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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
|X| Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the quarterly period ended June 30, 2007; or
|_| Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the transition period from _______ to _______
Commission file number: 0-12742
SPIRE CORPORATION
-----------------
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-2457335
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
ONE PATRIOTS PARK
BEDFORD, MASSACHUSETTS 01730-2396
---------------------------------
(Address of principal executive offices)
781-275-6000
------------
(Registrant's telephone number including area code)
Indicate by "X" whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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 |_|
Indicate by check mark whether the registrant is a large accelerated
filer, an electronic filer, or a non-accelerated filer. See definition of
"accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange
Act. (Check one):
Large accelerated filer |_| Accelerated filer |_| Non-accelerated filer |X|
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Act). Yes |_| No |X|
The number of shares of the registrant's common stock outstanding as of August
1, 2007 was 8,273,887:
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TABLE OF CONTENTS
Page
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PART I. FINANCIAL INFORMATION
Item 1. Unaudited Condensed Consolidated Financial Statements:
Unaudited Condensed Consolidated Balance Sheets as of June
30, 2007 and December 31, 2006 .................................... 1
Unaudited Condensed Consolidated Statements of Operations
for the Three and Six Months Ended June 30, 2007 and 2006 .......... 2
Unaudited Condensed Consolidated Statements of Cash Flows
for the Six Months Ended June 30, 2007 and 2006 ................... 3
Notes to Unaudited Condensed Consolidated Financial Statements .... 4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations ........................................ 10
Item 3. Quantitative and Qualitative Disclosures About Market Risk ....... 19
Item 4. Controls and Procedures .......................................... 19
PART II. OTHER INFORMATION
Item 1. Legal Proceedings ................................................ 20
Item 1A. Risk Factors ..................................................... 20
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds ...... 21
Item 3. Defaults Upon Senior Securities .................................. 21
Item 4. Submission of Matters to a Vote of Security Holders .............. 21
Item 5. Other Information ................................................ 22
Item 6. Exhibits ......................................................... 22
Signatures ....................................................... 23
PART I
FINANCIAL INFORMATION
ITEM 1. UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SPIRE CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, DECEMBER 31,
2007 2006
------------ ------------
ASSETS
Current assets
Cash and cash equivalents $ 7,494,000 $ 1,536,000
Restricted cash 132,000 269,000
------------ ------------
7,626,000 1,805,000
Short-term investments -- 3,031,000
Restricted short-term investments -- 1,969,000
Accounts receivable - trade, net 4,690,000 4,010,000
Inventories, net 10,228,000 4,217,000
Deposits on equipment for inventory 1,900,000 2,580,000
Prepaid expenses and other current assets 218,000 737,000
------------ ------------
Total current assets 24,662,000 18,349,000
Net property and equipment 6,216,000 6,673,000
Intangible and other assets, net of accumulated amortization 833,000 844,000
Available-for-sale investments at quoted market value 1,680,000 1,461,000
Restricted cash - long-term -- 121,000
Deposit - related party 304,000 236,000
------------ ------------
Total assets $ 33,695,000 $ 27,684,000
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current portion of capital lease obligation - related party $ 1,065,000 $ 1,027,000
Current portion of equipment line of credit 1,167,000 --
Accounts payable 2,590,000 1,982,000
Accrued liabilities 4,653,000 5,006,000
Current portion of advances on contracts in progress 12,001,000 6,396,000
------------ ------------
Total current liabilities 21,476,000 14,411,000
------------ ------------
Long-term portion of capital lease obligation - related party -- 486,000
Long-term portion of equipment line of credit 2,333,000 --
Long-term portion of advances on contracts in progress 1,922,000 1,823,000
Deferred compensation 1,680,000 1,461,000
Deferred taxes 71,000 40,000
------------ ------------
Total long-term liabilities 6,006,000 3,810,000
------------ ------------
Total liabilities 27,482,000 18,221,000
------------ ------------
Commitments and Contingencies
Stockholders' equity
Common stock, $0.01 par value; 20,000,000 shares authorized; 8,263,637 shares
issued and outstanding on June 30, 2007 and 8,236,663 shares issued and
outstanding on December 31, 2006 83,000 82,000
Additional paid-in capital 19,389,000 19,077,000
Accumulated deficit (13,366,000) (9,756,000)
Accumulated other comprehensive income 107,000 60,000
------------ ------------
Total stockholders' equity 6,213,000 9,463,000
------------ ------------
Total liabilities and stockholders' equity $ 33,695,000 $ 27,684,000
============ ============
See accompanying notes to unaudited condensed consolidated financial statements.
