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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB/A
AMENDMENT NO. 2
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended June 30, 2003; 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
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(Name of small business issuer as specified in its charter)
MASSACHUSETTS 04-2457335
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(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)
781-275-6000
---------------------------
(Issuer's telephone number)
Securities registered under Section 12(g) of the Act:
COMMON STOCK, $0.01 PAR VALUE; REGISTERED ON THE NASDAQ STOCK MARKET
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(Title of class)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the issuer was required to file such
reports); and (2) has been subject to such filing requirements for the past 90
days. Yes [_] No [X]
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date. There were 6,765,660
outstanding shares of the issuer's only class of common equity, Common Stock,
$0.01 par value, on October 31, 2003.
Transitional Small Business Disclosure Format (Check One): Yes [_] No [X]
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EXPLANATORY NOTE
Spire Corporation (the "Company") is filing this Amendment No. 2 on Form
10-QSB/A to our quarterly report for the period ended June 30, 2003 (as amended,
the "Form 10-QSB") for the following purposes:
o To restate our financial statements and other financial information to
reflect adjustments primarily related to the following accounting
areas: acquisition accounting, capital lease accounting relating to
the acquisition of Bandwidth Semiconductor, LLC, a correction to the
effective tax rate, and certain other adjustments and
reclassifications. See Note 3 to the condensed consolidated financial
statements for a detailed explanation of the restatements. Part I,
Item 1, "Financial Statements," and Part I, Item 2, "Management's
Discussion and Analysis of Financial Condition and Results of
Operations," have been revised to reflect the restatements.
o To amend and restate the Company's disclosure in Part 1, Item 3,
"Controls and Procedures."
o To amend and restate the Company's disclosure in Part II, Item 5,
"Other Information" to reflect the recent resignation of the Company's
Chief Financial Officer.
o To amend and restate Part II, Item 6, "Exhibits and Reports on Form
8-K," with respect to the certifications required by Sections 302 and
906 of the Sarbanes-Oxley Act of 2002.
Except as described above, no other changes have been made to the Form
10-QSB. The Form 10-QSB, as amended, continues to speak as of the date of the
original filing, and, other than under Part I, Item 3, "Controls and
Procedures," and Part II, Item 5, "Other Information," the Company has not
updated the disclosures contained therein to reflect any events which occurred
at a date subsequent to the original filing of the Form 10-QSB. For convenience,
the Company is restating its Form 10-QSB for the quarterly period ended June 30,
2003 in its entirety.
TABLE OF CONTENTS
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Unaudited Condensed Consolidated Balance Sheets
as of June 30, 2003 and December 31, 2002 ......................... 1
Unaudited Condensed Consolidated Statements of Operations
for the Three and Six Months Ended June 30, 2003 and 2002 ......... 2
Unaudited Condensed Consolidated Statements of Cash Flows
for the Six Months Ended June 30, 2003 and 2002 ................... 3
Notes to Unaudited Condensed Consolidated Financial Statements .... 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ............................... 12
Item 3. Controls and Procedures ........................................... 19
PART II. OTHER INFORMATION
Item 1. Legal Proceedings ................................................. 20
Item 2. Changes in Securities ............................................. 20
Item 3. Defaults Upon Senior Securities ................................... 20
Item 4. Submission of Matters to a Vote of Security Holders ............... 21
Item 5. Other Information ................................................. 21
Item 6. Exhibits and Reports on Form 8-K .................................. 21
SIGNATURES ................................................................. 22
EXHIBITS
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SPIRE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
JUNE 30, DECEMBER 31,
2003 2002
------------ ------------
(RESTATED)
ASSETS
Current assets
--------------
Cash and cash equivalents $ 10,954,398 $ 7,798,716
Restricted cash 102,857 --
------------ ------------
Total cash 11,057,255 7,798,716
------------ ------------
Accounts receivable, trade:
Amounts billed 2,977,341 3,574,851
Retainage 54,958 67,715
Unbilled costs 341,462 634,958
------------ ------------
3,373,761 4,277,524
Less allowance for doubtful accounts (318,109) (349,443)
------------ ------------
Net accounts receivable 3,055,652 3,928,081
------------ ------------
Inventories 1,823,905 2,220,587
Deferred tax asset 116,000 116,000
Prepaid expenses and other current assets 851,138 988,500
------------ ------------
Total current assets 16,903,950 15,051,884
------------ ------------
Property and equipment 22,712,598 15,604,809
Less accumulated depreciation and amortization (13,609,461) (13,132,220)
------------ ------------
Net property and equipment 9,103,137 2,472,589
------------ ------------
Patents (less accumulated amortization, $505,700 in 2003 and
$499,505 in 2002) 328,601 241,313
Other assets 8,325 6,324
------------ ------------
Total other assets 336,926 247,637
------------ ------------
Total assets $ 26,344,013 $ 17,772,110
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
-------------------
Current portion of capital lease obligation $ 361,754 $ --
Current portion of capital lease obligation -
related party (Note 9) 326,213 --
Accounts payable 1,723,073 1,852,332
Accrued liabilities 1,377,536 1,392,585
Income taxes payable 675,000 224,000
Accrued lease obligation - related party 464,663 --
Advances on contracts in progress 1,000,161 1,058,852
------------ ------------
Total current liabilities 5,928,400 4,527,769
------------ ------------
Long-term portion of capital lease obligation 1,038,934 --
Long-term portion of capital lease obligation -
related party (Note 9) 3,031,156 --
Accrued lease obligation - related party 604,862 --
Unearned purchase discount 1,465,657 1,469,123
Stockholders' equity
--------------------
Common stock, $0.01 par value; shares authorized 20,000,000;
issued 6,761,660 shares in 2003 and 6,755,660 shares in 2002 67,617 67,557
Additional paid-in capital 9,258,576 9,246,421
Retained earnings 4,948,811 2,461,240
------------ ------------
Total stockholders' equity 14,275,004 11,775,218
------------ ------------
Total liabilities and stockholders' equity $ 26,344,013 $ 17,772,110
============ ============
See accompanying notes to condensed consolidated financial statements.
1
SPIRE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
------------------------------ ------------------------------
2003 2002 2003 2002
------------ ------------ ------------ ------------
(RESTATED) (RESTATED)
Net sales and revenues
----------------------
Contract research and service revenues $ 1,926,619 $ 1,725,103 $ 3,518,684 $ 3,365,753
Sales of goods 1,828,302 2,836,348 3,195,330 4,522,215
------------ ------------ ------------ ------------
Total sales and revenues 3,754,921 4,561,451 6,714,014 7,887,968
------------ ------------ ------------ ------------
Costs and expenses
------------------
Cost of contract research and services 1,255,908 970,071 2,255,218 2,160,296
Cost of goods sold 1,722,059 2,177,870 3,009,816 3,568,979
Selling, general and administrative expenses 1,525,064 1,343,297 2,882,131 2,639,991
Internal research and development 283,248 78,771 379,345 134,989
------------ ------------ ------------ ------------
Total costs and expenses 4,786,279 4,570,009 8,526,510 8,504,255
------------ ------------ ------------ ------------
Gain on sale of license 4,989,150 -- 4,989,150 --
Earnings (loss) from operations 3,957,792 (8,558) 3,176,654 (616,287)
-------------------------------
Interest income (expense), net (21,512) 10,099 (14,083) 13,137
------------ ------------ ------------ ------------
Earnings (loss) before income taxes 3,936,280 1,541 3,162,571 (603,150)
Income tax expense 675,000 100 675,000 100
------------ ------------ ------------ ------------
Net earnings (loss) $ 3,261,280 $ 1,441 $ 2,487,571 $ (603,250)
------------------- ============ ============ ============ ============
Earnings (loss) per share of common stock - basic $ 0.48 $ 0.00 $ 0.37 $ (0.09)
------------------------------------------------- ============ ============ ============ ============
Earnings (loss) per share of common stock - diluted $ 0.48 $ 0.00 $ 0.37 $ (0.09)
--------------------------------------------------- ============ ============ ============ ============
Weighted average number of common and common
equivalent shares outstanding - basic 6,761,660 6,735,757 6,759,127 6,735,757
============ ============ ============ ============
Weighted average number of common and common
equivalent shares outstanding - diluted 6,804,403 6,864,847 6,788,146 6,735,757
============ ============ ============ ============
See accompanying notes to condensed consolidated financial statements.
