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 September 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 (I.R.S. EMPLOYER IDENTIFICATION NO.)
OF 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 3,245,016
outstanding shares of the issuer's only class of common equity, Common Stock,
$.01 par value, on October 29, 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
September 30, 1999 (unaudited) and December 31, 1998 3
Condensed Consolidated Statements of Operations
For the Three Months Ended September 30, 1999 and 1998 and
For the Nine Months Ended September 30, 1999 and 1998 (unaudited) 4
Condensed Consolidated Statements of Cash Flows
For the Nine Months Ended September 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 - 12
PART II - OTHER INFORMATION
- ---------------------------
Item 1. Legal Proceedings 12
Item 6. Exhibits and Reports on Form 8-K 12
<PAGE>
SPIRE CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------ ------------
(Unaudited)
ASSETS
<S> <C> <C>
Current assets
- --------------
Cash and cash equivalents $ 333,422 $ 121,866
Accounts receivable, trade:
Amounts billed 2,716,792 2,799,037
Retainage 50,878 62,173
Unbilled costs 428,719 355,716
------------ ------------
3,196,389 3,216,926
Less allowance for doubtful accounts 102,000 102,000
------------ ------------
Net accounts receivable 3,094,388 3,114,926
------------ ------------
Inventories (Note 2) 1,908,550 2,254,043
Prepaid expenses and other current assets 301,286 363,649
------------ ------------
Total current assets 5,637,646 5,854,484
------------ ------------
Property and equipment 26,091,593 25,675,700
Less accumulated depreciation and amortization 21,650,544 20,986,170
------------ ------------
Net property and equipment 4,441,049 4,689,530
------------ ------------
Patents (less accumulated amortization, $618,632 in 1999 and $611,650 in 1998) 188,662 214,758
Other assets 83,518 15,071
------------ ------------
272,180 229,829
------------ ------------
$ 10,350,875 $ 10,773,843
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
- -------------------
Accounts payable $ 1,751,528 $ 1,555,019
Accrued liabilities 944,737 836,846
Notes payable 1,316,560 850,000
Advances on contracts in progress 1,484,406 1,112,058
------------ ------------
Total current liabilities 5,497,231 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 9,783,769 9,780,494
Accumulated deficit (3,748,408) (2,178,845)
------------ ------------
6,073,333 7,639,608
Treasury stock at cost, 552,160 shares (1,219,688) (1,219,688)
------------ ------------
Total stockholders' equity 4,853,644 6,419,920
------------ ------------
$ 10,350,875 $ 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 SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------- --------------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales and revenues
- ----------------------
Contract research, service and license revenues $ 2,117,268 $ 2,869,262 $ 6,999,614 $ 8,604,736
Sales of manufacturing equipment 604,760 850,655 2,221,708 3,002,998
------------ ------------ ------------ ------------
Total sales and revenues 2,722,028 3,719,917 9,221,322 11,607,734
------------ ------------ ------------ ------------
Costs and expenses
- ------------------
Cost of contract research, services and licenses 1,907,020 1,698,051 5,431,079 6,058,255
Cost of manufacturing equipment 502,679 963,082 1,904,953 2,705,442
Selling, general and administrative expenses 1,141,124 1,243,596 3,373,433 4,522,905
Other operating charges -- 152,496 -- 426,112
------------ ------------ ------------ ------------
Total costs and expenses 3,550,823 4,057,225 10,709,465 13,712,714
------------ ------------ ------------ ------------
Loss from operations (828,795) (337,308) (1,488,142) (2,104,980)
- --------------------
Interest income (expense), net (33,309) 2,030 (81,421) 20,517
------------ ------------ ------------ ------------
Loss before income taxes (862,104) (335,278) (1,569,564) (2,084,463)
Income tax expense -- -- -- 9,000
------------ ------------ ------------ ------------
Net loss $ (862,104) $ (335,278) $ (1,569,564) $ (2,093,463)
- -------- ============ ============ ============ ============
Loss per share of common stock $ (0.27) $ (0.10) $ (0.48) $ (0.65)
- ------------------------------ ============ ============ ============ ============
Weighted average number of common and common
shares outstanding 3,245,016 3,243,766 3,244,266 3,232,722
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
SPIRE CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------
1999 1998
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(1,569,564) $(2,093,463)
Adjustments to reconcile net earnings (loss) to net cash used in
operating activities:
Depreciation and amortization 697,970 736,958
Deferred income taxes -- (49,578)
Changes in assets and liabilities:
Accounts receivable 20,537 233,157
Inventories 345,492 (859,552)
Prepaid expenses and other current assets 62,412 (50,997)
Accounts payable and accrued liabilities 304,401 1,138,803
Advances on contracts in progress 372,348 325,576
----------- -----------
Net cash provided by (used in) operating activities 233,596 (619,096)
----------- -----------
Cash flows from investing activities:
Additions to property and equipment (415,892) (713,810)