1
SPIRE CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
---------------------------- ----------------------------
2007 2006 2007 2006
------------ ------------ ------------ ------------
Net sales and revenues
----------------------
Sales of goods $ 6,100,000 $ 1,291,000 $ 10,439,000 $ 4,155,000
Contract research, service and
license revenues 2,479,000 2,604,000 5,137,000 5,113,000
------------ ------------ ------------ ------------
Total net sales and revenues 8,579,000 3,895,000 15,576,000 9,268,000
------------ ------------ ------------ ------------
Costs of sales and revenues
---------------------------
Cost of goods sold 5,168,000 1,340,000 8,739,000 3,694,000
Cost of contract research, services
and licenses 2,322,000 2,260,000 4,450,000 4,505,000
------------ ------------ ------------ ------------
Total cost of sales and revenues 7,490,000 3,600,000 13,189,000 8,199,000
Gross Margin 1,089,000 295,000 2,387,000 1,069,000
Operating expenses
------------------
Selling, general and administrative
expenses 2,856,000 2,217,000 5,864,000 4,810,000
Internal research and development
expenses 78,000 195,000 123,000 353,000
------------ ------------ ------------ ------------
Total operating expenses 2,934,000 2,412,000 5,987,000 5,163,000
------------ ------------ ------------ ------------
Loss from operations (1,845,000) (2,117,000) (3,600,000) (4,094,000)
--------------------
Other income (expense), net (19,000) 36,000 (11,000) 9,000
------------ ------------ ------------ ------------
Loss before income tax benefit (1,864,000) (2,081,000) (3,611,000) (4,085,000)
Income tax benefit -- -- -- --
------------ ------------ ------------ ------------
Net loss $ (1,864,000) $ (2,081,000) $ (3,611,000) $ (4,085,000)
-------- ============ ============ ============ ============
Loss per share of common stock -
--------------------------------
basic and diluted $ (0.23) $ (0.26) $ (0.44) $ (0.54)
----------------- ============ ============ ============ ============
Weighted average number of common
and common equivalent shares
outstanding - basic and diluted 8,263,571 7,905,479 8,255,178 7,572,598
============ ============ ============ ============
See accompanying notes to unaudited condensed consolidated financial statements.
2
SPIRE CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30,
----------------------------
2007 2006
------------ ------------
Cash flows from operating activities:
-------------------------------------
Net loss $ (3,611,000) $ (4,085,000)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization 945,000 1,058,000
Loss on impairment of capital equipment 78,000 --
Deferred compensation 47,000 (32,000)
Stock-based compensation 208,000 119,000
Increase (decrease) in accounts receivable reserves (47,000) 102,000
Changes in assets and liabilities:
Restricted cash 258,000 601,000
Interest receivable -- (57,000)
Accounts receivable, net (633,000) 1,133,000
Inventories (6,011,000) (619,000)
Prepaid expenses and other current assets 1,199,000 213,000
Accounts payable, accrued liabilities and other liabilities 505,000 391,000
Deposit - related party (68,000) (45,000)
Advances on contracts in progress 5,704,000 (170,000)
------------ ------------
Net cash used in operating activities (1,426,000) (1,391,000)
------------ ------------
Cash flows from investing activities:
-------------------------------------
Purchase of short-term investments -- (7,500,000)
Proceeds from maturity of short-term investments 5,000,000 --
Additions to property and equipment (508,000) (125,000)
Increase in intangible and other assets (265,000) (167,000)
------------ ------------
Net cash provided by (used in) investing activities 4,227,000 (7,792,000)
------------ ------------
Cash flows from financing activities:
-------------------------------------
Proceeds from issuance of common stock, net of offering costs -- 7,730,000
Borrowings from equipment line of credit 3,500,000 --
Principal payment on capital lease obligations -- (212,000)
Principal payment on capital lease obligations - related parties (448,000) (323,000)
Proceeds from exercise of stock options 105,000 263,000
------------ ------------
Net cash provided by financing activities 3,157,000 7,458,000
------------ ------------
Net increase (decrease) in cash and cash equivalents 5,958,000 (1,725,000)
Cash and cash equivalents, beginning of period 1,536,000 3,630,000
------------ ------------
Cash and cash equivalents, end of period $ 7,494,000 $ 1,905,000
============ ============
Supplemental disclosures of cash flow information:
--------------------------------------------------
Cash paid during the period for:
Interest $ (50,000) $ (23,000)
============ ============
Interest - related party $ 47,000 $ 74,000
============ ============
Income taxes $ 7,000 $ --
============ ============
See accompanying notes to unaudited condensed consolidated financial statements.
3
SPIRE CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2007
1. DESCRIPTION OF THE BUSINESS
Spire Corporation (the "Company") develops, manufactures and markets
highly-engineered products and services in three principal business areas: (i)
solar, (ii) optoelectronics and (iii) biomedical generally bringing to bear
expertise in materials technologies across all three business areas.
In the solar area, the Company develops, manufactures and markets
specialized equipment for the production of terrestrial photovoltaic modules
from solar cells. The Company's equipment has been installed in approximately
190 factories in 46 countries. The Company also provides custom and building
integrated photovoltaic (BIPV) modules, stand-alone emergency power backup and
photovoltaic systems integration services using technology developed by the
Company.
On July 31, 2007, the Company entered into contractual relationship with
Gloria Solar Co., Ltd. ("Gloria Solar"), a company organized under the laws of
the Republic of China (Taiwan), pursuant to which (i) the Company agreed to sell
to Gloria Solar certain assets belonging to the Company's solar systems business
for $4,000,000 and (ii) the Company and Gloria Solar agreed to form a joint
venture for the purpose of pursuing the solar photovoltaic systems market within
the United States; the joint venture will design, market, sell and manage the
installation of systems for the generation of electrical power by solar
photovoltaic means in primarily commercial/industrial and utility segments of
such market (the "JV Systems Business"). Gloria Solar will own 55% of the joint
venture and the Company will own 45% of the joint venture. In connection with
the formation of the joint venture, (i) the Company agreed to contribute to the
joint venture its solar photovoltaic system assets related to the JV Systems
Business, including certain intellectual property and know-how, access to
information technology assets and relationships, relationships with current and
previous customers, contract backlog and project opportunities, certain
registered trademarks, and employment relationships with staff members and (ii)
Gloria Solar agreed to contribute $5,000,000 in cash.
