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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, 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 [ ]
Asof October 31, 2002, there were 6,756,660 shares of common stock,
$0.01 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
September 30, 2002 (unaudited) and December 31, 2001 3
Condensed Consolidated Statements of Operations
For the three months ended September 30, 2002 and 2001 and
For the nine months ended September 30, 2002 and 2001 (unaudited) 4
Condensed Consolidated Statements of Cash Flows
For the nine months ended September 30, 2002 and 2001 (unaudited) 5
Notes to Condensed Consolidated Financial Statements (unaudited) 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. 8
Item 3. Controls and Procedures. 13
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K. 13
SIGNATURES
CERTIFICATIONS
EXHIBIT 99.1
EXHIBIT 99.2
2
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SPIRE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, December 31,
ASSETS 2002 2001
------------ ------------
(Unaudited)
Current assets
Cash and cash equivalents $ 4,535,530 $ 5,582,884
Accounts receivable, trade:
Amounts billed 3,973,036 3,422,525
Retainage 68,609 99,838
Unbilled costs 419,782 316,819
------------ ------------
4,461,427 3,839,182
Less allowance for doubtful accounts 226,443 152,000
------------ ------------
Net accounts receivable 4,234,984 3,687,182
------------ ------------
Inventories 1,836,469 1,224,451
Prepaid expenses and other current assets 422,888 333,145
------------ ------------
Total current assets 11,029,871 10,827,662
------------ ------------
Property and equipment 16,408,675 16,396,476
Less accumulated depreciation and amortization (13,806,511) (13,243,038)
------------ ------------
Net property and equipment 2,602,164 3,153,438
------------ ------------
Patents (less accumulated amortization, $497,407 in
2002 and $486,579 in 2001) 360,802 234,813
Other assets 594,845 598,732
------------ ------------
955,647 833,545
------------ ------------
$ 14,587,682 $ 14,814,645
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 2,367,255 $ 1,422,332
Accrued liabilities 1,214,519 1,304,299
Notes payable -- 875,000
Advances on contracts in progress 782,584 466,513
------------ ------------
Total current liabilities 4,364,358 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 6,755,035
shares in 2002 and 6,732,660 shares in 2001 67,550 67,327
Additional paid-in capital 9,020,955 8,976,483
Retained earnings (deficit) (343,283) 224,589
------------ ------------
Total stockholders' equity 8,745,222 9,268,399
------------ ------------
$ 14,587,682 $ 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 Nine Months Ended
September 30, September 30,
---------------------------- ----------------------------
2002 2001 2002 2001
------------ ------------ ------------ ------------
Net sales and revenues
Contract research, service and license revenues $ 1,468,085 $ 1,266,512 $ 4,814,791 $ 3,792,000
Sales of goods 2,728,589 2,622,896 7,269,850 6,281,577
------------ ------------ ------------ ------------
Total sales and revenues 4,196,674 3,889,408 12,084,641 10,073,577
------------ ------------ ------------ ------------
Costs and expenses
Cost of contract research, services and licenses 862,806 772,690 3,023,103 2,433,978
Cost of goods sold 1,890,515 2,001,154 5,459,493 5,020,813
Internal research and development 66,642 223,753 201,631 499,903
Selling, general and administrative expenses 1,342,653 1,205,819 3,982,644 3,953,456
------------ ------------ ------------ ------------
Total costs and expenses 4,162,616 4,203,416 12,666,871 11,908,150
------------ ------------ ------------ ------------
Earnings (loss) from operations 34,058 (314,008) (582,230) (1,834,573)
Interest income, net 1,221 36,712 14,358 176,663
------------ ------------ ------------ ------------
Earnings (loss) before income taxes 35,279 (277,296) (567,872) (1,657,911)
Income tax benefit (100) -- -- (79,998)
------------ ------------ ------------ ------------
Net earnings (loss) $ 35,379 $ (277,296) $ (567,872) $ (1,577,913)
============ ============ ============ ============
Earnings (loss) per share of common stock - basic $ 0.00 $ (0.04) $ (0.08) $ (0.24)
============ ============ ============ ============
Earnings (loss) per share of common stock - diluted $ 0.00 $ (0.04) $ (0.08) $ (0.24)
============ ============ ============ ============
Weighted average number of common and common
equivalent shares outstanding - basic 6,757,585 6,741,865 6,736,835 6,691,473
============ ============ ============ ============
Weighted average number of common and common
equivalent shares outstanding - diluted 6,801,098 6,741,865 6,736,835 6,691,473
============ ============ ============ ============
See accompanying notes to condensed consolidated financial statements.