2
SPIRE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
SIX MONTHS ENDED JUNE 30,
------------------------------
2003 2002
------------ ------------
(RESTATED)
Cash flows from operating activities
------------------------------------
Net income (loss) $ 2,487,571 $ (603,250)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation and amortization 483,356 398,707
Gain on sale of license (4,989,150) --
Changes in assets and liabilities excluding business acquisition:
Restricted cash (102,857) --
Accounts receivable, net 1,152,869 (1,019,093)
Inventories 442,899 (662,729)
Prepaid expenses and other current assets 213,503 (7,558)
Accounts payable, income taxes payable and accrued liabilities (177,853) 1,295,791
Unearned purchase discount (3,466) --
Other assets (2,001) 5,812
Advances on contracts in progress (58,691) 485,769
------------ ------------
Net cash used in operating activities (553,820) (106,551)
------------ ------------
Cash flows from investing activities
------------------------------------
Proceeds from sale of license 4,989,150 --
Additions to property and equipment (411,442) (87,965)
Acquisition of business (Note 9) (724,969) --
Increase in patent costs (93,402) (106,909)
------------ ------------
Net cash provided by (used in) investing activities 3,759,337 (194,874)
------------ ------------
Cash flows from financing activities
------------------------------------
Net payments on short-term debt -- (875,000)
Principal payment of capital lease obligations (29,022) --
Principal payment on capital lease obligations - related party (33,028) --
Exercise of stock options 12,215 34,674
------------ ------------
Net cash used in financing activities (49,835) (840,326)
------------ ------------
Net increase (decrease) in cash and cash equivalents 3,155,682 (1,141,751)
Cash and cash equivalents, beginning of period 7,798,716 5,582,884
------------ ------------
Cash and cash equivalents, end of period $ 10,954,398 $ 4,441,133
============ ============
Supplemental disclosures of cash flow information
-------------------------------------------------
Acquisition of Bandwidth Semiconductor:
Assets acquired $ 3,708,748 $ --
Liabilities assumed (including related party obligation of $1,069,525) (2,983,779) --
------------ ------------
Cash paid 724,969 --
Non cash financing activities:
Capital lease obligation for building - related party $ 3,390,397 $ --
------------ ------------
Cash paid during the period for:
Interest $ 18,031 $ 30,238
============ ============
Interest - related party $ 22,972 $ --
============ ============
Income taxes $ 435,000 $ 100
============ ============
See accompanying notes to condensed consolidated financial statements.
3
SPIRE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
JUNE 30, 2003
1. DESCRIPTION OF THE BUSINESS
The Company develops, manufactures and markets highly-engineered solar
electric module manufacturing equipment and systems and provides biomedical
processing services and devices. The Company is a leading supplier in the design
and manufacture of specialized equipment for the production of terrestrial
photovoltaic modules from solar cells, with its equipment installed in more than
140 factories and in 42 countries. The Company's value-added biomedical
processing services offer surface treatments to enhance the durability or the
antimicrobial characteristics of orthopedic and other medical devices. The
Company's biomedical segment markets hemodialysis catheter devices for the
treatment of chronic kidney disease. The Company also produces custom compound
semiconductor wafers and devices used in biomedical instruments,
telecommunications and defense applications at Bandwidth Semiconductor, LLC,
which was acquired on May 23, 2003 (see Note 9).
2. INTERIM FINANCIAL STATEMENTS
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements contain all adjustments necessary to fairly
present the Company's financial position as of June 30, 2003 and the results of
operations for the three and six months ended June 30, 2003 and 2002 and cash
flows for the six months ended June 30, 2003 and 2002. The results of operations
for the three and six months ended June 30, 2003 are not necessarily indicative
of the results to be expected for the fiscal year ending December 31, 2003.
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, 2002.
3. RESTATEMENT
The unaudited condensed consolidated financial statements and other
financial information for the period ended June 30, 2003 have been restated to
correct errors primarily related to the following accounting areas: acquisition
accounting and capital lease accounting relating to the acquisition of Bandwidth
Semiconductor, LLC; the estimated effective tax rate and certain other
corrections. The net effect of the corrections recorded is as follows: total
assets decreased $197,000 or 0.74%, total liabilities decreased $426,000 or
3.41% and net income increased $229,000 or 7.56%. A discussion of the nature of
the corrections recorded follows.
Acquisition Accounting
----------------------
On May 23, 2003, the Company acquired Bandwidth Semiconductor, LLC
("Bandwidth"). Corrections were made relating to the purchase accounting
surrounding the acquisition. An additional accrual of $150,000 for the direct
costs incurred in connection with the acquisition has been recorded. The
resulting increase in purchase price has been allocated to property and
equipment.
Property and Equipment and Capital Lease - Related Party
--------------------------------------------------------
In conjunction with the acquisition of Bandwidth, the Company recorded a
capital lease relating to the building occupied by Bandwidth in Hudson, New
Hampshire. The carrying value of the building and the capital lease obligation,
originally recorded as $3,700,000 reflecting the actual purchase price of the
building, has been corrected to $3,400,000 to reflect the present value of the
obligation. As a result of this correction, accumulated depreciation and
depreciation expense decreased by $5,000, interest expense increased by $16,000.
In conjunction with the acquisition of Bandwidth, the Company assumed a
capital lease of a reactor used in wafer production. The carrying value of the
capital lease obligation, originally recorded as $1,397,000 based on the balance
at the date of acquisition, has been corrected to $1,401,000 to reflect the
present value of the obligation. As a result of this correction, the liability
associated with capital lease increased $4,000.
4
Revenue Reclassification
------------------------
A reclassification adjustment of $4,000 has been recorded to increase
contract, research and service revenues and decrease sales of goods. The Company
had initially incorrectly recorded a sale of services within its Biomedical
business unit as a sale of goods within its Biomedical unit.
Gain on Sale of License
-----------------------
Direct costs of $11,000 were reclassified from selling, general and
administrative costs to an expense pertaining to the sale of a license. The
Company had granted 5,000 shares of the Company's stock, valued at $11,000, to
the original licensor in consideration for his consent to the sale of the
license by the Company described in Note 11. The Company had initially recorded
this expense as a general operating expense and subsequently has reclassified
the expense as an offset to the gain on sale of license.
Effective Tax Rate
------------------
The Company has corrected its estimated effective tax rate. The
correction reduced the effective tax rate from 24% to 17%, resulting in a
decrease in accrued income taxes and income tax expense of $282,000.
Intercompany Eliminations
-------------------------
The Company had not eliminated one month of intercompany rental income
receivable from Bandwidth to the Company in its initial consolidation of
Bandwidth. The Company has corrected accounts receivable and cost of service
revenue for the elimination of the intercompany rental income receivable
resulting in a $42,000 decrease in accounts receivable and a $42,000 increase in
cost of services revenue.
Net Earnings (Loss) Per Share
-----------------------------
The Company corrected its calculation of adjusted weighted average common
shares outstanding - diluted, as presented in Note 5 for the three months ended
June 30, 2003 and for June 30, 2002 and for the six months ended June 30, 2003.
The adjusted weighted average common shares outstanding - diluted decreased by
198,155 shares, 10,460 shares and 79,329 shares for these periods, respectively.
Stock-Based Compensation
------------------------
The Company has corrected its calculation of the pro forma information
presented in Note 8 and included the result of matters discussed in this note.
Pro forma earnings per share basic and diluted increased by $0.05 for the three
months ended June 30, 2003 as compared to the information previously reported as
a result of the correction.
Pro forma Financials Presented
------------------------------
The Company has corrected its calculation of the pro forma information
presented in Note 9 and included the result of matters discussed in this note.
For the three month periods ended June 30, 2003 and June 30, 2002, pro forma
earnings per share changed $0.09 and $(0.02), respectively. For the six months
periods ended June 30, 2003 and June 30, 2002 pro forma earnings per share
changed by $0.05 and $(0.02), respectively, as a result of the corrections.