In the optoelectronics area, the Company provides custom compound
semiconductor foundry and fabrication services on a merchant basis to customers
involved in biomedical/biophotonics instruments, telecommunications and defense
applications. Services include compound semiconductor wafer growth, other thin
film processes and related device processing and fabrication services. The
Company also provides materials testing services and performs services in
support of sponsored research into practical applications of optoelectronic
technologies.
In the biomedical area, the Company provides value-added surface
treatments to manufacturers of orthopedic and other medical devices that enhance
the durability, antimicrobial characteristics or other material characteristics
of their products; develops and markets hemodialysis catheters and related
devices for the treatment of chronic kidney disease; and performs sponsored
research programs into practical applications of advanced biomedical and
biophotonic technologies.
The Company has incurred significant operating losses. Loss from
operations, before gain on sales of licenses and extinguishment of purchase
commitment, were $8.3 million and $6.6 million for the years ended December 31,
2006 and 2005, respectively. Loss from operations for the six months ended June
30, 2007 was $3.6 million. These losses from operations have resulted in cash
losses (earnings (loss) from operations excluding gain on sales of licenses plus
or minus non-cash adjustments) of approximately $5.4 million and $4.2 million in
each of the years ended December 31, 2006 and 2005, respectively and
approximately $2.4 million for the six months ended June 30, 2007. The Company
has funded these cash losses from cash receipts of $7.7 million from proceeds of
a common stock offering in 2006, $6.7 million related to the sale of certain
licenses to its medical products and solar technologies in 2005 and $3.5 million
of bank borrowings in 2007. As of June 30, 2007, the Company had cash and cash
equivalents of $7.5 million. While the Company believes it has inherent assets
and technology that it could sell or license in the near term, there is no
guarantee that the Company would be able to sell or license those assets on a
timely basis and at appropriate values that would allow the Company to continue
to fund its operating losses. The Company has developed several plans to
mitigate cash losses primarily from increased revenues and, if required,
potential cost reduction efforts and outside financing. The Company believes it
has sufficient resources to continue as a going concern.
4
2. INTERIM FINANCIAL STATEMENTS
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with the rules and regulations of the
Securities and Exchange Commission regarding interim financial reporting.
Certain information and footnote disclosures normally included in consolidated
financial statements prepared in accordance with accounting principles generally
accepted in the United States of America have been condensed or omitted in
accordance with such rules and regulations. These unaudited condensed
consolidated financial statements should be read in conjunction with the annual
audited consolidated financial statements and notes thereto for the year ended
December 31, 2006, included in our Annual Report on Form 10KSB filed with the
Securities and Exchange Commission.
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, 2007 and December 31,
2006 and the results of its operations and cash flows for the three and six
months ended June 30, 2007 and 2006. The results of operations for the three and
six months ended June 30, 2007 are not necessarily indicative of the results to
be expected for the fiscal year ending December 31, 2007. The condensed
consolidated balance sheet as of December 31, 2006 has been derived from audited
financial statements as of that date.
The accounting policies followed by the Company are set forth in
Footnote 2 to the Company's consolidated financial statements in its Annual
Report on Form 10-KSB for the year ended December 31, 2006.
New Accounting Pronouncement
In June 2006, the Financial Accounting Standards Board ("FASB") issued
Interpretation No. 48, "Accounting for Uncertainty in Income Taxes, an
interpretation of FASB Statement 109" ("FIN 48"). This statement clarifies the
criteria that an individual tax position must satisfy for some or all of the
benefits of that position to be recognized in a company's financial statements.
FIN 48 prescribes a recognition threshold of more likely -than-not, and a
measurement attribute for all tax positions taken or expected to be taken on a
tax return, in order for those tax positions to be recognized in the financial
statements. Effective January 1, 2007, the Company adopted the provisions of FIN
48. The Company does not expect that the amounts of unrecognized tax benefits
will change significantly within the next 12 months.
The Company is currently subject to audit by the Internal Revenue
Service for the calendar years ended 2003, 2004, 2005 and 2006. The Company and
its Subsidiaries state income tax returns are subject to audit for the calendar
years ended 2003, 2004, 2005 and 2006.
The Company has determined that no liability exists for interest and
penalties related to uncertain tax positions as of December 31, 2006 and June
30, 2007. The Company accounts for interest and penalties related to uncertain
tax positions as part of its provision for federal and state income taxes.
3. ACCOUNTS RECEIVABLE/ADVANCES ON CONTRACTS IN PROGRESS
Net accounts receivable, trade consists of the following:
June 30, December 31,
2007 2006
------------ ------------
Amounts billed $ 4,750,000 $ 3,876,000
Retainage 8,000 8,000
Accrued revenue 158,000 399,000
------------ ------------
4,916,000 4,283,000
Less: Allowance for sales returns and doubtful accounts (226,000) (273,000)
------------ ------------
Net accounts receivable $ 4,690,000 $ 4,010,000
============ ============
Advances on contracts in progress $ 13,923,000 $ 8,219,000
============ ============
Retainage represents revenues on certain United States government
sponsored research and development contracts. These amounts, which usually
represent 15% of the Company's research fee on each applicable contract, are not
collectible until a final cost review has been performed by government auditors.