4
SPIRE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
September 30,
--------------------------
2002 2001
----------- -----------
Cash flows from operating activities:
Net loss $ (567,872) $(1,577,913)
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
Depreciation and amortization 587,771 403,335
Loss on sale and abandonment of assets -- 29,648
Deferred income taxes -- 200,000
Changes in assets and liabilities:
Accounts receivable (547,802) (332,361)
Inventories (524,461) 205,546
Prepaid expenses and other current assets (89,743) 49,182
Accounts payable and accrued liabilities 855,143 980,268
Unearned purchase discounts -- 952,440
Advances on contracts in progress 316,071 (768,262)
----------- -----------
Net cash provided by operating activities 29,107 141,883
----------- -----------
Cash flows from investing activities:
Additions to property and equipment (113,226) (881,902)
Increase in patent costs (136,817) (92,483)
Other assets 3,887 (11,630)
----------- -----------
Net cash used in investing activities (246,156) (986,015)
----------- -----------
Cash flows from financing activities:
Net borrowings (repayments) on short-term debt (875,000) 325,000
Exercise of stock options 44,695 97,028
----------- -----------
Net cash provided by (used in) financing activities (830,305) 422,028
----------- -----------
Net decrease in cash and cash equivalents (1,047,354) (422,104)
Cash and cash equivalents, beginning of period 5,582,884 7,463,382
----------- -----------
Cash and cash equivalents, end of period $ 4,535,530 $ 7,041,278
=========== ===========
Supplemental disclosures of cash flow information: Cash paid during the period
for:
Interest $ 44,464 $ 23,776
=========== ===========
Income taxes $ -- $ --
=========== ===========
See accompanying notes to condensed consolidated financial statements.
5
SPIRE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
September 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 September 30, 2002 and the
results of operations for the three and nine months ended September 30, 2002 and
2001 and cash flows for the nine months ended September 30, 2002 and 2001. The
results of operations for the three and nine months ended September 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:
September 30, December 31,
2002 2001
------------ ------------
Raw materials $ 779,737 $ 859,114
Work in process 1,026,595 365,337
Finished goods 30,137 --
------------ ------------
$ 1,836,469 $ 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 Nine Months Ended
September 30, September 30,
--------------------- ---------------------
2002 2001 2002 2001
--------- --------- --------- ---------
Weighted average number of common
shares outstanding - basic 6,757,585 6,741,865 6,736,835 6,691,473
Add net additional common shares upon
exercise of common stock options 43,513 -- -- --
--------- --------- --------- ---------
Adjusted weighted average common
shares outstanding - diluted 6,801,098 6,741,865 6,736,835 6,691,473
========= ========= ========= =========
At September 30, 2002, 107,991 shares of common stock issuable under stock
options 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 September 30, 2002
- ---------------------------------------------
Net sales and revenues $ 1,685,154 $ 831,173 $ 1,612,140 $ 68,207 $ 4,196,674
Earnings (loss) from operations 60,597 41,474 (47,536) (20,477) 34,058
For the three months ended September 30, 2001
- ---------------------------------------------
Net sales and revenues $ 1,325,546 $ 1,475,528 $ 971,215 $ 117,119 $ 3,889,408
Loss from operations (76,766) (82,775) (104,715) (49,752) (314,008)
For the nine months ended September 30, 2002
- --------------------------------------------
Net sales and revenues $ 3,728,013 $ 3,305,784 $ 4,552,602 $ 498,242 $ 12,084,641
Earnings (loss) from operations (397,784) 145,577 (350,706) 20,683 (582,230)
For the nine months ended September 30, 2001
- --------------------------------------------
Net sales and revenues $ 4,344,167 $ 2,431,791 $ 2,729,481 $ 568,138 $ 10,073,577
Loss from operations (422,720) (643,555) (664,830) (103,468) (1,834,573)
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 $360,802 (net of accumulated
amortization of $497,407) and $234,813 (net of accumulated amortization of
$486,579) at September 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, ordinarily five years.
There are no expected residual values related to these intangible assets.
Amortization expense for the nine months ended September 30, 2002 was $10,828.