5
The following tables outline the effect of these adjustments on the
quarter and six months ended June 30, 2003:
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, 2003 JUNE 30, 2003
------------- -------------
(AS PREVIOUSLY (AS RESTATED)
REPORTED)
Net accounts receivable $ 3,097,887 $ 3,055,652
------------- -------------
Total current assets 16,946,185 16,903,950
Net property and equipment 9,257,585 9,103,137
------------- -------------
Total assets 26,540,696 26,344,013
Current portion of capital lease obligation 390,771 361,754
Current portion of capital lease obligation -
related party 644,199 326,213
Accrued liabilities 1,305,618 1,377,536
Income taxes payable 957,000 675,000
------------- -------------
Total current liabilities 6,485,485 5,928,400
Long-term portion of capital lease obligation 934,849 1,038,934
Long-term portion of capital lease obligation -
related party 3,004,120 3,031,156
------------- -------------
Total liabilities 12,494,973 12,069,009
Retained earnings 4,719,530 4,948,811
Total stockholders' equity 14,045,723 14,275,004
------------- -------------
Total liabilities and stockholders' equity $ 26,540,696 $26,344,013
============= =============
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2003 SIX MONTHS ENDED JUNE 30, 2003
-------------------------------- ------------------------------
(AS PREVIOUSLY (AS RESTATED) (AS PREVIOUSLY (AS RESTATED)
REPORTED) REPORTED)
Contract research and service revenues $ 1,922,671 $ 1,926,619 $ 3,514,735 $ 3,518,684
Sales of goods 1,832,250 1,828,302 3,199,279 3,195,330
------------- ------------- ------------- -------------
Total sales and revenues 3,754,921 3,754,921 6,714,014 6,714,014
------------- ------------- ------------- -------------
Cost of contract research and services 1,217,159 1,255,908 2,216,490 2,255,218
Cost of goods sold 1,722,079 1,722,059 3,009,816 3,009,816
Selling, general and administrative expenses 1,536,068 1,525,064 2,893,134 2,882,131
Internal research and development 284,744 283,248 380,841 379,345
------------- ------------- ------------- -------------
Total costs and expenses 4,760,050 4,786,279 8,500,281 8,526,510
------------- ------------- ------------- -------------
Gain on sale of license 5,000,000 4,989,150 5,000,000 4,989,150
Earnings (loss) from operations 3,994,871 3,957,792 3,213,733 3,176,654
-------------------------------
Interest income (expense), net (5,883) (21,512) 1,558 (14,083)
------------- ------------- ------------- -------------
Earnings before income taxes 3,988,988 3,936,280 3,215,291 3,162,571
Income tax expense (957,000) (675,000) (957,000) (675,000)
------------- ------------- ------------- -------------
Net income $ 3,031,988 $ 3,261,280 $ 2,258,291 $ 2,487,571
---------- ============= ============= ============= =============
Earnings per share of common stock - basic $ 0.44 $ 0.48 $ 0.33 $ 0.37
============= ============= ============= =============
Earnings per share of common stock - diluted $ 0.43 $ 0.48 $ 0.33 $ 0.37
============= ============= ============= =============
Weighted average shares - basic 6,761,660 6,761,660 6,759,127 6,759,127
============= ============= ============= =============
Weighted average shares - diluted 6,994,558 6,804,403 6,867,475 6,788,146
============= ============= ============= =============
6
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2003
-------------------------------
(AS PREVIOUSLY (AS RESTATED)
REPORTED)
Net income $ 2,258,291 $ 2,487,571
Depreciation and amortization 488,514 483,356
Gain on sale of license (5,000,000) (4,989,150)
Restricted cash -- (102,857)
Accounts receivable, net 1,110,633 1,152,869
Accounts payable, income taxes payable and accrued liabilities 116,107 (177,853)
Net cash used in operating activities (434,211) (553,820)
Proceeds from sale of license 5,000,000 4,989,150
Net cash provided by investing activities 3,770,187 3,759,337
Principal payment on capital lease obligations (89,652) (29,022)
Principal payment on capital lease obligations - related party -- (33,028)
Net cash used in financing activities (77,437) (49,835)
------------- -------------
Net increase in cash and cash equivalents $ 3,258,539 $ 3,155,682
============= =============
Supplemental disclosures of cash flow information
-------------------------------------------------
Capital lease obligation for building - related party $ 3,700,000 $ 3,390,397
============= =============
Interest $ 26,663 $ 18,031
============= =============
Interest - related party $ -- $ 22,972
============= =============
4. INVENTORIES
Inventories consist of the following:
June 30, December 31,
2003 2002
------------- -------------
Raw materials $ 787,796 $ 662,384
Work in process 701,239 1,324,345
Finished goods 334,870 233,858
------------- -------------
$ 1,823,905 $ 2,220,587
============= =============
5. NET EARNINGS (LOSS) PER SHARE
The following table provides a reconciliation of the denominators of the
Company's reported basic and diluted net earnings (loss) per share computations,
which has been restated as discussed in Note 3, for the periods ended:
Three Months Ended June 30, Six Months Ended June 30,
----------------------------- -----------------------------
2003 2002 2003 2002
------------- ------------- ------------- -------------
(Restated) (Restated)
Weighted average number of common
shares outstanding - basic 6,761,660 6,735,757 6,759,127 6,735,757
Add net additional common shares upon
assumed exercise of common stock options 42,743 129,090 29,019 --
------------- ------------- ------------- -------------
Adjusted weighted average common
shares outstanding - diluted 6,804,403 6,864,847 6,788,146 6,735,757
============= ============= ============= =============
For the six months ended June 30, 2002, 124,388 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.
7
6. OPERATING SEGMENTS AND RELATED INFORMATION
The following table presents certain operating segment information in
accordance with the provisions of SFAS No. 131, "Disclosure about Segments of an
Enterprise and Related Information" and has been restated as a result of the
matters discussed in Note 3.
The revenues for Bandwidth Semiconductor have been combined with the
Company's Biophotonics Lifesciences segment and has been renamed the
Optoelectronics segment. The acquisition of Bandwidth took place on May 23,
2003. The operations from that date through the end of the quarter ended June
30, 2003 were included in the segment disclosures.
Solar Solar Total
Equipment Systems Biomedical Optoelectronics Company
-----------------------------------------------------------------------
For the three months ended June 30, 2003 (Restated)
---------------------------------------------------
Net sales and revenues $ 951,224 $ 810,197 $ 1,670,737 $ 322,763 $ 3,754,921
Earnings (loss) from operations (488,333) (145,620) 4,724,377 (132,632) 3,957,792
For the three months ended June 30, 2002
----------------------------------------
Net sales and revenues $ 886,991 $ 1,771,640 $ 1,685,475 $ 217,345 $ 4,561,451
Earnings (loss) from operations (338,253) 217,229 104,973 7,493 (8,558)
For the six months ended June 30, 2003 (Restated)
--------------------------------------=----------
Net sales and revenues $ 2,194,585 $ 810,197 $ 3,306,322 $ 402,910 $ 6,714,014
Earnings (loss) from operations (555,646) (546,062) 4,420,875 (142,513) 3,176,654
For the six months ended June 30, 2002
--------------------------------------
Net sales and revenues $ 2,042,860 $ 2,474,610 $ 2,940,463 $ 430,035 $ 7,887,968
Earnings (loss) from operations (481,070) (73,335) (66,098) 4,216 (616,287)
7. INTANGIBLE ASSETS
Intangible assets amounted to $328,601 (net of accumulated amortization
of $505,700) and $241,313 (net of accumulated amortization of $499,505) at June
30, 2003 and December 31, 2002, respectively. These intangible assets primarily
consist of patents that the Company has been awarded and are amortized over the
shorter of their useful lives or their terms, principally five years. There are
no expected residual values related to these intangible assets. Included in the
amortization expense estimates is $50,000 of patents pending expenses which
relate to costs incurred toward securing patents, that have not yet been
granted. For presentation purposes, the Company includes the estimated patent
pending expense in the table below. Estimated fiscal year amortization expense
is as follows:
Year Amortization Expense
---- --------------------
2003 $14,729
2004 61,489
2005 58,875
2006 55,009
2007 54,448
Patent costs are capitalized and amortized over five years using the
straight-line method. The patent cost is primarily composed of cost associated
with securing and registering a patent.
8. STOCK-BASED COMPENSATION
The Company has adopted the disclosure provisions of Statement of
Financial Accounting Standards No. 148, "Accounting for Stock-Based
Compensation-Transition and Disclosure" ("SFAS 148") which is an amendment of
SFAS No. 123 "Accounting for Stock-Based Compensation" ("SFAS 123"), and
continues to apply Accounting Principles Board Opinion No. 25 and related
interpretations in accounting for its stock plans. If the Company had elected to
recognize compensation cost for all of the plans based upon the fair value at
the grant dates for awards under those plans, consistent with the method
prescribed by SFAS 123, net income and earnings per share would have been
changed to the pro forma amounts indicated below.
8
The per-share weighted-average fair value of stock options granted during
the quarter ended June 30, 2003 and 2002 was $2.39 and $2.25, respectively, on
the date of grant using the Black Scholes option-pricing model with the
following weighted-average assumptions:
Year Expected Dividend Yield Risk-Free Interest Rate Expected Option Life Expected Volatility Factor
---- ----------------------- ----------------------- -------------------- --------------------------
2003 -- 3.33% 5 years 81.67%
2002 -- 4.93% 5 years 88.50%
The Company applies APB Opinion No. 25 in accounting for its plans and,
accordingly, no compensation cost has been recognized for its stock options in
the consolidated financial statements. Had the Company determined compensation
cost based on the fair value at the grant date for its options under SFAS No.
123, the Company's net earnings (loss) would have been reduced (increased) to
the pro forma amounts indicated below.
