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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, 2002.
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
-----------------------------------------------------------
(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 NUMBER)
ONE PATRIOTS PARK, BEDFORD, MASSACHUSETTS 01730-2396
- ----------------------------------------- ----------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(781) 275-6000
------------------------------------------------
(ISSUER'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $.01 par value
------------------------------------------------
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 |_|
As of July 31, 2002, there were 6,735,757 shares of common stock, $.01 par
value, issued and outstanding.
Transitional Small Business Disclosure Format (Check One): Yes |_| No |X|
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SPIRE CORPORATION
INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
Condensed Consolidated Balance Sheets at June 30, 2002 3
(unaudited) and December 31, 2001
Condensed Consolidated Statements of Operations 4
For the three months ended June 30, 2002 and 2001 and
For the six months ended June 30, 2002 and 2001 (unaudited)
Condensed Consolidated Statements of Cash Flows 5
For the six months ended June 30, 2002 and 2001 (unaudited)
Notes to Condensed Consolidated Financial Statements (unaudited) 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations. 8
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders. 13
Item 6. Exhibits and Reports on Form 8-K. 13
SIGNATURES
EXHIBIT 99.1
EXHIBIT 99.2
2
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SPIRE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, DECEMBER 31,
2002 2001
------------ ------------
(UNAUDITED)
ASSETS
Current assets
- --------------
Cash and cash equivalents $ 4,441,133 $ 5,582,884
Accounts receivable, trade:
Amounts billed 4,417,162 3,422,525
Retainage 78,555 99,838
Unbilled costs 448,531 316,819
------------ ------------
4,944,248 3,839,182
Less allowance for doubtful accounts 237,973 152,000
------------ ------------
Net accounts receivable 4,706,275 3,687,182
------------ ------------
Inventories 1,974,738 1,224,451
Prepaid expenses and other current assets 340,703 333,145
------------ ------------
Total current assets 11,462,848 10,827,662
------------ ------------
Property and equipment 16,383,412 16,396,476
Less accumulated depreciation and amortization 13,623,976 13,243,038
------------ ------------
Net property and equipment 2,759,436 3,153,438
------------ ------------
Patents (less accumulated amortization, $495,165 in
2002 and $490,867 in 2001) 337,424 234,813
Other assets 592,920 598,732
------------ ------------
930,344 833,545
------------ ------------
$ 15,152,629 $ 14,814,645
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
- -------------------
Accounts payable $ 2,012,523 $ 1,422,332
Accrued liabilities 2,009,899 1,304,299
Notes payable -- 875,000
Advances on contracts in progress 952,282 466,513
------------ ------------
Total current liabilities 4,974,704 4,068,144
------------ ------------
Unearned purchase discount 1,478,102 1,478,102
Stockholders' equity
- --------------------
Common stock, $.01 par value; shares authorized
20,000,000; issued 6,732,660 shares in 2002
and 6,732,660 shares in 2001 67,494 67,327
Additional paid-in capital 9,010,990 8,976,483
Retained earnings (deficit) (378,661) 224,589
------------ ------------
Total stockholders' equity 8,699,823 9,268,399
------------ ------------
$ 15,152,629 $ 14,814,645
============ ============
See accompanying notes to condensed consolidated financial statements.
3
SPIRE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
------------------------------ ------------------------------
2002 2001 2002 2001
------------ ------------ ------------ ------------
Net sales and revenues
- ----------------------
Contract research, service and license revenues $ 1,725,103 $ 1,274,287 $ 3,365,753 $ 2,525,488
Sales of goods 2,836,348 1,690,012 4,522,215 3,658,681
------------ ------------ ------------ ------------
Total sales and revenues 4,561,451 2,964,299 7,887,968 6,184,169
------------ ------------ ------------ ------------
Costs and expenses
- ------------------
Cost of contract research, services and licenses 1,022,160 1,046,779 2,263,771 1,937,438
Cost of goods sold 2,204,552 1,401,256 3,600,493 3,019,660
Selling, general and administrative expenses 1,343,297 1,353,385 2,639,991 2,747,637
------------ ------------ ------------ ------------
Total costs and expenses 4,570,009 3,801,420 8,504,255 7,704,735
------------ ------------ ------------ ------------
Loss from operations (8,558) (837,121) (616,287) (1,520,566)
- --------------------
Interest income, net 10,098 59,997 13,137 139,951
------------ ------------ ------------ ------------
Earnings (loss) before income taxes 1,541 (777,124) (603,150) (1,380,615)
Income tax expense (benefit) 100 (79,998) 100 (79,998)
------------ ------------ ------------ ------------
Net earnings (loss) $ 1,441 $ (697,126) $ (603,250) $ (1,300,617)
============ ============ ============ ============
Earnings (loss) per share of common stock - basic $ 0.00 $ (0.10) $ (0.09) $ (0.19)
============ ============ ============ ============
Earnings (loss) per share of common stock - diluted $ 0.00 $ (0.10) $ (0.09) $ (0.19)
============ ============ ============ ============
Weighted average number of common and common
equivalent shares outstanding - basic 6,735,757 6,707,763 6,735,757 6,696,377
============ ============ ============ ============
Weighted average number of common and common
equivalent shares outstanding - diluted 6,868,102 6,707,763 6,735,757 6,696,377
============ ============ ============ ============
See accompanying notes to condensed consolidated financial statements.