Included in retainage are amounts expected to be collected after one year, which
totaled approximately $8,000 at June 30, 2007. All other accounts receivable are
expected to be collected within one year.
All contracts with United States government agencies have been audited
by the government through December 2005. The Company has not incurred
significant losses or adjustments as a result of government audits.
5
The Company maintains allowances for doubtful accounts for estimated
losses resulting from the inability of its customers to pay amounts due. The
Company actively pursues collection of past due receivables as the circumstances
warrant. Customers are contacted to determine the status of payment and senior
accounting and operations management are included in these efforts as is deemed
necessary. A specific reserve will be established for past due accounts over 60
days and over a specified amount, when it is probable that a loss has been
incurred and the Company can reasonably estimate the amount of the loss. The
Company does not record an allowance for government receivables and invoices
backed by letters of credit as realizeability is reasonably assured. Bad debts
are written off against the allowance when identified. There is no dollar
threshold for account balance write-offs. While rare, a write-off is only
recorded when all efforts to collect the receivable have been exhausted and only
in consultation with the appropriate business line manager.
In addition, the Company maintains an allowance for potential future
product returns and rebates related to current period revenues. The Company
analyzes the rate of historical returns when evaluating the adequacy of the
allowance for sales returns and allowances. Returns and rebates are charged
against the allowance when incurred.
Advances on contracts in progress represent contracts for which billings
have been presented to the customer but revenue has not been recognized.
4. INVENTORIES
Inventories consist of the following:
June 30, December 31,
2007 2006
------------ ------------
Raw materials $ 3,426,000 $ 1,519,000
Work in process 6,392,000 2,310,000
Finished goods 410,000 388,000
------------ ------------
$ 10,228,000 $ 4,217,000
============ ============
5. LOSS PER SHARE
The following table provides a reconciliation of the denominators of the
Company's reported basic and diluted loss per share computations for the periods
ended:
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- ---------------------------
2007 2006 2007 2006
------------ ------------ ------------ ------------
Weighted average number of common and common
equivalent shares outstanding - basic 8,263,571 7,905,479 8,255,178 7,572,598
Add: Net additional common shares upon
assumed exercise of common stock options -- -- -- --
------------ ------------ ------------ ------------
Adjusted weighted average number of common
and common equivalents shares outstanding -
diluted 8,263,571 7,905,479 8,255,178 7,572,598
============ ============ ============ ============
For the three and six months ended June 30, 2007, 6,250 and 91,250,
respectively, and for the three and six months ended June 30, 2006, 22,500 and
16,250 shares, respectively, of common stock issuable relative to stock options
had exercise prices per share that exceeded the average market price of the
Company's common stock and were excluded from the calculation of diluted shares
since the inclusion of such shares would be anti-dilutive.
In addition, for the three and six months ended June 30, 2007, 125,360
and 106,230 shares, respectively, and for the three and six months ended June
30, 2006, 176,680 and 189,134 shares, respectively, of common stock related to
stock options were excluded from the calculation of dilutive shares since the
inclusion of such shares would be anti-dilutive due to the Company's net loss
position.
6
6. 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."
Total
Solar Biomedical Optoelectronics Company
------------------------------------------------------------
For the three months ended June 30, 2007
----------------------------------------
Net sales and revenues $ 4,975,000 $ 2,827,000 $ 777,000 $ 8,579,000
Loss from operations $ (725,000) $ (215,000) $ (905,000) $ (1,845,000)
For the three months ended June 30, 2006
----------------------------------------
Net sales and revenues $ 647,000 $ 2,556,000 $ 692,000 $ 3,895,000
Loss from operations $ (1,048,000) $ (300,000) $ (769,000) $ (2,117,000)
For the six months ended June 30, 2007
--------------------------------------
Net sales and revenues $ 8,568,000 $ 5,353,000 $ 1,655,000 $ 15,576,000
Loss from operations $ (1,308,000) $ (726,000) $ (1,566,000) $ (3,600,000)
For the six months ended June 30, 2006
--------------------------------------
Net sales and revenues $ 3,185,000 $ 4,883,000 $ 1,200,000 $ 9,268,000
Loss from operations $ (1,478,000) $ (952,000) $ (1,664,000) $ (4,094,000)
The following table shows net sales and revenues by geographic area
(based on customer location):
Three Months Ended June 30, Six Months Ended June 30,
------------------------------------------------------- -------------------------------------------------------
2007 % 2006 % 2007 % 2006 %
--------------- -------- ------------- -------- -------------- ------ ---------------- --------
Foreign $3,678,000 43% $ 968,000 25% $7,464,000 48% $3,460,000 37%
United States 4,901,000 57% 2,927,000 75% 8,112,000 52% 5,808,000 63%
--------------- ------------- -------------- ----------------
$8,579,000 100% $3,895,000 100% $15,576,000 100% $9,268,000 100%
--------------- ------------- -------------- ----------------
Revenues from contracts with United States government agencies for the
three months ended June 30, 2007 and 2006 were approximately $225,000 and
$506,000, or 3% and 13% of consolidated net sales and revenues, respectively.