Estimated fiscal year amortization expense is as follows:
Amortization
Year Expense
---- ------------
2002 $14,437
2003 51,902
2004 51,731
2005 47,838
2006 45,421
6. SUBSEQUENT EVENT.
The Company announced on October 22, 2002 that it transferred its exclusive
hemodialysis split-tip catheter patent to Bard Access Systems, a wholly owned
subsidiary of C.R. Bard, Inc., in exchange for up to $16 million and a
sublicense. The sublicense will enable the Company to continue to produce its
own vascular access products. The Company received $5 million upon execution of
the Agreement, with another $5 million due no later that 18 months after
signing, and also will receive another $6 million upon achievement of certain
milestones by Bard Access Systems.
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 provides solar electric systems for distributed power
generation and is a leading supplier of photovoltaic module manufacturing
equipment and turnkey solar energy businesses.
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.
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 Nine Months Ended
September 30, September 30,
-------------------- ---------------------
2002 2001 2002 2001
-------- -------- -------- --------
Net sales and revenues 100% 100% 100% 100%
Cost of sales and revenues 66 71 70 74
-------- -------- -------- --------
Gross profit 34 29 30 26
Internal research and development 2 6 2 5
Selling, general and administrative expenses 32 31 33 39
-------- -------- -------- --------
Earnings (loss) from operations 1 (8) (5) (18)
Earnings (loss) before income taxes 1 (7) (5) (16)
Income tax benefit -- -- -- (1)
-------- -------- -------- --------
Net earnings (loss) 1% (7%) (5%) (16%)
======== ======== ======== ========
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2002 COMPARED TO THREE AND NINE MONTHS
ENDED SEPTEMBER 30, 2001.
NET SALES AND REVENUES
Net sales and revenues increased $308,000 or 8% for the three months ended
September 30, 2002 to $4,197,000, compared to $3,889,000 for the three months
ended September 30, 2001. Contract research, service and license revenues
increased $201,000 to $1,468,000 for the three months ended September 30, 2002
compared to $1,267,000 for 2001. Sales of goods increased $106,000 or 4% to
$2,729,000 for 2002, compared to $2,623,000 for 2001.
The following table categorizes the Company's net sales and revenues for
the periods presented:
Three Months Ended September 30,
----------------------------------
2002 2001 % Change
---------- ---------- --------
Contract research, service and
license revenues $1,468,000 $1,266,000 16%
Sales of goods 2,729,000 2,623,000 4%
---------- ----------
Net sales and revenues $4,197,000 $3,889,000 8%
========== ==========
The increase in sales of goods for the three month period ended September
30, 2002 is primarily due to increased demand for PV systems. The increase in
the contract research, service and license revenues is a result of an increased
demand for the Company's processing services.
8
Net sales and revenues increased $2,011,000 or 20% for the nine months
ended September 30, 2002 to $12,085,000, compared to $10,074,000 for the nine
months ended September 30, 2001. Contract research, service and license revenues
increased $1,023,000 or 27% to $4,815,000 for the nine months ended September
30, 2002 compared to $3,792,000 for 2001. Sales of goods increased $988,000 or
16% to $7,270,000 for 2002, compared to $6,282,000 for 2001.
The following table categorizes the Company's net sales and revenues for
the periods presented:
Nine Months Ended September 30,
------------------------------------
2002 2001 % Change
----------- ----------- --------
Contract research, service and
license revenues $ 4,815,000 $ 3,792,000 27%
Sales of goods 7,270,000 6,282,000 16%
----------- -----------
Net sales and revenues $12,085,000 $10,074,000 20%
=========== ===========
The increase in sales of goods for the nine month period ended September
30, 2002 is primarily due to increased demand for PV systems. The increase in
contract research, service and license revenues for the nine month period ended
September 30, 2002 is attributed primarily to an increase in the demand for 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 increased
$90,000 to $863,000, decreasing to 59% of related revenues for the three months
ended September 30, 2002, compared to $773,000 or 61% of related revenues for
the three months ended September 30, 2001. The decrease is due to a change in
product mix. Cost of goods sold decreased $110,000 to $1,891,000, but decreased
to 69% of related sales, for the three months ended September 30, 2002, compared
to $2,001,000 or 76% of related sales for the three months ended September 30,
2001. The cost of sales and revenues decreased $20,000 to $2,754,000, and
decreased to 66% of net sales and revenues, for the quarter ended September 30,
2002, compared to $2,774,000 or 71% of net cost of sales and revenues for the
quarter ended September 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 September 30,
-----------------------------------
2002 % 2001 %
---------- --- ---------- ---
Cost of contract research,
service and license revenues $ 863,000 59% $ 773,000 61%
Cost of goods sold 1,891,000 69% 2,001,000 76%
---------- ----------
Total cost of sales and revenues $2,754,000 66% $2,774,000 71%
========== ==========
The cost of contract research, service and license revenues increased
$589,000 to $3,023,000, while decreasing to 63% of related revenues for the nine
months ended September 30, 2002, compared to $2,434,000 or 64% of related
revenues for the nine months ended September 30, 2001. The increase is due to
higher volume of sales in the processing services. Cost of goods sold increased
$439,000 to $5,459,000, but decreased to 75% of related sales, for the nine
months ended September 30, 2002, compared to $5,021,000 or 80% of related sales
for the nine months ended September 30, 2001, due to a change in product mix.