4
SPIRE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
SIX MONTHS ENDED JUNE 30,
------------------------------
2002 2001
------------ ------------
Cash flows from operating activities:
Net loss $ (603,250) $ (1,300,617)
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
Depreciation and amortization 398,707 285,550
Loss on sale and abandonment of assets -- 25,740
Deferred incomes taxes -- 200,000
Changes in assets and liabilities (excluding the impact of assets sold):
Accounts receivable (1,019,093) 484,674
Inventories (662,729) (450,386)
Prepaid expenses and other current assets (7,558) 66,268
Income taxes payable -- --
Accounts payable and accrued liabilities 1,295,791 224,011
Deferred revenues -- 969,773
Advances on contracts in progress 485,769 (726,254)
------------ ------------
Net cash provided by (used in) operating activities (112,363) (248,245)
------------ ------------
Cash flows from investing activities:
Additions to property and equipment (87,965) (135,180)
Increase in patent costs (106,909) (68,428)
Other assets 5,812 (1,400)
------------ ------------
Net cash used in investing activities (189,062) (205,008)
------------ ------------
Cash flows from financing activities:
Net borrowings (repayments) on short-term debt (875,000) 325,000
Exercise of stock options 34,674 97,028
------------ ------------
Net cash provided by (used in) financing activities (840,326) 422,028
------------ ------------
Net increase (decrease) in cash and cash equivalents (1,141,751) (31,221)
Cash and cash equivalents, beginning of period 5,582,884 7,463,382
------------ ------------
Cash and cash equivalents, end of period $ 4,441,133 $ 7,432,161
============ ============
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 30,238 $ 39,402
============ ============
Income taxes $ 100 $ (285,998)
============ ============
See accompanying notes to condensed consolidated financial statements.
5
SPIRE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
JUNE 30, 2002
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, 2002 and the results of
operations for the three and six months ended June 30, 2002 and 2001 and cash
flows for the six months ended June 30, 2002 and 2001. The results of operations
for the three and six months ended June 30, 2002 are not necessarily indicative
of the results to be expected for the fiscal year ending December 31, 2002.
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, 2001.
The financial statements, with the exception of the December 31, 2001
balance sheet, are unaudited and have not been examined by independent certified
public accountants.
2. INVENTORIES.
Inventories consist of the following:
June 30, December 31,
2002 2001
---------- ----------
Raw materials $1,001,918 $ 859,114
Work in process 958,320 365,337
Finished goods 14,500 --
---------- ----------
$1,974,738 $1,224,451
========== ==========
3. EARNINGS (LOSS) PER SHARE.
The following table provides a reconciliation of the denominators of the
Company's reported basic and diluted earnings (loss) per share computations for
the periods ended:
Three Months Ended June 30, Six Months Ended June 30,
------------------------- -------------------------
2002 2001 2002 2001
---------- ---------- ---------- ----------
Weighted average number of common
shares outstanding - basic 6,735,757 6,707,763 6,735,757 6,696,377
Add net additional common shares upon
exercise of common stock options 139,550 -- -- --
---------- ---------- ---------- ----------
Adjusted weighted average common
shares outstanding - diluted 6,868,102 6,707,763 6,735,757 6,696,377
========== ========== ========== ==========
At June 30, 2001, 239,062 shares of common stock issuable under stock
options, respectively, were not included in the calculation of diluted earnings
per share because their effect would be antidilutive.