Revenues from contracts with United States government agencies for the
six months ended June 30, 2007 and 2006 were approximately $520,000 and
$1,126,000, or 3% and 12% of consolidated net sales and revenues, respectively.
Two customers accounted for approximately 37% of the Company's gross
sales during the three months ended June 30, 2007 and one customer accounted for
approximately 16% of the Company's gross sales for the three months ended June
30, 2006. Three customers accounted for approximately 41% of the Company's gross
sales during the six months ended June 30, 2007 and two customers accounted for
approximately 27% of the Company's gross sales for the six months ended June 30,
2006. One customer represented approximately 15% of trade accounts receivable
at June 30, 2007 and one customer represented approximately 20% of trade
accounts receivable at June 30, 2006.
7. INTANGIBLE AND OTHER ASSETS
Patents amounted to approximately $120,000, net of accumulated
amortization of approximately $662,000, at June 30, 2007. Licenses amounted to
approximately $141,000, net of accumulated amortization of approximately
$192,000 at June 30, 2007. Patent cost is primarily composed of cost associated
with securing and registering patents that the Company has been awarded or that
have been submitted to, and the Company believes will be approved by, the
government. License cost is composed of the cost to acquire rights to the
underlying technology or know-how. These costs are capitalized and amortized
over their useful lives or terms, ordinarily five years, using the straight-line
method. There are no expected residual values related to these patents or
licenses. For disclosure purposes, the table below includes future amortization
expense for licenses and patents owned by the Company as well as approximately
$572,000 of estimated amortization expense on a five-year straight-line basis
related to patents that remain pending as of the balance sheet date.
7
Estimated amortization expense for the periods ending December 31, is as
follows:
Year Amortization Expense
------------------------- ----------------------
2007 remaining 6 months $110,000
2008 196,000
2009 155,000
2010 150,000
2011 143,000
Beyond 2011 79,000
----------------------
$833,000
======================
8. AVAILABLE-FOR-SALE INVESTMENTS
Available-for-sale securities consist of the following assets held as
part of the Spire Corporation Non-Qualified Deferred Compensation Plan:
June 30, December 31,
2007 2006
------------ ------------
Equity investments $ 834,000 $ 1,160,000
Government bonds 268,000 262,000
Cash and money market funds 578,000 39,000
------------ ------------
$ 1,680,000 $ 1,461,000
============ ============
These investments have been classified as long-term available-for-sale
investments and are reported at fair value, with unrealized gains and losses
included in accumulated other comprehensive loss, net of related tax effect. As
of June 30, 2007, the net unrealized gain on these marketable securities was
approximately $178,000.
9. NOTES PAYABLE AND CREDIT ARRANGEMENTS
The Company had a $2,000,000 Loan Agreement with Citizens Bank of
Massachusetts which expired on June 26, 2007. On May 25, 2007, the Company and
its wholly-owned subsidiary, Bandwidth Semiconductor, LLC ("Bandwidth"), entered
into a Loan and Security Agreement (the "Loan Agreement") with Silicon Valley
Bank (the "Bank"). Under the Loan Agreement, for a one-year period, the Company
and Bandwidth can borrow up to $3,500,000 in the aggregate to finance certain
equipment purchases (including reimbursement of certain previously-made
purchases). Each advance made under the Loan Agreement will be due thirty-six
(36) months from the date the advance is made. Advances made under the Loan
Agreement will bear interest at the Bank's prime rate, as determined, plus 0.5%
(8.75% at June 30, 2007) and payable in thirty-six (36) consecutive monthly
payments following the funding date of that advance. On June 17, 2007, the
Company borrowed from the line for the full $3,500,000 to finance certain
capital equipment purchased previously by Bandwidth. At June 30, 2007, the
Company was not in compliance with its profitability covenant for the second
quarter. The Company has received a waiver from the Bank with respect to this
covenant.
10. STOCK OPTION PLAN AND STOCK-BASED COMPENSATION
On January 1, 2006, the Company adopted the fair value recognition
provisions of Financial Accounting Standards Board ("FASB") Statement No.
123(R), Share-Based Payment ("Statement 123(R)") using the modified prospective
method. Based on an analysis of the Company's historical data, the Company
applied 14% forfeiture rates to stock options outstanding in determining its
Statement 123(R) stock-based compensation expense which it believes is a
reasonable forfeiture estimate for the period. The impact of Statement 123(R) on
the Company's results of operations resulted in recognition of stock-based
compensation expense of approximately $137,000 and $208,000 for the three and
six months ended June 30, 2007, respectively, and approximately $60,000 and
$119,000 for the three and six months ended June 30, 2006. The total non-cash,
stock-based compensation expense included in the condensed consolidated
statement of operations for the periods presented is included in the following
expense categories:
8
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- ---------------------------
2007 2006 2007 2006
------------ ------------ ------------ ------------
Cost of contract research, services and licenses $ 14,000 $ 4,000 $ 19,000 $ 8,000
Cost of goods sold 6,000 9,000 8,000 17,000
Administrative and selling 117,000 47,000 181,000 94,000
------------ ------------ ------------ ------------
Total stock-based compensation $ 137,000 $ 60,000 $ 208,000 $ 119,000
============ ============ ============ ============
At June 30, 2007 the Company had outstanding options under two stock
option plans: the 1996 Equity Incentive Plan (the "1996 Plan") and the 2007
Stock Equity Plan (the "2007 Plan"). Both plans were approved by stockholders
and provided that the Board of Directors may grant options to purchase the
Company's common stock to key employees and directors of the Company. Incentive
and non-qualified options must be granted at least at the fair market value of
the common stock or, in the case of certain optionees, at 110% of such fair
market value at the time of grant. The options may be exercised, subject to
certain vesting requirements, for periods up to ten years from the date of
issue. The 1996 Plan expired with respect to the issuance of new grants as of
December 10, 2006.