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- ---------------------------
2003 2002 2003 2002
------------ ------------ ------------ ------------
(Restated) (Restated)
Net earnings (loss) $3,261,280 $ 1,441 $ 2,487,571 $ (603,250)
Deduct: Total stock-based employee compensation
expense determined under fair value based method
for all awards, net of related tax effects (84,629) (80,467) (170,044) (132,878)
------------ ------------ ------------ ------------
Pro forma net earnings (loss) $ 3,176,651 $ (79,026) $ 2,317,527 $ (736,128)
============ ============ ============ ============
Earnings (loss) per share:
Basic - as reported $ 0.48 $ 0.00 $ 0.37 $ (0.09)
============ ============ ============ ============
Basic - pro forma $ 0.47 $ (0.01) $ 0.34 $ (0.11)
============ ============ ============ ============
Diluted - as reported $ 0.48 $ 0.00 $ 0.37 $ (0.09)
============ ============ ============ ============
Diluted - pro forma $ 0.47 $ (0.01) $ 0.34 $ (0.11)
============ ============ ============ ============
9. ACQUISITION AND RELATED PARTY TRANSACTION
On May 23, 2003, the Company acquired from Stratos Lightwave, Inc.
("Stratos") all the ownership interest of Bandwidth Semiconductor, LLC
("Bandwidth"), a Delaware limited liability company, located in Hudson, New
Hampshire. Bandwidth is a compound semiconductor foundry providing material and
device fabrication services to defense, telecommunications and biomedical
instrument industries.
Prior to December 30, 1999, Bandwidth had been the Company's
Optoelectronics division, until it was sold to Stratos for a total of
$12,950,000 in cash. On May 23, 2003, Bandwidth was re-acquired by the Company.
The Company now owns 100% of the ownership interest of Bandwidth and the results
of operations have been included herein since the date of the acquisition. Prior
to the acquisition, Bandwidth was a wholly owned subsidiary of Stratos.
The total purchase price was $724,969 in cash plus related acquisition
costs of $150,000 and liabilities assumed of $2,983,779. The Company's
acquisition of Bandwidth did not include the building in Hudson, New Hampshire
occupied by Bandwidth. The Company assumed an unrelated party capital lease with
GE Capital that Bandwidth had entered into to finance the purchase of a wafer
production reactor. The consideration from the Company to Stratos also included
the release and forgiveness from all future obligations of Bandwidth and Stratos
in connection with a Sublease Agreement with the Company dated December 29, 1999
and expiring on November 30, 2005 for approximately 21,275 square-feet of space
previously occupied by Bandwidth in Bedford, Massachusetts, that is now vacant.
9
The total purchase price of $3,708,748 was preliminarily allocated based
on management's estimated fair value of the assets acquired and liabilities
assumed, is summarized as follows:
Current assets $ 402,796
Property and equipment 3,305,952
Reactor capital lease (1,359,022)
Accrued lease obligation - related party (1,069,525)
Other liabilities (555,232)
-----------
Total cash paid $ 724,969
===========
The allocation of the purchase price is subject to revision, based on the final
valuation of the assets acquired. The Company is in the process of obtaining an
independent appraisal of the assets.
In conjunction with the acquisition of Bandwidth by the Company, a Trust
of which Roger G. Little, Chairman of the Board, Chief Executive Officer and
President of the Company, is sole trustee and principal beneficiary (SPI-Trust),
purchased from Stratos, the parent company, the building that Bandwidth occupies
for $3.7 million. Subsequently, the Company entered into a lease for the
building (90,000 square-feet) Bandwidth occupies in Hudson, New Hampshire with
SPI-Trust whereby the Company will pay $4.1 million to SPI-Trust over an initial
five year term expiring in 2008 with an option to extend for five years. The
lease agreement does not provide for a transfer of ownership at any point. This
lease has been classified as a related party capital lease and a summary of
payments are as follows:
Year Rate Per Square Foot Annual Rent Monthly Rent
------ -------------------- ----------- ------------
Year 1 $6.00 $ 540,000 $ 45,000
Year 2 7.50 675,000 56,250
Year 3 8.50 765,000 63,750
Year 4 10.50 945,000 78,750
Year 5 13.50 1,215,000 101,250
The following pro forma information, which has been restated as discussed
in Note 3, assumes that the acquisition of Bandwidth had been completed as of
the beginning of 2003. For comparative purposes, the Bandwidth results of
operations for 2002 have also been included in the prior year pro forma data.
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- ---------------------------
2003 2002 2003 2002
------------ ------------ ------------ ------------
(Restated) (Restated) (Restated) (Restated)
Revenue $ 3,917,294 $ 5,121,514 $ 7,310,622 $ 8,907,601
Net income (loss) $ 2,999,034 $ (1,264,930) $ 974,950 $ (3,112,361)
Earnings (loss) per share $ 0.44 $ (0.18) $ 0.14 $ (0.46)
The pro forma financial information is not necessarily indicative of the
results to be expected in future quarters as a result of the acquisition of
Bandwidth. The historical results for Bandwidth reflect a primary focus on the
development of advanced optoelectronic devices to be incorporated into the
telecommunications and data networking products of its former parent and also
reflect the impact of corporate allocations and interest expense associated with
cash advances from the former parent.
10. PROPERTY UNDER CAPITAL LEASES AND LEASE COMMITMENTS
At June 30, 2003, the Company had capital leases in effect for a building
and fabrication equipment. The Company also had operating leases for office
space and other miscellaneous items.
10
The components of capitalized costs and carrying value of the property
under capital leases were as follows:
2003
-------------
Unrelated party capital lease:
Equipment $ 773,170
Less accumulated amortization (12,886)
-------------
$ 760,284
=============
2003
-------------
Related party capital lease:
Hudson, New Hampshire building $ 3,390,397
Less accumulated amortization (56,507)
-------------
$ 3,333,890
=============
A schedule of future minimum lease payments at June 30, 2003 follows:
Unrelated
Party
Unrelated Party Related Party Operating Related Party
Capital Lease Capital Lease Leases Operating Lease
--------------- ------------- --------- ---------------
2003 $ 218,466 $ 292,965 $ 166,474 $ 532,998
2004 436,932 618,750 209,819 1,065,997
2005 436,932 727,500 162,852 977,164
2006 495,655 870,000 159,246 --
2007 -- 1,102,500 5,639 --
2008 -- 495,260 -- --
---------- ---------- ---------- ----------
Total minimum lease payments 1,587,985 4,106,975 704,030 2,576,159
Less amount representing interest (187,297) (749,606) -- --
---------- ---------- ---------- ----------
Present value of minimum lease payments 1,400,688 3,357,369 -- --
Less current portion (361,754) (326,213) -- --
---------- ---------- ---------- ----------
$1,038,934 $3,031,156 $ 704,030 $2,576,159
========== ========== ========== ==========
Unrelated Party Capital Lease
-----------------------------
In September 2001, Bandwidth Semiconductor, LLC ("Bandwidth") entered
into an agreement with GE Capital Leasing Corp, for the lease of a reactor for
its wafer production line. The lease is accounted for as a capital lease. Under
the lease agreement, the Company is making monthly payments of $36,000. After
the initial three-year period ending in September 2004, the lease allows for an
additional two-year extension. The Company expects to extend the lease term for
the additional two years to September 2006. The lease includes a residual value
guarantee of $204,000 at the end of extended period.
Related Party Capital Lease
---------------------------
In conjunction with the acquisition of Bandwidth by the Company, a Trust
of which Roger G. Little, Chairman of the Board, Chief Executive Officer and
President of the Company, is sole trustee and principal beneficiary, purchased
the building that Bandwidth occupies from Stratos, the parent company, for $3.7
million. The Company's Bandwidth Semiconductor division entered into a lease for
the building it occupies from the Trust. The lease is for an initial five-year
term expiring in 2008 with an option to extend for five years. It has been
classified a capital lease; under the lease agreement, the Company is making
monthly payments of $45,000 for the first 12 months, with increasing monthly
payments each year, through June 2008 for total payments of $4.1 million.
Interest costs were assumed at 7%. The lease does not provide for a transfer of
ownership at anytime.
Unrelated Party Operating Leases
--------------------------------
Unrelated party operating leases primarily consist of leases for copiers
and the telephone system.
11
Related Party Operating Lease
-----------------------------
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,
Chairman of the Board, Chief Executive Officer and President of the Company, 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 for the six months ended was $884,000 in 2003. This amount does not
take into account rent received by the Company for subleasing approximately
21,275 square-feet of its 74,000 square-feet to the purchaser of the Company's
Optoelectronics business, over the first five months of 2003. As discussed below
the Company has released Bandwidth from the aforementioned sublease.