The cost of sales and revenues increased $1,028,000 to $8,483,000, but decreased
to 70% of net sales and revenues, for the nine months ended September 30, 2002,
compared to $7,455,000 or 74% of net cost of sales and revenues for the nine
months ended September 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:
Nine Months Ended September 30,
-----------------------------------
2002 % 2001 %
---------- --- ---------- ---
Cost of contract research, service
and license revenues $3,023,000 63% $2,434,000 64%
Cost of goods sold 5,459,000 75% 5,021,000 80%
---------- ----------
Total cost of sales and revenues $8,483,000 70% $7,455,000 74%
========== ==========
9
INTERNAL RESEARCH AND DEVELOPMENT
Internal research and development for the three months ended September 20,
2002 decreased $157,000 or 70% to $67,000, compared to $224,000 for the three
months ended September 30, 2001. The decrease is due to the Company's reduced
investment in new product platforms.
Internal research and development for the nine months ended September 30,
2002 decreased $298,000 or 60% to $202,000, compared to $500,000 for the nine
months ended September 30, 2001. The decrease is due to the Company's reduced
investment in new product platforms.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses for the three months ended
September 30, 2002 increased $137,000 to $1,343,000, and increased to 32% of
sales and revenues, compared to $1,206,000 or 31% of sales and revenues for the
three months ended September 30, 2001. The increase in selling, general and
administrative expenses and increase as a percentage of sales and revenues are
due to the Company's increased sales and marketing activity.
Selling, general and administrative expenses for the nine months ended
September 30, 2002 increased $29,000 to $3,983,000, but decreased to 33% of
sales and revenues, compared to $3,953,000 or 39% of sales and revenues for the
nine months ended September 30, 2001. The decrease as a percentage of sales and
revenues are due to cost reductions put in place in prior periods by the
Company.
INTEREST
The Company earned $15,000 of interest income for the quarter ended
September 30, 2002, compared to $60,000 of interest income for the quarter ended
September 30, 2001. The Company incurred interest expense of $14,000 for the
quarter ended September 30, 2002 of which zero was capitalized, compared to
$23,000 in the third quarter of 2001 of which zero 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 nine months ended September 30,
2002, compared to a tax benefit of $80,000 for the nine months ended September
30, 2001.
NET EARNINGS (LOSS)
The Company reported a net income for the quarter ended September 30, 2002
of $35,000, compared to a net loss of $277,000 for the quarter ended September
30, 2001. The Company reported a net loss of $568,000 for the nine months ended
September 30, 2002, compared to a net loss of $1,578,000 for the same period of
2001. The loss for the nine 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 in the second quarter of this year.
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 September 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 September
30, 2002, the Company had no outstanding debt under this revolving credit
facility.
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
$1,047,000 to $4,535,000 at September 30, 2002 from $5,583,000 at December 31,
2001. To date, there are no material commitments by the Company for capital
expenditures. At September 30, 2002, the Company's retained deficit was
$325,000, compared to retained earnings of $225,000 as of December 31, 2001.
Working capital as of September 30, 2002 decreased 1% to $6,666,000, from
$6,760,000 as of December 31, 2001.
The Company announced on October 22, 2002 that it transferred its exclusive
hemodialysis split-tip catheter patent to Bard Access Systems, a wholly owned
subsidiary of C.R. Bard, Inc., in exchange for up to $16 million and a
sublicense. The Company received $5 million upon execution of the Agreement,
with another $5 million due no later that 18 months after signing, and also will
receive another $6 million upon achievement of certain milestones by Bard Access
Systems.
RECENT ACCOUNTING PRONOUNCEMENTS.
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.