A summary of options outstanding under the 2007 Plan and 1996 Plan as of
June 30, 2007 and changes during the six-month period is as follows:
Average
Weighted- Remaining Aggregate
Number of Average Contractual Intrinsic
Shares Exercise Price Life (Years) Value
-------------- ---------------- ----------------- ----------------
Options Outstanding at December 31, 2006 416,002 $5.21
Granted 85,000 $9.60
Exercised (26,974) $3.91
Cancelled/expired (12,000) $7.81
-------------- ----------------
Options Outstanding at June 30, 2007 462,028 $6.03 7.32 $1,624,000
============== ================
Options Exercisable at June 30, 2007 211,478 $4.30 5.42 $1,105,000
============== ================
The per-share weighted-average fair value of stock options granted
during the three and six months ended June 30, 2007 and 2006 was $6.45 for both
periods in 2007 and $4.48 and $4.86 in 2006, respectively, on the date of grant
using the Black-Scholes option-pricing model with the following weighted-average
assumptions:
Expected Risk-Free Expected Expected
Year Dividend Yield Interest Rate Option Life Volatility Factor
----------- -------------------- ----------------- ------------------ ---------------------
2007 -- 4.68% 4.5 years 85.4%
The risk free interest rate reflects treasury yields rates over a term
that approximates the expected option life. The expected option life is
calculated based on historical lives of all options issued under the plan. The
expected volatility factor is determined by measuring the actual stock price
volatility over a term equal to the expected useful life of the options granted.
11. COMPREHENSIVE LOSS
Comprehensive loss includes certain changes in equity that are excluded
from net loss and consists of the following:
For the Three Months Ended For the Six Months Ended
June 30, June 30,
---------------------------- ----------------------------
2007 2006 2007 2006
------------ ------------ ------------ ------------
Net loss $ (1,864,000) $ (2,081,000) $ (3,611,000) $ (4,085,000)
Other comprehensive income (loss):
Unrealized gain on available for sale marketable
securities, net of tax 48,000 (56,000) 47,000 (32,000)
------------ ------------ ------------ ------------
Total comprehensive loss $ (1,816,000) $ (2,137,000) $ (3,564,000) $ (4,117,000)
============ ============ ============ ============
9
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 WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND SECTION 21E OF THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED (THE "EXCHANGE ACT"), WHICH
STATEMENTS INVOLVE RISKS AND UNCERTAINTIES. THESE STATEMENTS RELATE TO OUR
FUTURE PLANS, OBJECTIVES, EXPECTATIONS AND INTENTIONS. THESE STATEMENTS MAY BE
IDENTIFIED BY THE USE OF WORDS SUCH AS "MAY", "COULD", "WOULD", "SHOULD",
"WILL", "EXPECTS", "ANTICIPATES", "INTENDS", "PLANS", "BELIEVES", "ESTIMATES",
AND SIMILAR EXPRESSIONS. 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 FACTORS DISCUSSED OR REFERRED
TO IN THIS REPORT AND IN THE ANNUAL REPORT ON FORM 10-KSB FOR THE YEAR ENDED
DECEMBER 31, 2006. THE FOLLOWING DISCUSSION AND ANALYSIS OF THE COMPANY'S
FINANCIAL CONDITION AND RESULTS OF OPERATIONS SHOULD BE READ IN LIGHT OF THOSE
FACTORS AND IN CONJUNCTION WITH, THE COMPANY'S ACCOMPANYING CONSOLIDATED
FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO.
OVERVIEW
Spire Corporation (the "Company") develops, manufactures and markets
highly-engineered products and services in three principal business areas: solar
equipment, biomedical and optoelectronics bringing to bear expertise in
materials technologies across all three business areas, discussed below.
In the solar equipment area, the Company develops, manufactures and
markets specialized equipment for the production of terrestrial photovoltaic
modules from solar cells. The Company's equipment has been installed in
approximately 190 factories in 46 countries. The Company also provides custom
and building integrated photovoltaic modules, stand-alone emergency power backup
and photovoltaic systems integration services using technology developed by the
Company.