6
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.
Solar Solar Spire Total
Equipment Systems Biomedical Biophotonics Company
------------ ------------ ------------ ------------ ------------
For the three months ended June 30, 2002
- ----------------------------------------
Net sales and revenues $ 886,991 $ 1,771,640 $ 1,685,475 $ 217,345 $ 4,561,451
Earnings (loss) from operations (338,253) 217,229 104,973 7,495 (8,558)
For the three months ended June 30, 2001
- ----------------------------------------
Net sales and revenues $ 905,665 $ 936,520 $ 874,411 $ 247,703 $ 2,964,299
Earnings (loss) from operations (179,133) (349,480) (329,904) 21,396 (837,121)
For the six months ended June 30, 2002
- --------------------------------------
Net sales and revenues $ 2,042,860 $ 2,474,610 $ 2,940,463 $ 430,034 $ 1,887,967
Earnings (loss) from operations (481,070) (73,336) (66,098) 4,216 (616,288)
For the six months ended June 30, 2001
- --------------------------------------
Net sales and revenues $ 3,018,621 $ 956,263 $ 1,758,266 $ 451,019 $ 6,184,169
Loss from operations (345,935) (560,780) (560,115) (53,716) (1,520,566)
5. OTHER INTANGIBLE ASSETS.
In July 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 142, Goodwill and Other
Intangible Assets. The Company has adopted SFAS 142 as of January 1, 2002. SFAS
142 requires goodwill and intangible assets with indefinite lives to no longer
be amortized, but instead be tested for impairment at least annually. With the
adoption of SFAS 142, the Company reassessed the useful lives and residual
values of all acquired intangible assets to make any necessary amortization
period adjustments. Based on that assessment, no adjustments were made to the
amortization period or residual values of other intangible assets.
Other intangible assets amounted to $337,424 (net of accumulated
amortization of $495,165) and $234,813 (net of accumulated amortization of
$490,867) at June 30, 2002 and December 31, 2001, respectively. These intangible
assets primarily consist of patents that the Company had been awarded and are
amortized over their useful lives or their terms, principally five years. There
are no expected residual values related to these intangible assets. Amortization
expense for the six months ended June 30, 2002 was $6,965. Estimated fiscal year
amortization expense is as follows:
Amortization
Year Expense
-------- ------------
2002 $ 8,390
2003 51,902
2004 51,731
2005 47,838
2006 45,421
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
THIS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS SECTION AND OTHER PARTS OF THIS REPORT CONTAIN
FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S
ACTUAL RESULTS AND THE TIMING OF CERTAIN EVENTS MAY DIFFER SIGNIFICANTLY FROM
THE RESULTS AND TIMING DISCUSSED IN THE FORWARD-LOOKING STATEMENTS. FACTORS THAT
COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES 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, 2001.
Overview.
- --------
Spire Solar is a leading supplier of solar electric module manufacturing
equipment, turnkey production lines and solar energy businesses. The Company's
advanced module manufacturing equipment and turnkey production lines have been
installed in more than 140 factories in 40 countries.
Spire Biomedical, Inc., a wholly owned subsidiary of Spire Corporation,
provides premium medical products and biotechnology surface engineering services
for improving the performance of implantable medical devices.
During the quarter, Mr. Rodger LaFavre became Vice President and Chief
Financial Officer for Spire Solar Operations and Dr. Christian Dufresne became
Chief Financial Officer for Spire Biomedical, Inc. Both of these individuals
have demonstrated their abilities for these roles as employees of Spire, in
related capacities over the past two years. In addition, Mr. Gregory Towle has
rejoined the Company as the Controller.
Results of Operations.
- ---------------------
The following table sets forth certain items as a percentage of net sales
and revenues for the periods presented:
Three Months Ended June 30, Six Months Ended June 30,
-------------------- ---------------------
2002 2001 2002 2001
------ ------ ------ ------
Net sales and revenues 100% 100% 100% 100%
Cost of sales and revenues 71 83 74 80
------ ------ ------ ------
Gross profit 31 17 27 20
Selling, general and administrative expenses 29 46 33 44
------ ------ ------ ------
Loss from operations -- (28) (8) (25)
Loss before income taxes -- (26) (8) (22)
Income tax expense (benefit) -- 3 -- 1
------ ------ ------ ------
Net earnings (loss) 0% (24%) (8%) (21%)
====== ====== ====== ======
Three and Six Months Ended June 30, 2002 Compared to Three and Six Months Ended
- -------------------------------------------------------------------------------
June 30, 2001.