In conjunction with the acquisition of Bandwidth by the Company, the
Company released Bandwidth from the lease agreement that had existed between
Bandwidth and the Company. In November 2001, Bandwidth, under its previous owner
abandoned the space being subleased from the Company in Bedford, Massachusetts
to move to the new building and wafer fabrication lab in Hudson, New Hampshire.
At that time, there were 48 months left on the lease. Subsequent to the move to
Hudson, New Hampshire, Bandwidth was unable to sublease the Bedford,
Massachusetts space, and was paying the Company for the unused space. In
conjunction with the acquisition of Bandwidth in May 2003, the Company released
Bandwidth from the remaining lease payments. However, the Company continues to
be obligated to Mykrolis Corporation for the entire amount of the remaining
lease agreement. As a result the present value of the remaining lease obligation
associated with the unused space was recorded as an assumed liability of
$1,069,525. The difference between the actual rent payment and the discounted
rent payment will be accreted to the income statement as interest expense which
is reflected in the Company's balance sheet as of June 30, 2003 as an "accrued
lease obligation - related party".
Total rent expense under operating leases was approximately $739,000 for
the six months ended June 30, 2003. Rent expense was offset by the rental income
from Bandwidth under the sublease agreement between the Company and Bandwidth,
prior to the date Bandwidth was re-acquired.
11. SALE OF A LICENSE
In October 2002, the Company sold an exclusive patent license for a
hemodialysis split-tip catheter to Bard Access Systems, Inc., a wholly owned
subsidiary of C. R. Bard, Inc., in exchange for $5 million upon the execution of
the agreement, with another $5 million due upon the earlier to occur the date of
first commercial sale of a licensed product by Bard, but no more than 18 months
after signing, and another $6 million upon achievement of certain milestones by
Bard Access Systems. The Company recorded a net gain of $4,465,000 from the
proceeds received in 2002, after reduction of direct costs, and has been
recorded as a component of earnings from operations. The Company believes that
the sale of the license does not reflect the day-to-day operations of the
Company. Therefore, the net proceeds received has been classified under
investing activities in the unaudited condensed consolidated statement of cash
flows for the six months ended June 30, 2003. The second $5 million payment was
received in June 2003 and it was recorded as a net gain of $4,989,000, and has
been recorded as a component of earnings from operations. In conjunction with
the sale, the Company received a sublicense, which permits the Company to
continue to manufacture and market hemodialysis catheters for the treatment of
chronic kidney disease. In addition, the Company granted Bard Access Systems a
right of first refusal should the Company seek to sell the Catheter business.
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 DESCRIBED IN THE FORWARD-LOOKING STATEMENTS. FACTORS THAT
COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO,
THOSE DESCRIBED OR REFERRED TO IN THIS REPORT AND IN ITEM 6 OF THE ANNUAL REPORT
ON FORM 10-KSB FOR THE YEAR ENDED DECEMBER 31, 2002.
Summary Results
---------------
The results of operations of Bandwidth from May 23, 2003 are included in
the results of operations for the quarter and six months ended June 30, 2003,
for the Company. The Bandwidth activity was not material to the results of the
Company and therefore, are not separately discussed in the following discussion
of the Company's results. The results of operations of Bandwidth from May 23,
2003 through June 30, 2003 are not necessarily indicative of results to be
expected in future periods.
12
The following tables set forth the results for Bandwidth:
For the period of May 23, 2003 through June 30, 2003:
Net sales and revenues $ 279,972
Loss from operations (95,185)
Interest expense (31,780)
-----------
Net loss $ (126,965)
===========
June 30, 2003
-------------
Assets
Current assets $ 515,469
Net property and equipment 6,622,119
-----------
Total assets $ 7,137,588
===========
Liabilities
Current liabilities $ 942,306
Current liabilities - related party 790,876
Long-term liabilities 1,170,388
Long-term liabilities - related party 3,636,016
Members equity 598,002
-----------
Total liabilities and members equity $ 7,137,588
===========
The following table sets forth certain items as a percentage of the Company's
net sales and revenues for the periods presented:
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
2003 2002 2003 2002
-------- -------- -------- --------
Net sales and revenues 100% 100% 100% 100%
Cost of sales and revenues 79 69 78 73
-------- -------- -------- --------
Gross profit 21 31 22 27
Selling, general and administrative expenses 41 29 43 33
-------- -------- -------- --------
Internal research and development 8 2 6 2
Gain on sale of license 133 -- 74 --
Earnings (loss) from operations 105 -- 47 (8)
Loss before income taxes 105 -- 47 (8)
Income tax expense 18 -- 10 --
-------- -------- -------- --------
Net earnings (loss) 87% 0% 37% (8%)
======== ======== ======== ========
Three and Six Months Ended June 30, 2003 Compared to Three and Six Months Ended
-------------------------------------------------------------------------------
June 30, 2002
-------------
NET SALES AND REVENUES
Net sales and revenues decreased $806,000 or 18% for the three months
ended June 30, 2003 to $3,755,000, compared to $4,561,000 for the three months
ended June 30, 2002. Contract research and service revenues increased $202,000
or 12% to $1,927,000 for the three months ended June 30, 2003 compared to
$1,725,000 for 2002. Sales of goods decreased $1,008,000 or 36% to $1,828,000
for the three months ended June 30, 2003, compared to $2,836,000 for 2002.
The following table categorizes the Company's net sales and revenues for
the periods presented:
Three Months Ended June 30,
------------------------------------------
2003 2002 % Change
------------ ------------ ------------
Contract research and service revenues $1,927,000 $1,725,000 12%
Sales of goods 1,828,000 2,836,000 (36%)
------------ ------------
Net sales and revenues $3,755,000 $4,561,000 (18%)
------------ ------------
13
The increase in contract research and service revenues for the three
month period ended June 30, 2003 is attributable to an increase in United States
government research and development contracts, and continued strong demand for
the Company's biomedical processing services. The decrease in sales of goods for
the three month period ended June 30, 2003 is primarily due to lower than
expected solar systems revenue and low demand for the Company's manufacturing
equipment due to excess capacity in the market place. A portion of the decrease
was offset by an increase in revenue associated with the Company's hemodialysis
split-tip catheter.
Net sales and revenues decreased $1,174,000 or 15% for the six months
ended June 30, 2003 to $6,714,000, compared to $7,888,000 for the six months
ended June 30, 2002. Contract research and service revenues increased $153,000
or 5% to $3,519,000 for the six months ended June 30, 2003 compared to
$3,366,000 for 2002. Sales of goods decreased $1,327,000 or 29% to $3,195,000
for the six months ended June 30, 2003, compared to $4,522,000 for 2002.
The following table categorizes the Company's net sales and revenues for
the periods presented:
Six Months Ended June 30,
------------------------------------------
2003 2002 % Change
------------ ------------ ------------
Contract research and service revenues $ 3,519,000 $ 3,366,000 5%
Sales of goods 3,195,000 4,522,000 (29%)
------------ ------------
Net sales and revenues $ 6,714,000 $ 7,888,000 (15%)
============ ============
The increase in contract research and service revenues for the six month
period ended June 30, 2003 is attributed to the increase in U.S. government
research contracts and increased demand for the Company's biomedical processing
services. The decrease in sales of goods for the six month period ended June 30,
2003 is primarily due to zero revenue associated with solar systems sales for
the three month period ended March 31, 2003. Solar systems revenue continued to
display volatility arising from the project nature of the business and from the
varying impacts of extended building permit processes, and weather induced
delays, both substantially beyond the direct control of the Company. We
anticipate that the revenue associated with the solar systems business will
continue to demonstrate volatility in succeeding quarters.
Solar equipment revenue also displays a degree of volatility due to the
project nature of the capital equipment sold. Solar equipment revenue has been
affected by a combination of low unit volume, as producers of solar module defer
capital expansions, and reduced unit pricing due to pricing pressures and
competition within the industry. We anticipate that both of these factors will
extend into the next two quarters.
COST OF SALES AND REVENUES
The total cost of sales and revenues decreased $170,000 to $2,978,000,
and increased to 79% of total net sales and revenues, for the quarter ended June
30, 2003, compared to $3,148,000 or 69% of total net cost of sales and revenues
for the quarter ended June 30, 2002. The cost of contract research and service
revenues increased $286,000 to $1,256,000 increasing to 65% of related revenues
for the three months ended June 30, 2003, compared to $970,000 or 56% of related
revenues for the three months ended June 30, 2002. The increase is a result of a
shift in mix towards the Company's biomedical processing services. Cost of goods
sold decreased $456,000 to $1,722,000, and increased to 94% of related sales,
for the three months ended June 30, 2003, compared to $2,178,000 or 77% of
related sales for the three months ended June 30, 2002. The increase in cost of
goods as a percentage of related sales is a result of the fixed cost associated
with the Company's manufacturing operation.