On July 31, 2007, the Company entered into contractual relationship with
Gloria Solar Co., Ltd. ("Gloria Solar"), a company organized under the laws of
the Republic of China (Taiwan), pursuant to which (i) the Company agreed to sell
to Gloria Solar certain assets belonging to the Company's solar systems business
for $4,000,000 and (ii) the Company and Gloria Solar agreed to form a joint
venture for the purpose of pursuing the solar photovoltaic systems market within
the United States; the joint venture will design, market, sell and manage the
installation of systems for the generation of electrical power by solar
photovoltaic means in primarily commercial/industrial and utility segments of
such market (the "JV Systems Business"). Gloria Solar will own 55% of the joint
venture and the Company will own 45% of the joint venture. In connection with
the formation of the joint venture, (i) the Company agreed to contribute to the
joint venture its solar photovoltaic system assets related to the JV Systems
Business, including certain intellectual property and know-how, access to
information technology assets and relationships, relationships with current and
previous customers, contract backlog and project opportunities, certain
registered trademarks, and employment relationships with staff members and (ii)
Gloria Solar agreed to contribute $5,000,000 in cash.
In the optoelectronics area, the Company provides compound semiconductor
foundry and fabrication services on a merchant basis to customers involved in
biomedical/biophotonic instruments, telecommunications and defense applications.
Services include compound semiconductor wafer growth, other thin film processes
and related device processing and fabrication services. The Company also
provides materials testing services and performs services in support of
sponsored research into practical applications of optoelectronic technologies.
In the biomedical area, the Company provides value-added surface
treatments to manufacturers of orthopedic and other medical devices that enhance
the durability, antimicrobial characteristics or other material characteristics
of their products; develops and markets hemodialysis catheters and related
devices for the treatment of chronic kidney disease; and performs sponsored
research programs into practical applications of advanced biomedical and
biophotonic technologies.
Operating results will depend upon product mix, as well as the timing of
shipments of higher priced products from the Company's solar equipment line and
delivery of solar systems. Export sales, which amounted to 48% of net sales and
revenues for the six months ended June 30, 2007, continue to constitute a
significant portion of the Company's net sales and revenues.
10
Results of Operations
The following table sets forth certain items as a percentage of net
sales and revenues for the periods presented:
Three Months Ended June 30, Six Months Ended June 30,
------------------------------ ----------------------------
2007 2006 2007 2006
-------- -------- -------- --------
Net sales and revenues 100% 100% 100% 100%
Cost of sales and revenues 87 92 85 88
-------- -------- -------- --------
Gross profit 13 8 15 12
Selling, general and administrative expenses 34 57 37 52
Internal research and development expenses 1 5 1 4
-------- -------- -------- --------
Loss from operations (22) (54) (23) (44)
Other expense, net -- 1 -- --
-------- -------- -------- --------
Loss before income tax benefit (22) (53) (23) (44)
Income tax benefit -- -- -- --
-------- -------- -------- --------
Net loss (22%) (53%) (23%) (44%)
======== ======== ======== ========
OVERALL
The Company's total net sales and revenues for the six months ended June
30, 2007 ("2007") were approximately $15,576,000 as compared to approximately
$9,268,000 for the six months ended June 30, 2006 ("2006") an increase of
approximately $6,308,000 or 68%. The increase was primarily attributable to an
approximate $5,779,000 increase in solar equipment sales and an approximate
$455,000 increase in optoelectronics sales. Additionally, catheter product sales
in the Company's biomedical business unit increased approximately $753,000 in
2007 as compared with 2006, partially offset by a decrease of approximately
$617,000 in research and development revenues.
SOLAR BUSINESS UNIT
Sales in the Company's solar business unit increased 169% during the six
months ended June 30, 2007 to approximately $8,568,000 as compared to
approximately $3,185,000 in 2006. The increase is the result of shipments of
solar equipment reflecting the overall increase in activity in the solar power
industry. The Company has focused its sales and marketing efforts on
establishing the Company as one of the premier suppliers of equipment to the
solar power industry for the manufacture of photovoltaic power modules.
OPTOELECTRONICS BUSINESS UNIT
Revenues in the Company's optoelectronics business unit increased 38% to
approximately $1,655,000 during the six months ended June 30, 2007 as compared
to approximately $1,200,000 in the prior year. The increase reflects an overall
increase in optoelectronics activities attributable to a shift in product mix to
larger scale commercial orders compared with smaller sized research and
development projects.
BIOMEDICAL BUSINESS UNIT
Revenues of the Company's biomedical business unit increased 10% during
the six months ended June 30, 2007 to approximately $5,353,000 as compared to
approximately $4,883,000 in 2006. The increase reflects increased revenues from
the Company's catheter products and orthopedics coatings services offset by
reduced revenues from research and development contracts.
Three and Six Months Ended June 30, 2007 Compared to Three and Six Months Ended
-------------------------------------------------------------------------------
June 30, 2006
-------------
NET SALES AND REVENUES
The following table categorizes the Company's net sales and revenues for
the periods presented:
Three Months Ended June 30, Increase/(Decrease)
--------------------------- ---------------------------
2007 2006 $ %
------------ ------------ ------------ ------------
Sales of goods $ 6,100,000 $ 1,291,000 $ 4,809,000 372%
Contract research, services and license revenues 2,479,000 2,604,000 (125,000) (5%)
------------ ------------ ------------
Net sales and revenues $ 8,579,000 $ 3,895,000 $ 4,684,000 120%
============ ============ ============
11
The 372% increase in sales of goods for the three months ended June 30,
2007 as compared to the three months ended June 30, 2006 was primarily due to an
increase in solar equipment revenues and an increase in catheter products sales.