- --------------
NET SALES AND REVENUES
Net sales and revenues increased $1,597,000 or 54% for the three months
ended June 30, 2002 to $4,561,000, compared to $2,964,000 for the three months
ended June 30, 2001. Contract research, service and license revenues increased
$451,000 or 35% to $1,725,000 for the three months ended June 30, 2002 compared
to $1,274,000 for 2001. Sales of goods increased $1,146,000 or 68% to $2,836,000
for 2002, compared to $1,690,000 for 2001.
The following table categorizes the Company's net sales and revenues for
the periods presented:
Three Months Ended June 30,
----------------------------------------
2002 2001 % Change
---------- ---------- ----------
Contract research, service and license revenues $1,725,000 $1,274,000 35%
Sales of goods 2,836,000 1,690,000 68%
---------- ----------
Net sales and revenues $4,561,000 $2,964,000 54%
========== ==========
8
The increase in sales of goods for the three month period ended June 30,
2002 is primarily due to increased demand for PV systems. The increase in the
contract research, service and license revenues are a result of an increased
demand for the Company's processing services.
Net sales and revenues increased $1,704,000 or 28% for the six months ended
June 30, 2002 to $7,888,000, compared to $6,184,000 for the six months ended
June 30, 2001. Contract research, service and license revenues increased
$841,000 or 33% to $3,366,000 for the six months ended June 30, 2002 compared to
$2,525,000 for 2001. Sales of goods increased $864,000 or 24% to $4,522,000 for
2002, compared to $3,659,000 for 2001.
The following table categorizes the Company's net sales and revenues for
the periods presented:
Six Months Ended June 30,
----------------------------------------
2002 2001 % Change
---------- ---------- ----------
Contract research, service and license revenues $3,366,000 $2,525,000 33%
Sales of goods 4,522,000 3,659,000 24%
---------- ----------
Net sales and revenues $7,888,000 $6,184,000 28%
========== ==========
The increase in sales of goods for the six month period ended June 30, 2002
is primarily due to increased demand for PV systems. The increase in contract
research, service and license revenues for the six month period ended June 30,
2002 is attributed to the increase in contract research, service and license
revenues and an increase in the demand in the Company's biomedical processing
services as well as a growth in United States government research and
development contracts.
COST OF SALES AND REVENUES
The cost of contract research, service and license revenues decreased
$25,000 to $1,022,000, decreasing to 59% of related revenues for the three
months ended June 30, 2002, compared to $1,047,000 or 82% of related revenues
for the three months ended June 30, 2001. The increase is due to a change in
product mix. Cost of goods sold increased $804,000 to $2,205,000, but decreased
to 78% of related sales, for the three months ended June 30, 2002, compared to
$1,401,000 or 83% of related sales for the three months ended June 30, 2001. The
cost of sales and revenues increased $699,000 to $3,148,000, and decreased to
69% of net sales and revenues, for the quarter ended June 30, 2002, compared to
$2,448,000 or 83% of net cost of sales and revenues for the quarter ended June
30, 2001.
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:
Three Months Ended June 30,
------------------------------------
2002 % 2001 %
---------- ----- ---------- -----
Cost of contract research, service
and license revenues $1,022,000 59% $1,047,000 82%
Cost of goods sold 2,205,000 78% 1,401,000 83%
---------- ----------
Total cost of sales and revenues $3,148,000 69% $2,448,000 83%
========== ==========
The cost of contract research, service and license revenues increased
$327,000 to $2,264,000, decreasing to 67% of related revenues for the six months
ended June 30, 2002, compared to $1,937,000 or 77% of related revenues for the
six months ended June 30, 2001. The increase is due to higher volume of sales in
the processing services. Cost of goods sold increased $580,000 to $3,600,000,
but decreased to 80% of related sales, for the six months ended June 30, 2002,
compared to $3,020,000 or 83% of related sales for the six months ended June 30,
2001, due to a change in product mix. The cost of sales and revenues increased
$772,000 to $5,729,000, and decreased to 73% of net sales and revenues, for the
six months ended June 30, 2002, compared to $4,957,000 or 80% of net cost of
sales and revenues for the six months ended June 30, 2001.
