-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, AK7EDgPGiPvUiAI+nyrbS5xWUG42cw71UNDfXcuj21wfDhd9Pgg/1ARPZI8qOr/X R1vonkQCKnbwsZ1kVYa46Q== 0001072613-02-001771.txt : 20021118 0001072613-02-001771.hdr.sgml : 20021118 20021114193210 ACCESSION NUMBER: 0001072613-02-001771 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20020930 FILED AS OF DATE: 20021114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SPIRE CORP CENTRAL INDEX KEY: 0000731657 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMMERCIAL PHYSICAL & BIOLOGICAL RESEARCH [8731] IRS NUMBER: 042457335 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-12742 FILM NUMBER: 02827851 BUSINESS ADDRESS: STREET 1: ONE PATRIOTS PARK CITY: BEDFORD STATE: MA ZIP: 01730-2396 BUSINESS PHONE: 6172756000 MAIL ADDRESS: STREET 2: ONE PATRIOTS PARK CITY: BEDFORD STATE: MA ZIP: 01730-2396 10QSB 1 form10-q_11607.txt SPIRE CORPORATION FORM 10-QSB ================================================================================ 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] ================================================================================ 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 EX-99.1 3 exhibit99-1_11607.txt CERTIFICATION OF CHIEF EXECUTIVE OFFICER EXHIBIT 99.1 ------------ CERTIFICATION OF PERIODIC REPORT In connection with the Quarterly Report of Spire Corporation (the "Company") on Form 10-QSB (the "Report") for the period ended September 30, 2002 as filed with the Securities and Exchange Commission on the date hereof, I, Roger G. Little, President, Chief Executive Officer and Chairman of the Board of the Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that: (1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. 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 ss. 906 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. EX-99.2 4 exhibit99-2_11607.txt CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER EXHIBIT 99.2 ------------ CERTIFICATION OF PERIODIC REPORT In connection with the Quarterly Report of Spire Corporation (the "Company") on Form 10-QSB (the "Report") for the period ended September 30, 2002 as filed with the Securities and Exchange Commission on the date hereof, I, Gregory G. Towle, Financial Controller and Treasurer (Principal Financial and Accounting Officer) of the Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that: (1) the Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Dated: November 14, 2002 By: /s/ Gregory G. Towle ------------------------------------ Gregory G. Towle Financial Controller and Treasurer (Principal Financial and Accounting Officer) This certification accompanies this Report on Form 10-QSB pursuant to ss. 906 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. -----END PRIVACY-ENHANCED MESSAGE-----