insufficient capital resources for business
expansion. The Company has taken steps to conserve its resources by reducing its
cost of operations. In addition, the Company is exploring ways to increase
capital through possible increased debt, equity, or sale of part or all of the
Company. The Company has engaged the investment banking firms of Laird & Company
and OEM Capital to assist in this endeavor.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS 133,
"Accounting for Derivative Instruments and Hedging Activities", which
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts
(collectively referred to as "derivatives") and for hedging activities. This
statement requires that an entity recognize all derivatives as either assets or
liabilities in the balance sheet and measure those instruments at fair value.
The statement also sets forth the criteria for determining whether a derivative
may be specifically designed as a hedge of a particular exposure with the intent
of measuring the effectiveness of that hedge in the statement of operations. In
July 1999, the Financial Accounting Standards Board issued SFAS 137 which
deferred the effective date of SFAS 133 to fiscal quarters of fiscal years
beginning after June 15, 2000. Management does not believe that the adoption of
this statement will have a material impact on the Company's consolidated
financial position, results of operations or cash flows.
10
<PAGE>
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 approximately 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 because its procurement-production cycle typically ranges
from two weeks to several months, and prices generally are not fixed for more
than one year. Research and development contracts usually include cost
escalation provisions.
FOREIGN EXCHANGE FLUCTUATION
The Company sells only in U.S. dollars, generally against an irrevocable
confirmed letter of credit through a major U.S. bank. Therefore the Company is
not directly affected by foreign exchange fluctuations on its current orders.
However, fluctuations in foreign exchange rates do have an effect on the
Company's customers' access to U.S. dollars and on the pricing competition on
certain pieces of equipment that the Company sells in selected markets.
IMPACT OF THE YEAR 2000 ISSUE
The Company has identified the potential impact of the Year 2000 issue.
The Year 2000 issue relates to computer programs and embedded computer chips
being viable to distinguish between the year 1900 and the year 2000.
The Company has completed a review and assessment of potentially affected
items, including information technology and non-information technology, for Year
2000 compliance. When identifying computer programs that were not Year 2000
compliant, the Company sought to upgrade these programs to newer versions of
software that are Year 2000 compliant. The Company's main business system's
upgrade to Y2K compliant software has been installed. Data files will be
converted during the third quarter of 1999. The Company has obtained required
software. The cost of the software is estimated to not exceed $50,000.
The Company's business is also dependent upon systems of third parties,
primarily its vendors and customers. The Company has submitted questionnaires to
all of its significant vendors. The Company has analyzed their responses, and no
known problems have been identified. The Company issued questionnaires to its
customer base, and has completed an analysis of its customer base. No known
problems have been identified.
The Company believes that its most likely and reasonable worst case
scenario relating to the Year 2000 would be failure of certain of its
applications with imbedded software or failure of such applications of a
material customer or vendor. Failure of applications of embedded software could
result in a disruption of the Company's operation and thereby negatively affect
revenues and profitability. Failure of a significant vendor's information
systems could temporarily interrupt supply of materials or services and impair
the Company's ability to fill orders. If a major customer system fails to become
Year 2000 compliant, the Company's revenues could be temporarily disrupted if
the customer suspends further purchases. Although there can be no assurance that
these failures will not have an adverse effect on the Company's business, the
Company believes that any such adverse effect would not be material.
The Company is formulating contingency plans to address any such
failures. The plans include identifying Year 2000 compliant software for the
Company's internal systems, and identifying alternative vendors to assure
continuity of supplies.
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, 1998.
11
<PAGE>
PART II - OTHER INFORMATION
- ---------------------------
ITEM 1. LEGAL PROCEEDINGS
- --------------------------
The Company is subject, from time to time, to legal proceedings and
claims arising out of its business, which cover a wide range of matters.
Management, after review and consultation with counsel, considers that any
liability from all of these legal proceedings and claims would not materially
affect the consolidated financial position, results of operations or liquidity
of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------------------------------------------------------------
On May 20, 1999, the Company held a Special Meeting in Lieu of Annual
Meeting of Stockholders to vote on the following proposal:
To fix the number of directors at six and to elect six members of the
Board of Directors. Nominees for Director were: (a) Michael T. Eckhart,
(b) A. John Gale, (c) Udo Henseler, (d) Roger G. Little, (e) Roger W.
Redmond, (f) John A. Tarello.
<TABLE>
<CAPTION>
Shares Shares Voting Against Shares Broker
Proposal Voting For or Authority Withheld Abstaining Non-Votes
------------------- ------------- ----------------------- ------------ -----------
<S> <C> <C> <C> <C>
Michael T. Eckhart 2,951,499 60,625 0 231,642
A. John Gale 2,951,499 60,625 0 231,642
Udo Henseler 2,951,499 60,625 0 231,642
Roger G. Little 2,951,499 60,625 0 231,642
Roger W. Redmond 2,951,499 60,625 0 231,642
John A. Tarello 2,951,254 60,870 0 231,642
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- -----------------------------------------
A. The following exhibits are filed herewith:
27 Financial Data Schedule
B. During the quarter ended June 30, 1999, the Company filed no reports on
Form 8-K.
12
<PAGE>
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 August 1999 By: /s/ Roger G. Little
- --------------- -------------------------------------------------
Date Roger G. Little
President, Chief Executive Officer
and Chairman of the Board
13 August 1999 By: /s/ Richard S. Gregorio
- --------------- -------------------------------------------------
Date Richard S. Gregorio
Vice President and Chief Financial Officer,
Treasurer, Clerk and Principal Accounting Officer
13