9
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:
Six Months Ended June 30,
------------------------------------
2002 % 2001 %
---------- ----- ---------- -----
Cost of contract research, service
and license revenues $2,264,000 67% $1,937,000 77%
Cost of goods sold 3,600,000 80% 3,020,000 83%
---------- ----------
Total cost of sales and revenues $5,729,000 73% $4,957,000 80%
========== ==========
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses for the three months ended
June 30, 2002 decreased $10,000 to $1,343,000, and decreased to 29% of sales and
revenues, compared to $1,353,000 or 46% of sales and revenues for the three
months ended June 30, 2001. The decrease in selling, general and administrative
expenses and decrease as a percentage of sales and revenues are due to the
continued cost containment efforts implemented by the Company.
Selling, general and administrative expenses for the six months ended June
30, 2002 decreased $108,000 to $2,640,000, and decreased to 33% of sales and
revenues, compared to $2,748,000 or 44% of sales and revenues for the six months
ended June 30, 2001.
INTEREST
The Company earned $20,000 of interest income for the quarter ended June
30, 2002, compared to $80,000 of interest income for the quarter ended June 30,
2001. The Company incurred interest expense of $10,000 for the quarter ended
June 30, 2002 of which zero was capitalized, compared to $20,000 in the second
quarter of 2001 of which $2,000 was capitalized. The decline of interest income
is due to the Company's utilization of available cash to fund operations.
INCOME TAXES
The Company recorded no tax benefit for the quarter ended June 30, 2002,
compared to a tax benefit of $80,000 for the quarter ended June 30, 2001. The
Company recorded no tax benefit for the six months ended June 30, 2002, compared
to a tax benefit of $80,000 for the six months ended June 30, 2001.
NET EARNINGS (LOSS)
The Company reported net earnings for the quarter ended June 30, 2002 of
$1,000, compared to a net loss of $697,000 for the quarter ended June 30, 2001.
The Company reported a net loss of $603,000 for the six months ended June 30,
2002, compared to a net loss of $1,301,000 for the same period of 2001. The loss
for the six months is attributed to manufacturing cycles in its photovoltaic
equipment business, as well as the Company's investment in a new product. The
Company began selling a hemodialysis catheter through a distributor network.
Liquidity and Capital Resources.
- -------------------------------
To date the Company has been able to fund its operating cash requirements
by using proceeds from sale of assets, operations and available lines of credit.
On July 25, 2000, the Company entered into a new revolving credit agreement with
the Silicon Valley Bank. The Agreement was amended in January 2002 due to the
Company's violation of certain financial covenants, and the line of credit was
extended until April 2002. The Company has negotiated an amendment to extend the
agreement until April 23, 2003. The agreement provides for a $2 million
revolving credit facility, based upon eligible accounts receivable requirements.
The line of credit provides 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. At June 30, 2002, interest on
the line was at the Bank's prime rate plus 1/2 percent. The line contains
covenants including provisions relating to profitability and liquidity.
Borrowings on the line are classified as a current liability. As of June 30,
2002, the Company had no outstanding debt under this revolving credit facility.
Spire opened a Certificate of Deposit in the amount of $29,865 to protect the
outstanding Standby Letter of Credit Guarantee with a foreign customer.
The Company believes it has sufficient resources to finance its current
operations for at least the next twelve months through working capital, its
existing line of credit and available lease arrangements. Cash and cash
equivalents decreased
10
$1,142,000 to $4,441,000 at June 30, 2002 from $5,583,000 at December 31, 2001.
To date, there are no material commitments by the Company for capital
expenditures. At June 30, 2002, the Company's retained deficit was $379,000,
compared to retained earnings of $225,000 as of December 31, 2001. Working
capital as of June 30, 2002 decreased 4% to $6,487,000, from $6,759,000 as of
December 31, 2001.
Recent Accounting Pronouncements.
- --------------------------------
In July 2001, the FASB issued SFAS No. 142, Goodwill and Other Intangible
Assets. The Company has adopted SFAS 142 as of January 1, 2002. SFAS 142
requires goodwill and intangible assets with indefinite lives to no longer be
amortized, but instead be tested for impairment at least annually. With the
adoption of SFAS 142, the Company reassessed the useful lives and residual
values of all acquired intangible assets to make any necessary amortization
period adjustments. Based on that assessment, no adjustments were made to the
amortization period or residual values of other intangible assets.