Increase in patent costs (7,549) (19,924)
Other assets (68,443) 3,533
----------- -----------
Net cash used in investing activities (491,888) (730,201)
----------- -----------
Cash flows from financing activities:
Net receipts on short-term debt 466,560 --
Exercise of stock options 3,287 135,414
----------- -----------
Net cash provided by financing activities 469,847 135,414
----------- -----------
Net increase (decrease) in cash and cash equivalents 211,555 (1,213,883)
Cash and cash equivalents, beginning of period 121,866 1,695,727
----------- -----------
Cash and cash equivalents, end of period $ 333,421 $ 481,844
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest expense $ 33,309 $ 2,810
=========== ===========
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
SEPTEMBER 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 September 30, 1999
and the results of operations and changes in cash flows for the nine
months ended September 30, 1999 and 1998. The results of operations for
the nine months ended September 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
-----------
Inventories consist of the following:
September 30, December 31,
1999 1998
------------ ------------
Raw materials $ 827,421 $ 776,933
Work in process 1,081,129 1,307,088
Finished goods -- 170,022
------------ ------------
$1,908,550 $2,254,043
============ ============
(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 September 30, Nine Months Ended September 30,
-------------------------------- -------------------------------
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Weighted average number of shares
outstanding - basic 3,245,016 3,243,766 3,244,266 3,232,722
Add net additional common shares
upon exercise of options -- -- -- --
--------- --------- --------- ---------
Adjusted weighted average common
shares outstanding - diluted 3,245,016 3,243,766 3,244,266 3,232,722
========= ========= ========= =========
</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 September 30, 1999
---------------------------------------------
Net sales and revenues $743,885 $1,050,266 $ 927,877 $ 2,722,028
Loss from operations (442,844) (292,559) (126,702) (862,104)
For the Three Months Ended September 30, 1998
---------------------------------------------
Net sales and revenues $1,022,711 $1,640,355 $1,056,850 $ 3,719,916
Earnings (loss) from operations (248,251) (102,656) 15,629 (335,278)
For the Nine Months Ended September 30, 1999
--------------------------------------------
Net sales and revenues $2,937,183 $3,369,810 $2,914,329 $ 9,221,322
Earnings (loss) from operations (819,437) (592,985) 158,142 (1,569,564)
For the Nine Months Ended September 30, 1998
--------------------------------------------
Net sales and revenues $3,504,554 $5,016,674 $3,086,500 $11,607,734
Loss from operations (839,043) (853,515) (400,904) (2,093,463)
</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 nine months ended
September 30, 1999 declined, compared to the three and nine months ended
September 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 September 30, Nine Months Ended September 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 88.5 71.5 79.6 75.5
-------------- --------------- ------------- ---------------
Gross profit (11.5) 28.5 (20.4) 24.5
Selling, general and administrative exp. 41.9 33.5 36.6 42.6
Other operating charge -- 4.0 -- --
-------------- --------------- ------------- ---------------
Loss from operations (31.7) (9.0) (16.1) (18.0)
Loss before income taxes (31.7) (9.0) (17.0) (18.0)
Income tax expense -- -- -- --
-------------- --------------- ------------- ---------------
Net loss (31.7%) (9.0%) (17.0%) (18.0%)
============== =============== ============= ===============
</TABLE>
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THREE AND NINE MONTHS
ENDED SEPTEMBER 30, 1998
NET SALES AND REVENUES
Net sales and revenues decreased $998,000 or 27% for the three months
ended September 30, 1999 to $2,722,000, compared to $3,720,000 for the three
months ended September 30, 1998. Contract research, service and license revenues
decreased $752,000 or 26% to $2,117,000 for the three months ended September 30,
1999 compared to $2,869,000 for 1998. Manufacturing equipment sales decreased
$246,000 or 29% to $605,000 for 1999, compared to $851,000 for 1998. The
following table categorizes the Company's net sales and revenues for the periods
presented:
<TABLE>
<CAPTION>
Three Months Ended September 30,
------------------------------------------------------
1999 1998 % Change
------------- -------------- -----------------
<S> <C> <C> <C>
Contract research, service and license revenues $2,117,000 $2,869,000 (26%)
Manufacturing equipment sales 605,000 851,000 (29%)
------------- --------------
Net sales and revenues $2,722,000 $3,720,000 (27%)
============= ==============
</TABLE>
Net sales and revenues decreased $2,387,000 or 21% for the nine months
ended September 30, 1999 to $9,221,000, compared to $11,608,000 for the nine
months ended September 30, 1998. Contract research, service and license revenues
decreased $1,605,000 or 19% to $7,000,000 for the nine months ended September
30, 1999 compared to $8,605,000 for 1998. Manufacturing equipment sales
decreased $781,000 or 26% to $2,222,000 for 1999, compared to $3,003,000 for
1998.