The following table categorizes the Company's cost of sales and revenues
for the periods presented, stated in dollars and as a percentage of related
sales and revenues:
Three Months Ended June 30,
-------------------------------------------
2003 % 2002 %
------------ ----- ------------ -----
Cost of contract research and service revenues $ 1,256,000 65% $ 970,000 56%
Cost of goods sold 1,722,000 94% 2,178,000 77%
------------ ------------
Total cost of sales and revenues $2,978,000 79% $ 3,148,000 69%
============ ============
14
COST OF SALES AND REVENUES
The total cost of sales and revenues decreased $464,000 to $5,265,000
increasing to 78% of total net sales and revenues, for the six months ended June
30, 2003, compared to $5,729,000 or 73% of total net cost of sales and revenues
for the six months ended June 30, 2002. The cost of contract research and
service revenues increased $95,000 to $2,255,000 decreasing to 64% of related
revenues for the six months ended June 30, 2003, compared to $2,160,000 or 64%
of related revenues for the six months ended June 30, 2002. The increase is a
result of a shift in mix towards the Company's biomedical processing services.
Cost of good sold decreased $559,000 to $3,010,000, and increased to 94% of
related sales, for the six months ended June 30, 2003, compared to $3,569,000 or
80% of related sales for the three months ended June 30, 2002. The increase in
cost of goods as a percentage of related sales is a result of the fixed cost
associated with the Company's manufacturing operation.
The following table categorizes the Company's cost of sales and revenues
for the periods presented, stated in dollars and as a percentage of related
sales and revenues:
Six Months Ended June 30,
-------------------------------------------
2003 % 2002 %
------------ ----- ------------ -----
Cost of contract research and service revenues $ 2,255,000 64% $ 2,160,000 64%
Cost of goods sold 3,010,000 94% 3,569,000 80%
------------ ------------
Total cost of sales and revenues $ 5,265,000 78% $ 5,729,000 73%
============ ============
INTERNAL RESEARCH AND DEVELOPMENT
Internal research and development for the three months ended June 30,
2003 increased $204,000 or 260% to $283,000, compared to $79,000 for the three
months ended June 30, 2002, as the Company continued its investment in the
catheter development program and development of the next generation of
manufacturing equipment.
Internal research and development for the six months ended June 30, 2003
increased $244,000 or 181% to $379,000, compared to $135,000 for the six months
ended June 30, 2002, as the Company continued its investment in the catheter
development program and in the development of "next generation" solar energy
module manufacturing equipment under a cost sharing contract with the Department
of Energy National Renewable Energy Laboratory.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses for the three months ended
June 30, 2003 increased $182,000 to $1,525,000, and increased to 41% of sales
and revenues, compared to $1,343,000 or 29% of sales and revenues for the three
months ended June 30, 2002. The increase in selling, general and administrative
expenses as a percentage of sales and revenues are due to lower revenues in
2003, as compared to the three months ended June 30, 2002.
Selling, general and administrative expenses for the six months ended
June 30, 2003 increased $242,000 to $2,882,000, and increased to 43% of sales
and revenues, compared to $2,640,000 or 33% of sales and revenues for the six
months ended June 30, 2002.
The increase in selling, general and administrative expenses reflects
increased sales and marketing efforts associated with the launch of our
hemodialysis catheter product line as well as additional costs for outside legal
and accounting services.
INTEREST
The Company incurred net interest expense of $21,000 for the quarter
ended June 30, 2003, compared to $10,000 of interest income for the quarter
ended June 30, 2002. The Company incurred interest expense of $14,000 for the
six months ended June 30, 2003, compared to interest income of $13,000 for the
six months ended June 30, 2002. This is primarily as a result of interest
expense incurred by the Bandwidth Semiconductor division, acquired during the
quarter.
INCOME TAXES
The Company incurred income tax expense of $675,000 for the quarter and
the six months ended June 30, 2003, compared to $100 of income taxes for the
quarter and the six months ended June 30, 2002. The effective tax rate was 17%
for the quarter ended June 30, 2003 and 21% for the six months ended June 30,
2002. The effective tax rates reflect the effect of tax credit carryforwards
from prior periods.
15
NET EARNINGS (LOSS)
The Company reported a net earnings for the quarter ended June 30, 2003
of $3,261,000, compared to net earnings of $1,000 for the quarter ended June 30,
2002. The Company reported net earnings for the six months ended June 30, 2003
of $2,488,000, compared to a net loss of $603,000 for the six months ended June
30, 2002. The earnings for the quarter ended June 30, 2003 are attributed to the
Company's income associated with a payment received relating to the sale of a
license for the Company's hemodialysis split-tip catheter.
Liquidity and Capital Resources
-------------------------------
To date, the Company has been able to fund its operating cash
requirements using proceeds from the licensing of technology, and available
lines of credit. On June 23, 2003, the Company entered into a Letter of Credit
Agreement with Citizens Bank of Massachusetts. The Agreement provides Standby
Letter of Credit Guarantees for foreign customers and is 100% secured with cash.
At June 30, 2003, the Company had $103,000 of restricted cash associated with
the line of credit. The agreement also provides the Company with the ability to
convert to a $2 million revolving credit facility, based upon eligible accounts
receivable.
The Company believes it has sufficient resources to finance its current
operations for the foreseeable future through working capital. The Company also
believes that it has sufficient financial resources to cover the liabilities
assumed in the acquisition of Bandwidth. Cash and cash equivalents increased
$3,258,000 to $11,057,000, including restricted cash of $103,000 at June 30,
2003 from $7,799,000 at December 31, 2002. To date, there are no material
commitments by the Company for capital expenditures. At June 30, 2003, the
Company's retained earnings were $4,949,000, compared to retained earnings of
$2,461,000 as of December 31, 2002. Working capital as of June 30, 2003
increased 4% to $10,976,000, compared to $10,524,000 as of December 31, 2002.
The following table summarizes the Company's contractual obligations at
June 30, 2003 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 5
Contractual Obligation Total 1 Year 1 - 3 Years 4 - 5 Years Years
-------------------------------- ---------- --------- ----------- ----------- --------
Unrelated party capital lease $1,588,000 $ 218,000 $ 874,000 $ 496,000 --
Related party capital lease $4,107,000 $ 293,000 $1,346,250 $1,972,500 $495,250
Unrelated party operating leases $ 704,000 $ 166,000 $ 373,000 $ 165,000 --
Related party operating leases $2,576,000 $ 533,000 $2,043,000 -- --
Included in the related party operating leases is the accrued lease obligation
in the amount of $1,069,525.
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 two megawatts per year over a
five-year term. As of June 30, 2003, the Company is committed to purchase 23
million solar cells. BPS has the right to repossess the equipment should the
Company not purchase its committed quantity or convert into equity of Spire
Solar Chicago the initial purchase price of all equipment purchased from the
Company. 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. Amortization of the purchase
discount amounted to $3,466 during the quarter ended June 30, 2003. Subsequent
to the quarter ending June 30, 2003, the Company completed negotiations with BPS
to include purchases other than solar cells. The contract modification changed
the Company's purchase commitment to purchase from 23 million solar cells to
$17.5 million of photovoltaic products. The Company anticipates that the impact
from the modification will increase the monthly amortization of the unearned
purchase discount by approximately $10,000 per month.
16
Recent Accounting Pronouncements
--------------------------------
In May 2003, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 150, "Accounting for
Certain Financial Instruments with Characteristics of Both Liabilities and
Equity", ("SFAS 150"). SFAS 150 requires issuers to classify as liabilities (or
assets in some circumstances) three classes of freestanding financial
instruments that embody obligations for the issuer. Generally, SFAS 150 is
effective for financial instruments entered into or modified after May 31, 2003
and is otherwise effective at the beginning of the first interim period
beginning after June 15, 2003. The adoption of this statement is not anticipated
to have a material effect on the Company's results of operations or financial
position.
In November 2002, the FASB issued FASB Interpretation No. 45,
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others" ("FIN 45"). FIN 45 requires that
upon issuance of a guarantee, a guarantor must recognize a liability for the
fair value of an obligation assumed under a guarantee. FIN 45 also requires
additional disclosures by a guarantor in its interim and annual financial
statements about the obligations associated with guarantees issued. The
recognition provisions of FIN 45 will be effective for any guarantees that are
issued or modified after December 31, 2002. The adoption of FIN 45 did not have
a material impact on the Company's financial position or results of operations.