SFAS No. 143, "Accounting For Asset Retirement Obligations," issued in
August 2001, addresses financial accounting and reporting for obligations
associated with the retirement of tangible long-lived assets and for the
associated retirement costs. SFAS 143 which applies to all entities that have a
legal obligation associated with the retirement of a tangible long-lived asset
is effective for fiscal years beginning after June 15, 2001. The Company does
not expect the implementation of SFAS 143 to have a material impact on its
financial condition or results of operations.
SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets," issued in October 2001, addresses financial accounting and reporting
for the impairment or disposal of long-lived assets. SFAS 144, which applies to
all entities, is effective for fiscal years beginning after December 15, 2001.
The Company's adoption of SFAS 144 did not have a material impact on its
financial condition or results of operations.
In April 2002 the FASB issued SFAS No. 145, "Rescission of FASB Statement
Nos. 4, 44, and 64, Amendment of FASB Statement No. 13 and Technical
Corrections," effective for fiscal years beginning May 15, 2002 or later. It
rescinds SFAS No. 4, "Reporting Gains and Losses From Extinguishments of Debt,"
SFAS No. 64, "Extinguishments of Debt to Satisfy Sinking-Fund Requirements," and
SFAS No. 44, "Accounting for Intangible Assets of Motor Carriers." This
Statement also amends SFAS No. 13, "Accounting for Leases to eliminate an
inconsistency between the required accounting for sale-leaseback transactions
and the required accounting for certain lease modifications that have economic
effects that are similar to sale-leaseback transactions. This Statement also
amends other existing authoritative pronouncements to make various technical
corrections, clarify meanings or describe their applicability under changed
conditions. We do not believe the impact of adopting SFAS No. 145 will have a
material impact on our financial statements.
In June 2002 the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities.". SFAS No. 146 requires companies to recognize
costs associated with exit or disposal activities when they are incurred rather
than at the date of commitment to an exit or disposal plan. This statement is
effective for exit or disposal activities initiated after December 31, 2002. We
do not believe the impact of adopting SFAS No. 145 will have a material impact
on our financial statements.
Impact of Inflation and Changing Prices.
- ---------------------------------------
Historically, the Company's business has not been materially impacted by
inflation. Manufacturing equipment sales and solar systems 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 United States 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.
11
Related Party Transactions.
- --------------------------
The Company subleases 74,000 square feet in a building from Mykrolis
Corporation, which leases the building from a Trust of which Roger G. Little,
Chief Executive Officer, is sole trustee and principal beneficiary. The Company
believes that the terms of the sublease are commercially reasonable. The 1985
sublease originally was for a period of ten years, was extended for a five-year
period expiring on November 30, 2000 and was further extended for a five-year
period expiring on November 30, 2005. The agreement provides for minimum rental
payments plus annual increases linked to the consumer price index. Total rent
expense under this sublease was $999,000 in 2001. This amount does not take into
account rent received by the Company for subleasing approximately 22,000 square
feet of its 74,000 square feet to the purchaser of the Company's optoelectronics
business.
Critical Accounting Policy - Revenue Recognition.
- ------------------------------------------------
The Company derives its revenues from three primary sources: (1) sales of
solar energy manufacturing equipment and solar energy systems; (2) biomedical
processing services; and (3) U.S. government funded research and development
contracts.
The Company's OEM capital equipment solar energy business builds complex
customized machines to order for specific customers. Substantially all of these
orders are sold on a FOB Bedford, Massachusetts basis. It is the Company's
policy to recognize revenues for this equipment as the product is shipped to the
customer as customer acceptance is obtained prior to shipment and the equipment
is expected to operate the same in the customer's environment as it does in the
Company's. When an arrangement with the customer includes future obligations or
customer acceptance, revenue is recognized when those obligations are met or
customer acceptance has been achieved. The Company's solar energy systems
business installs solar energy systems on customer owned properties on a
contractual basis. Generally, revenue is recognized once the systems have been
installed and the title is passed to the customer. For arrangements with a
number of elements, the Company allocates fair value to each element based on
rates quoted in the contract and revenue is recognized upon delivery of the
element. The Company's biomedical subsidiary performs surface engineering
services to various medical device manufacturers on a contractual basis. The
Company recognizes revenue as the products are shipped back to the customer. The
Company recognizes revenues and estimated profits on long term government
contracts on a percentage of completion method of accounting using a cost to
cost methodology. Profit estimates are revised periodically based upon changes
and facts, and any losses on contracts are recognized immediately. Some of the
contracts include provisions to withhold a portion of the contract value as
retainage until such time as the U.S. Government performs an audit of the cost
incurred under the contract. The Company's policy is to take into revenue the
full value of the contract, including any retainage, as it performs against the
contract since the Company has not experienced any substantial losses as a
result of an audit performed by the Government.