The following table categorizes the Company's net sales and revenues for
the periods presented:
<TABLE>
<CAPTION>
Nine Months Ended September 30,
----------------------------------------------------
1999 1998 % Change
-------------- --------------- -------------
<S> <C> <C> <C>
Contract research, service and license revenues $7,000,000 $ 8,605,000 (19%)
Manufacturing equipment sales 2,222,000 3,003,000 (26%)
-------------- ---------------
Net sales and revenues $9,221,000 $11,608,000 (21%)
============== ===============
</TABLE>
The decline in manufacturing equipment sales for the three and nine month
periods ended September 30, 1999 is primarily due to limited capacity expansion
in photovoltaic module production during the first part of 1999. However the
industry is currently experiencing a moderate expansion. The decline in contract
research, service and license revenues for the three and nine month periods
ended September 30, 1999 is primarily due to a decline in contract billings as
more of the
8
<PAGE>
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 research activities.
COST OF SALES AND REVENUES
The cost of sales and revenues decreased $251,000 to $2,410,000, and
increased to 75% of net sales and revenues, for the quarter ended September 30,
1999, compared to $2,661,000 or 72% of net sales and revenues for the quarter
ended September 30, 1998.
The cost of contract research, service and license revenues increased
$209,000 to $1,907,000, and increased to 90% of related revenues, for the
quarter ended September 30, 1999, compared to $1,698,000 or 59% of related
revenues. The increase is due to lower volume. Cost of manufacturing equipment
sales decreased $460,000 to $503,000, and decreased to 83% of related sales, for
the quarter ended September 30, 1999, compared to $963,000 or 113% of related
sales, for the quarter ended September 30, 1998. Cost of manufacturing equipment
sales decreased due to product mix.
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 September 30,
----------------------------------------------------
1999 % 1998 %
-------------- -------- --------------- ---------
<S> <C> <C> <C> <C>
Contract research, service and license revenues $1,907,000 90% $1,698,000 59%
Manufacturing equipment sales 503,000 83% 963,000 113%
-------------- ---------------
Total cost of sales and revenues $2,410,000 89% $2,661,000 72%
============== ===============
</TABLE>
The cost of sales and revenues decreased $1,428,000 to $7,336,000, or 76%
of net sales and revenues, for the nine months ended September 30, 1999,
compared to $8,764,000 or 75% of net sales and revenues for the quarter ended
September 30, 1998.
The cost of contract research, service and license revenues decreased
$627,000 to $5,431,000, but increased to 80% of related revenues, for the nine
months ended September 30, 1999, compared to $6,058,000 or 70% of related
revenues for the nine months ended September 30, 1998. The decrease in cost of
sales, and increase as a percentage of sales is due to lower volume. Cost of
manufacturing equipment sales decreased $801,000 to $1,905,000, and decreased to
86% of related sales, for the nine months ended September 30, 1999, compared to
$2,706,000 or 90% of related sales, for the nine months ended September 30,
1998. Cost of manufacturing equipment sales decreased due to product mix.
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>
Nine Months Ended September 30,
--------------------------------------------------
1999 % 1998 %
-------------- -------- ------------- ---------
<S> <C> <C> <C> <C>
Contract research, service and license revenues $5,431,000 78% $6,058,000 70%
Manufacturing equipment sales 1,905,000 86% 2,706,000 90%
-------------- --------------
Total cost of sales and revenues $7,336,000 80% $8,764,000 75%
============== ==============
</TABLE>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses for the quarter ended
September 30, 1999 decreased $102,000 to $1,141,000, and increased to 42% of
sales and revenues, compared to $1,244,000 or 33% of sales and revenues for the
quarter ended September 30, 1998, primarily due to lower sales volume. For the
quarter ended September 30, 1999, the Company had no other operating charges
compared to $153,000 in the quarter ended September 30, 1998.
9
<PAGE>
DEPRECIATION AND AMORTIZATION EXPENSES
Depreciation and amortization expenses for the nine months ended
September 30, 1999 decreased $39,000 or 5% to $698,000, compared to $737,000 for
the nine months ended September 30, 1998. Capital expenditures decreased
$298,000 or 42% to $416,000 for the nine months ended September 30, 1999,
compared to $714,000 for the nine months ended September 30, 1998.