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. The Company does not believe the impact of adopting SFAS No. 145
will have a material impact on its 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. The
Company does not believe the impact of adopting SFAS No. 146 will have a
material impact on its financial statements.
IMPACT OF INFLATION AND CHANGING PRICES.
Historically, the Company's business has not been materially impacted by
inflation. Manufacturing equipment and solar systems are generally quoted,
manufactured and shipped within a cycle of approximately nine 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.
11
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.
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
September 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 -- -- -- -- --
---------- ---------- ---------- ---------- -------
Total commercial commitments $4,837,000 $1,262,000 $2,400,000 $1,175,000 --
========== ========== ========== ========== =======
12
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 September 30, 2002.
ITEM 3. CONTROLS AND PROCEDURES.
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES.
Spire's principal executive and financial officers have established and are
maintaining disclosure controls and procedures that such officers believe are
effective. The officers' conclusion is based on their evaluation of the controls
and procedures as of November 12, 2002. The officers have designed such
disclosure controls and procedures to ensure that material information relating
to the Company and its consolidated subsidiaries is communicated to them by
others within those organizations.
CHANGES IN INTERNAL CONTROLS.
The Company believes that there have not been significant changes in the
Company's internal controls or in other factors that could significantly affect
those controls subsequent to November 12, 2002, including any corrective action
with regard to significant deficiencies and material weaknesses.
PART II
OTHER INFORMATION
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.
No reports on Form 8-K were filed by the Registrant in the quarter ended
September 30, 2002.
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: November 14, 2002 By: /s/ Roger G. Little
------------------------------------
Roger G. Little
President, Chief Executive Officer
and Chairman of the Board
Dated: November 14, 2002 By: /s/ Gregory G. Towle
------------------------------------
Gregory G. Towle
Financial Controller and Treasurer
(Principal Financial and Accounting
Officer)
14
CERTIFICATIONS
I, Roger G. Little, President, Chief Executive Officer and Chairman of the
Board of Spire Corporation (the "Company"), certify that:
1. I have reviewed this quarterly report on Form 10-QSB of the Company;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
Company as of, and for, the periods presented in this quarterly report;
4. The Company's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the Company and have:
a) Designed such disclosure controls and procedures to ensure
that material information relating to the Company, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
b) Evaluated the effectiveness of the Company's disclosure
controls and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"; and
c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The Company's other certifying officer and I have disclosed, based on
our most recent evaluation, to the Company's auditors and the audit committee of
the Company's board of directors (or persons performing the equivalent
functions):
a) All significant deficiencies in the design or operation of
internal controls which could adversely affect the Company's ability to record,
process, summarize and report financial data and have identified for the
Company's auditors any material weaknesses in internal controls; and
b) Any fraud, whether or not material, that involves management
or other employees who have a significant role in the Company's internal
controls; and
6. The Company's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Dated: November 14, 2002 By: /s/ Roger G. Little
----------------------------------
Roger G. Little
President, Chief Executive Officer
and Chairman of the Board
This certification accompanies this Report on Form 10-QSB pursuant to Section
302 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent
required by such Act, be deemed filed by the Company for purposes of Section 18
of the Securities Exchange Act of 1934, as amended.
15
CERTIFICATIONS
I, Gregory G. Towle, Financial Controller and Treasurer of Spire
Corporation (the "Company"), certify that:
1. I have reviewed this quarterly report on Form 10-QSB of the Company;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
Company as of, and for, the periods presented in this quarterly report;
4. The Company's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the Company and have:
a) Designed such disclosure controls and procedures to ensure
that material information relating to the Company, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
b) Evaluated the effectiveness of the Company's disclosure
controls and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"; and
c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The Company's other certifying officer and I have disclosed, based on
our most recent evaluation, to the Company's auditors and the audit committee of
the Company's board of directors (or persons performing the equivalent
functions):
a) All significant deficiencies in the design or operation of
internal controls which could adversely affect the Company's ability to record,
process, summarize and report financial data and have identified for the
Company's auditors any material weaknesses in internal controls; and
b) Any fraud, whether or not material, that involves management
or other employees who have a significant role in the Company's internal
controls; and
6. The Company's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Dated: November 14, 2002 By: /s/ Gregory G. Towle
-------------------------------------
Financial Controller and Treasurer
(Principal Financial and Accounting
Officer)
This certification accompanies this Report on Form 10-QSB pursuant to Section
302 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent
required by such Act, be deemed filed by the Company for purposes of Section 18
of the Securities Exchange Act of 1934, as amended.
16