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock
Based Compensation - Transition and Disclosure - an Amendment of SFAS 123"
("SFAS 148"). SFAS 148 provides additional transition guidance for those
entities that elect to voluntarily adopt the provisions of SFAS 123, "Accounting
for Stock Based Compensation." Furthermore, SFAS 148 mandates new disclosures in
both interim and year-end financial statements of the method of accounting for
stock-based employee compensation and the effect of the method used on reported
results. The adoption of SFAS 148 did not have a material impact on the
Company's financial position or results of operation.
In January 2003, the FASB issued FASB Interpretation No. 46,
"Consolidation of Variable Interest Entities" ("FIN 46") which requires the
consolidation of variable interest entities by the primary beneficiary of the
entity if the equity investors in the entity do not have the characteristics of
a controlling financial interest or do not have sufficient equity at risk for
the entity to finance its activities without additional subordinated financial
support from other parties. FIN 46 is effective for all new variable interest
entities created or acquired after January 31, 2003. For variable interest
entities created or acquired prior to February 1, 2003, the provisions of FIN 46
must be applied for the first interim or annual period beginning after June 15,
2003 (third quarter of fiscal 2003). The adoption of FIN 46 did not have a
material impact on our results of operations and financial condition.
In June 2001, the FASB issued SFAS No. 141, "Business Combinations"
("SFAS 141"), and SFAS No. 142, "Goodwill and Other Intangible Assets" ("SFAS
142"). SFAS 141 requires that the purchase method of accounting be used for all
business combinations. SFAS 141 specifies criteria that intangible assets
acquired in a business combination must meet to be recognized and reported
separately from goodwill. SFAS 142 will require that goodwill and intangible
assets with indefinite useful lives no longer be amortized, but instead tested
for impairment at least annually in accordance with the provisions of SFAS 142.
The Company adopted the provisions of SFAS 141 as of July 1, 2001, and
SFAS 142 is effective January 1, 2002. Goodwill and intangible assets determined
to have an indefinite useful life acquired in a purchase business combination
completed after June 30, 2001, but before SFAS 142 is adopted in full, are not
amortized. The adoption of the SFAS 141 and 142 has not had a material impact on
the Company's financial position or results of operations.
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.
17
Foreign Exchange Fluctuation
----------------------------
The Company sells its products and services only in United States
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
United States 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,
Chairman of the Board, Chief Executive Officer and President of the Company, is
sole trustee and principal beneficiary. 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 for the six months ended was $884,000 in 2003. This amount does not
take into account rent received by the Company for subleasing approximately
21,275 square-feet of its 74,000 square-feet to the purchaser of the Company's
Optoelectronics business, over the first five months of 2003. As discussed below
the Company has released Bandwidth from the aforementioned sublease.
In conjunction with the acquisition of Bandwidth by the Company, the
Company released Bandwidth from the lease agreement that had existed between
Bandwidth and the Company. In November 2001, Bandwidth abandoned the space being
subleased from the Company in Bedford, Massachusetts to move to the new building
and wafer fabrication lab in Hudson, New Hampshire. At that time, there were 48
months left on the lease. Subsequent to the move to Hudson, New Hampshire,
Bandwidth was unable to sublease the Bedford, Massachusetts space, and was
paying the Company for the unused space. In conjunction with the acquisition of
Bandwidth in May 2003, the Company released Bandwidth from the remaining lease
payments. However, the Company continues to be obligated to Mykrolis Corporation
for the entire amount of the remaining lease agreement. As a result the present
value of the remaining lease obligation associated with the unused space was
recorded on the balance sheet as an accrued lease obligation - related party of
$1,069,525. The difference between the actual rent payment and the discounted
rent payment will be accreted to the income statement as interest expense.
In conjunction with the acquisition of Bandwidth by the Company, a Trust
of which Roger G. Little, Chairman of the Board, Chief Executive Officer and
President, is sole trustee and principal beneficiary, purchased the building
that Bandwidth occupies from Stratos, the parent company, for $3.7 million. The
Company's Bandwidth Semiconductor division entered into a lease for the building
it occupies from the Trust. The lease is for an initial five-year term expiring
in 2008 with option to extend for five years. It has been classified a capital
lease; under the lease agreement, the Company is making monthly payments of
$45,000 for the first 12 months, with increasing monthly payments each year,
through June 2008 for total payments of $4.1 million. Interest costs were
assumed at 7%. The lease does not provide for a transfer of ownership at
anytime.
Critical Accounting Policies
----------------------------
The preparation of financial statements in accordance with accounting
principles generally accepted in the United States requires us to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Among the significant estimates affecting our consolidated
financial statements are those relating to long-lived assets, income taxes,
warranties. We regularly evaluate our estimates and assumptions based upon
historical experience and various other factors that we believe to be reasonable
under the circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities that are not
readily apparent from other sources. To the extent actual results differ from
those estimates, our future results of operations may be affected. We believe
the following critical accounting policies affect our more significant judgments
and estimates used in the preparation of our consolidated financial statements
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) United States 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 (or
18
EXW Factory) 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 environment. 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 in the contract and revenue is
recognized upon delivery of the element.
The Company's biomedical subsidiary performs surface engineering services
for 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 United States 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 United States government.
IMPAIRMENT OF LONG-LIVED ASSETS
Long-lived assets, including fixed assets and intangible assets, are
continually monitored and are evaluated at least annually for impairment. The
determination of recoverability is based on an estimate of undiscounted cash
flows expected to result from the use of an asset and its eventual disposition.
The estimate of cash flows is based upon, among other things, certain
assumptions about expected future operating performance. Our estimates of
undiscounted cash flows may differ from actual cash flows due to, among other
things, technological changes, economic conditions, changes to our business
model or changes in our operating performance. If the sum of the undiscounted
cash flows (excluding interest) is less than the carrying value, we recognize an
impairment loss, measured as the amount by which the carrying value exceeds the
fair value of the asset.
ACQUISITION ACCOUNTING
Through its acquisition, the Company has accumulated assets the valuation
of which involves estimates based on fair value assumptions. Estimated lives
assigned to the assets acquired in a business purchase also involve the use of
estimates. These matters that are subject to judgments and estimates are
inherently uncertain, and different amounts could be reported using different
methodologies. Management uses its best estimate in determining the appropriate
values and estimated lives to reflect in the financial statements, using
historical experience, market data, and all other available information.
ITEM 3. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
------------------------------------------------
As required by Rule 13a-15 under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), the Company carried out an evaluation, under the
supervision and with the participation of the Company's management, including
the Company's Chief Executive Officer and Financial Controller and Treasurer
(the Company's principal financial and accounting officer), of the effectiveness
of the Company's disclosure controls and procedures as of June 30, 2003. In
designing and evaluating the Company's disclosure controls and procedures, the
Company and its management recognize that there are inherent limitations to the
effectiveness of any system of disclosure controls and procedures, including the
possibility of human error and the circumvention or overriding of the controls
and procedures. Accordingly, even effective disclosure controls and procedures
can only provide reasonable assurance of achieving their desired control
objectives. Additionally, in evaluating and implementing possible controls and
procedures, the Company's management was required to apply its reasonable
judgment. Based upon the required evaluation, the Chief Executive Officer and
the Financial Controller and Treasurer concluded that as of June 30, 2003 the
Company's disclosure controls and procedures were effective (at the "reasonable
assurance" level mentioned above) to ensure that information required to be
disclosed by the Company in the reports it files or submits under the Exchange
Act is recorded, processed, summarized and reported within the time periods
specified in the Securities and Exchange Commission's rule and forms.
19
From time to time the Company and its management have conducted and will
continue to conduct further reviews and, from time to time put in place
additional documentation of, the Company's disclosure controls and procedures,
as well as its internal control over financial reporting. The Company may from
time to time make changes aimed at enhancing their effectiveness, as well as
changes aimed at ensuring that the Company's systems evolve with, and meet the
needs of, the Company's business. These changes may include changes necessary or
desirable to address recommendations of the Company's management, its counsel
and/or its independent auditors, including any recommendations of our
independent auditors arising out of their audits and reviews of the Company's
financial statements. These changes may include changes to the Company's own
systems, as well as to the systems of businesses that the Company has acquired
or that the Company may acquire in the future and will, if made, be intended to
enhance the effectiveness of the Company's controls and procedures. The Company
is also continually striving to improve its management and operational
efficiency and the Company expects that its efforts in that regard will from
time to time directly or indirectly affect the Company's disclosure controls and
procedures, as well as the Company's internal control over financial reporting.
For example, as a result of the recent resignation of the Company's Chief
Financial Officer (as discussed in Item 5 of Part II below), the Company intends
to commence a search for a new chief financial officer, and we expect to hire an
experienced person with an appropriate background to manage the diverse and
complex financial issues which may arise in our business. The Company is also
continuing its efforts to upgrade the information technology capabilities of
certain of the Company's business units, as well as integrate the financial
accounting systems used by certain of its business units.