INTEREST
The Company earned no interest income for the quarter ended September 30,
1999, compared to $3,000 in interest income for the quarter ended September 30,
1998. The Company incurred interest expense of $40,097 in the third quarter of
1999 of which $6,703 was capitalized, primarily due to its borrowings under a
revolving line of credit. The Company incurred insignificant interest expense
for the quarter ended September 30, 1998.
INCOME TAXES
The Company recorded no income tax expense or benefit for the nine months
ended September 30, 1999 and income tax expense of $9,000 for the nine months
ended September 30, 1998. At September 30, 1998, the Company had gross deferred
tax assets of $349,578, 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 LOSS
The Company reported a net loss for the quarter ended September 30, 1999
of $862,000, compared to $335,000 for the quarter ended September 30, 1998.
LIQUIDITY AND CAPITAL RESOURCES
To date the Company has been able to fund its liquidity requirements
using cash from operations, an advanced payment for the sale of a license to a
customer for $500,000 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 September 30, 1999, the Company
was in default under this line, but has subsequently received a waiver from the
bank. As of September 30, 1999, the Company had $1,317,000 outstanding debt
under this revolving credit facility.
Cash and cash equivalents increased $211,000 to $333,000 at September 30,
1999, from $122,000 at December 31, 1998. To date there are no material
commitments by the Company for capital expenditures. At September 30, 1999, the
Company's accumulated deficit was $3,248,000, compared to an accumulated deficit
of $2,179,000 as of December 31, 1998. Working capital as of September 30, 1999
decreased 57% to $640,000, 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. On October 11, 1999, the Company announced that it entered into a
Letter of Intent to sell substantially all the assets of the Company's
Optoelectronics business for approximately $13,000,000 in cash.
10
<PAGE>
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.
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 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 computer programs that were not Year 2000 compliant have
been identified, the Company sought to upgrade these programs to newer versions
of software that are Year 2000 compliant. The Company's main concern has been
its financial systems software, and its Year 2000 upgrade was completed in the
third quarter. All of the Company's server and desktop software is compliant or
compliant with minor issues. The Company has acquired the patches required to
correct the minor issues and will install and test them by the end of November.
One other application, a tracking program for the Company's Biomedical division,
is scheduled to be completed by the end of November. The Company has acquired
and installed all other required software.
The Company's business is also dependent upon systems of third parties,
primarily its vendors and customers. It is the Company's intent to certify that
all of its vendors and suppliers are Year 2000 compliant so that its ability to
service its customers will not be impacted by any Year 2000 issues. Starting in
the fourth quarter of 1998, the Company submitted questionnaires to all of its
significant vendors and is collecting and analyzing the responses. This process
is mostly complete, and no problems have been identified. The Company expects to
complete the analysis in the fourth quarter of 1999. During the fourth quarter
of 1998, the Company issued questionnaires to its customer base. The Company
substantially completed the analysis of its customer base in the second quarter
of 1999 and found no issues.
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. 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
11
<PAGE>
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.
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 6. EXHIBITS AND REPORTS ON FORM 8-K
- ------- --------------------------------
A. The following exhibits are filed herewith:
27 Financial Data Schedule
B. During the quarter ended September 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)
12 November 1999 By: /s/Roger G. Little
- -------------------------- --------------------------------------
Date Roger G. Little
President, Chief Executive Officer and
Chairman of the Board
12 November 1999 By: /s/Richard S. Gregorio
- -------------------------- --------------------------------------
Date Richard S. Gregorio
Vice President and Chief Financial
Officer, Treasurer, Clerk and
Principal Accounting Officer
13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE SPIRE
CORPORATION UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS AND STATEMENTS OF
OPERATIONS ON FORM 10-QSB FOR THE PERIOD ENDED SEPTEMBER 30, 1999 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-QSB.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JUL-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 333,422
<SECURITIES> 0
<RECEIVABLES> 3,196,389
<ALLOWANCES> 102,000
<INVENTORY> 1,908,550
<CURRENT-ASSETS> 3,094,388
<PP&E> 26,091,593
<DEPRECIATION> 21,650,544
<TOTAL-ASSETS> 10,350,875
<CURRENT-LIABILITIES> 5,497,231
<BONDS> 0
0
0
<COMMON> 37,972
<OTHER-SE> 4,815,672
<TOTAL-LIABILITY-AND-EQUITY> 10,350,875
<SALES> 604,760
<TOTAL-REVENUES> 2,722,028
<CGS> 502,679
<TOTAL-COSTS> 3,550,823
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (33,309)
<INCOME-PRETAX> (862,104)
<INCOME-TAX> 0
<INCOME-CONTINUING> (862,104)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (862,104)
<EPS-BASIC> (0.27)
<EPS-DILUTED> (0.27)
</TABLE>