Contractual Obligations and Commercial Commitments.
- --------------------------------------------------
The following table summarizes the Company's contractual obligations at
June 30, 2002 and the maturity periods and the effect that such obligations are
expected to have on its liquidity and cash flows in future periods:
Payments Due by Period
------------------------------------------------------------------
Less than After
Contractual Obligation Total 1 Year 1-3 Years 4-5 Years 5 Years
- ------------------------------- ---------- ---------- ---------- ---------- ----------
Notes payable $ -- $ -- $ -- $ -- $ --
Non-cancelable operating leases 4,837,000 1,262,000 2,400,000 1,175,000 --
Standby letters of credit 29,866 29,866 -- -- --
---------- ---------- ---------- ---------- ----------
Total commercial commitments $4,866,866 $1,291,866 $2,400,000 $1,175,000 --
========== ========== ========== ========== ==========
On October 8, 1999, the Company entered into an Agreement with BP Solarex
("BPS") in which BPS agreed to purchase certain production equipment built by
the Company, for use in the Company's Chicago factory and in return the Company
agreed to purchase solar cells of a minimum of 2 megawatts per year over a
five-year term. BPS has the right to repossess the equipment should the Company
not purchase its committed quantity. The proceeds from the sale of the
production equipment purchased by BPS have been classified as an unearned
purchase discount in the accompanying balance sheet. The Company will amortize
this discount as a reduction to cost of sales as it purchases solar cells from
BPS which amounted to zero during the quarter ended June 30, 2002.
12
PART II
OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The number of directors was fixed at seven, and Udo Henseler, David R.
Lipinski, Roger G. Little, Guy L. Mayer, Roger W. Redmond, John A. Tarello, and
Anthony J. Viscogliosi were elected to the Board of Directors on May 22, 2002 at
a Special Meeting in Lieu of Annual Meeting of Stockholders.
Shares Shares Voting Against Shares Broker
Nominee Voting For or Authority Withheld Abstaining Non-Votes
---------------------- ---------- --------------------- ---------- ---------
Udo Henseler 5,448,610 73,270 0 1,210,780
David R. Lipinski 5,448,610 73,270 0 1,210,780
Roger G. Little 5,448,610 73,270 0 1,210,780
Guy L. Mayer 5,448,610 73,270 0 1,210,780
Roger W. Redmond 5,448,610 73,270 0 1,210,780
John A. Tarello 5,448,610 73,270 0 1,210,780
Anthony J. Viscogliosi 5,448,610 73,270 0 1,210,780
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
a. Exhibits.
--------
99.1 Written Statement of the Chief Executive Officer Pursuant to
18 U.S.C.ss.1350
99.2 Written Statement of the Financial Controller and Treasurer
Pursuant to 18 U.S.C.ss.1350
b. Reports on Form 8-K.
-------------------
Filed during the second quarter of 2002:
(1) Current Report on Form 8-K, filed April 17, 2002, for the purpose of
reporting under Item 5, that Spire Biomedical, Inc., the Company's
wholly-owned subsidiary, has received 510(k) clearance from the U.S.
Food and Drug Administration to market its Pourchez XpressO(TM)
hemodialysis catheter with separated tips on an exclusive license of
all the U.S. and foreign patents.
13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
SPIRE CORPORATION
(Registrant)
Dated: August 14, 2002 By: /s/ Roger G. Little
--------------------------------------------
Roger G. Little
President, Chief Executive Officer
and Chairman of the Board
Dated: August 14, 2002 By: /s/ Gregory G. Towle
--------------------------------------------
Gregory G. Towle
Financial Controller and Treasurer
(Principal Financial and Accounting Officer)
14