Subsequent to the evaluation of disclosure controls and procedures
discussed above, and in connection with the initial filing of the Form 10-QSB,
which, as noted in Amendment No. 1 to the Form 10-QSB, was submitted prior to
the completion of the required review by the Company's independent accountants,
the Audit Committee engaged outside counsel to conduct an internal investigation
into the events surrounding the preparation and filing of the Form 10-QSB. Based
on the results of that investigation, outside counsel concluded that weaknesses
exist in the Company's disclosure controls and procedures and proposed an action
plan designed to strengthen the Company's disclosure controls and procedures.
The Audit Committee, the Board of Directors and management intend to adopt and
implement certain of those recommendations as soon as practicable with the goal
of strengthening the Company's disclosure controls and procedures.
Also subsequent to the evaluation of disclosure controls and procedures
discussed above, and subsequent to both the initial filing of the Form 10-QSB
and Amendment No. 1 to the Form 10-QSB, the Company's independent auditors, KPMG
LLP, advised management and the Audit Committee by a letter dated December 24,
2003 that, in connection with KPMG's review of the financial statements of the
Company for the three and six-month periods ended June 30, 2003, it noted
certain matters involving internal control and its operation that it considered
to be material weaknesses that constituted reportable conditions under standards
established by the American Institute of Certified Public Accountants.
Reportable conditions are matters coming to an independent auditors' attention
that, in their judgment, relate to significant deficiencies in the design or
operation of internal control and could adversely affect the organization's
ability to record, process, summarize, and report financial data consistent with
the assertions of management in the financial statements. Further, a material
weakness is a reportable condition in which the design or operation of one or
more internal control components does not reduce to a relatively low level the
risk that errors or fraud in amounts that would be material in relation to the
financial statements being audited may occur and not be detected within a timely
period by employees in the normal course of performing their assigned functions.
KPMG advised management and the Audit Committee that it considered the following
to constitute material weaknesses in internal control and operations: the
Company's failure to adequately staff its finance group with the appropriate
level of experience to effectively control the increased level of transaction
activity, address the complex accounting matters and manage the increased
financial reporting complexities resulting from, among other things, the
acquisition of Bandwidth and the implementation of a new financial reporting
system.
The Company is currently assessing the findings of KPMG. As noted above,
however, the Company has made and is continuing to make changes in its controls
and procedures, including its internal control over financial reporting, aimed
at enhancing their effectiveness and ensuring that the Company's systems evolve
with, and meet the needs of, the Company's business. As further noted above, the
Company is also continually striving to improve its management and operational
efficiency and the Company expects that its efforts in that regard will from
time to time directly or indirectly affect the Company's controls and
procedures, including its internal control over financial reporting. These
efforts will include the search for a new chief financial officer with the
appropriate qualifications, the upgrade of the information technology
capabilities of certain of the Company's business units, and the integration of
the financial accounting systems used by certain of the Company's business
units.
Changes in Internal Control Over Financial Reporting
----------------------------------------------------
There was no change in the Company's internal control over financial
reporting that occurred during the period covered by this quarterly report on
Form 10-QSB that has materially affected, or is reasonably likely to materially
affect, the Company's internal control over financial reporting.
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company has been named as a defendant in 69 cases filed from August
2001 to date in state courts in Texas by persons claiming damages from the use
of allegedly defective mechanical heart valves coated by a process licensed by
the Company to St. Jude Medical, Inc., the valve manufacturer, which has also
been named as a defendant in the cases. In June 2003, a judge in a state court
in Harris County, Texas agreed to grant the Company's motion for summary
judgment based upon the principle of federal preemption with regard to 68 of
those cases and to order that the cases against the Company be dismissed with
prejudice. An order to this effect was signed in late July. The Company believes
that the plaintiffs ultimately plan to appeal the court's decision. The
remaining case is still pending, and due to aspects of its fact situation is not
subject to the principle of federal preemption.
The Company has concluded a dispute with ATmicro Solar, Ltd., a customer
of the Company. In May 2003, the customer made various claims against the
Company and had requested the return of certain funds paid for equipment it had
agreed to purchase from the Company. The Company agreed to pay $75,000 to settle
the dispute, with the execution by the parties of a full and general mutual
release. The settlement was fully accrued at June 30, 2003.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
20
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On May 23, 2003, the Company held a Special Meeting in Lieu of Annual
Meeting of Stockholders.
The number of directors was fixed at eight, leaving one vacancy, Udo
Henseler, David R. Lipinski, Roger G. Little, Michael J. Magliochetti, Guy L.
Mayer, Roger W. Redmond, and John A. Tarello, were elected to the Board of
Directors to hold office until the 2004 annual meeting of the stockholders. The
results for Proposal Number 1 were as follows:
Shares Shares Voting Against Shares Broker
Nominee Voting for or Authority Withheld Abstaining Non-Votes
----------------------- ---------- ---------------------- ---------- ---------
Udo Henseler 5,620,740 76,040 -- --
David R. Lipinski 5,620,740 76,040 -- --
Roger G. Little 5,620,740 76,040 -- --
Michael J. Magliochetti 5,618,240 78,540 -- --
Guy L. Mayer 5,618,240 78,540 -- --
Roger W. Redmond 5,618,240 77,140 -- --
John A. Tarello 5,620,740 76,040 -- --
Proposal Number 2 was to approve an amendment to the Company's 1996 Equity
Incentive Plan to increase the number of shares that may be offered thereunder
from 1,000,000 to 1,500,000. The results for Proposal Number 2 were as follows:
Shares Shares Voting Against Shares Broker
Voting for or Authority Withheld Abstaining Non-Votes
---------- ---------------------- ---------- ---------
Proposal Two 3,242,305 138,339 18,200 2,297,936
ITEM 5. OTHER INFORMATION.
On November 4, 2003, David R. Lipinski resigned as the Company's Chief
Financial Officer. Mr. Lipinski will remain a director of the Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
--------
10(h) Purchase Agreement dated May 23, 2003 with Stratos Lightwave and
Bandwidth Semiconductor, LLC*
10(i) Lease Agreement dated May 23, 2003 by and between Roger G.
Little, Trustee of SPI-Trust as Landlord and Spire Corporation
as Tenant*
31.1 Certification of the Chairman of the Board, Chief Executive
Officer and President pursuant to ss.302 of the Sarbanes-Oxley
Act of 2002
31.2 Certification of the Financial Controller and Treasurer
(Principal Financial and Accounting Officer) pursuant to ss.302
of the Sarbanes-Oxley Act of 2002
32.1 Certification of the Chairman of the Board, Chief Executive
Officer and President pursuant to 18 U.S.C. ss.1350, as adopted
pursuant to ss.906 of the Sarbanes-Oxley Act of 2002
32.2 Certification of the Financial Controller and Treasurer
(Principal Financial and Accounting Officer) pursuant to 18
U.S.C. ss.1350, as adopted pursuant to ss.906 of the
Sarbanes-Oxley Act of 2002
*Previously filed.
b. Reports on Form 8-K
-------------------
There was one report on Form 8-K that was filed by the Registrant in the
quarter ended June 30, 2003.
June 5, 2003, Item 5 Other Events and Item 7 Financial Statements and
Exhibits: Exhibit 99 News Release of the Company dated May 27, 2003.
21
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
Dated: December 31, 2003 By: /s/ Roger G. Little
--------------------------------------
Roger G. Little
President, Chief Executive Officer
and Chairman of the Board
Dated: December 31, 2003 By: /s/ Gregory G. Towle
--------------------------------------
Gregory G. Towle
Financial Controller and Treasurer
(Principal Financial and Accounting
Officer)
22
EXHIBIT INDEX
EXHIBIT
10(h) Purchase Agreement dated May 23, 2003 with Stratos Lightwave and
Bandwidth Semiconductor, LLC*
10(i) Lease Agreement dated May 23, 2003 by and between Roger G. Little,
Trustee of SPI-Trust as Landlord and Spire Corporation as Tenant*
31.1 Certification of the Chairman of the Board, Chief Executive Officer
and President pursuant to ss.302 of the Sarbanes-Oxley Act of 2002
31.2 Certification of the Financial Controller and Treasurer (Principal
Financial and Accounting Officer) pursuant to ss.302 of the
Sarbanes-Oxley Act of 2002
32.1 Certification of the Chairman of the Board, Chief Executive Officer
and President pursuant to 18 U.S.C. ss.1350, as adopted pursuant to
ss.906 of the Sarbanes-Oxley Act of 2002
32.2 Certification of the Financial Controller and Treasurer (Principal
Financial and Accounting Officer) pursuant to 18 U.S.C. ss.1350, as
adopted pursuant to ss.906 of the Sarbanes-Oxley Act of 2002
*Previously filed.