Solar equipment sales increased 909% in 2007 as compared to 2006 primarily due
to an overall increase in solar power industry activity. Sales of catheters
increased 55% due primarily to the introduction of its heparin-coated catheter
which was introduced in the fourth quarter of 2006.
The 5% decrease in contract research, services and license revenues for
the three months ended June 30, 2007 as compared to the three months ended June
30, 2006 is primarily attributable to a decrease in contract revenues for
Spire's research and development activities partially offset by an increase in
orthopedics and optoelectronics services. Revenues from Spire's research and
development activities decreased 59% in 2007 as compared to 2006 primarily due
to a decrease in the number and value of contracts associated with funded
research and development. Revenue from Spire's optoelectronics processing
services (Bandwidth) increased 12% in 2007 compared to 2006 as a result of
increased demand for Bandwidth's services and commercial production runs of
products from its development efforts.
The following table categorizes the Company's net sales and revenues for
the periods presented:
Six Months Ended June 30, Increase/(Decrease)
--------------------------- ---------------------------
2007 2006 $ %
------------ ------------ ------------ ------------
Sales of goods $ 10,439,000 $ 4,155,000 $ 6,284,000 151%
Contract research, services and license revenues 5,137,000 5,113,000 24,000 1%
------------ ------------ ------------
Net sales and revenues $ 15,576,000 $ 9,268,000 $ 6,308,000 68%
============ ============ ============
The 151% increase in sales of goods for the six months ended June 30,
2007 as compared to the six months ended June 30, 2006 was primarily due to an
increase in solar equipment revenues and an increase in catheter products sales.
Solar equipment sales increased 227% in 2007 as compared to 2006 primarily due
to an overall increase in solar power industry activity. Sales of catheters
increased 57% due primarily to the introduction of its heparin-coated catheter
which was introduced in the fourth quarter of 2006.
The 1% increase in contract research, services and license revenues for
the six months ended June 30, 2007 as compared to the six months ended June 30,
2006 is primarily attributable to an increase in orthopedics and optoelectronics
services. These increases were partially offset by a decrease in government
research and development activities. Revenues from Spire's research and
development activities decreased 52% in 2007 as compared to 2006 primarily due
to a decrease in the number and value of contracts associated with funded
research and development. Revenue from Spire's optoelectronics processing
services (Bandwidth) increased 38% in 2007 compared to 2006 as a result of
increased demand for Bandwidth's services and commercial production runs of
products from its development efforts.
COST OF SALES AND REVENUES
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, Increase
----------------------------------------- -------------------
2007 % 2006 % $ %
------------ ---- ------------ ---- ------------ ----
Cost of goods sold $ 5,168,000 85% $ 1,340,000 104% $ 3,828,000 286%
Cost of contract research, services
and licenses 2,322,000 94% 2,260,000 87% 62,000 3%
------------ ------------ ------------
Net cost of sales and revenues $ 7,490,000 87% $ 3,600,000 92% $ 3,890,000 108%
============ ============ ============
The $3,828,000 (286%) increase in cost of goods sold is primarily due to
increased costs within Spire's solar equipment product line corresponding to the
909% increase in solar equipment sales and a 55% increase in medical product
sales. The decrease in cost of goods sold as a percentage of revenue is the
result of improved contribution margins in these product lines as increased
production volume utilizes more of the available capacity.
The $62,000 (3%) increase in cost of contract research and service
revenues in 2007 is primarily due to decreased costs within the Company's
government research and development activities corresponding to the lower level
of government
12
research and development revenues and contracts. The Company recorded a $73,000
charge, to cost of contract research and service revenues, associated with an
expected loss on completing a contract with the National Renewable Energy
Laboratory ("NREL"). The loss represents the unreimbursed portion of Spire's
expected expense to complete the contract. Although optoelectronics revenues
increased 12% from prior year level Bandwidth's costs actually decreased by 2%.
Bandwidth production costs are largely fixed and incremental increases in
revenues can have a substantial favorable impact on operations.
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, Increase/(Decrease)
----------------------------------------- -------------------
2007 % 2006 % $ %
------------ ---- ------------ ---- ------------ ----
Cost of goods sold $ 8,739,000 84% $ 3,694,000 89% $ 5,045,000 137%
Cost of contract research, services
and licenses 4,450,000 87% 4,505,000 88% (55,000) (1%)
------------ ------------ ------------
Net cost of sales and revenues $ 13,189,000 85% $ 8,199,000 88% $ 4,990,000 61%
============ ============ ============
The $5,045,000 (137%) increase in cost of goods sold is primarily due to
increased costs within Spire's solar equipment product line corresponding to the
227% increase in solar equipment sales and a 57% increase in catheter products
sales. The decrease in cost of goods sold as a percentage of revenue is the
result of improved contribution margins in these product lines as increased
production volume utilizes more of the available capacity.
The $55,000 (1%) decrease in cost of contract research and service
revenues in 2007 is primarily due to decreased costs within the Company's
government research and development activities corresponding to the lower level
of government research and development revenues and contracts. Although
optoelectronics revenues increased 38% from prior year level Bandwidth's costs
actually decreased by 2%. Bandwidth production costs are largely fixed and
incremental increases in revenues can have a substantial favorable impact on
operations. The Company recorded a $73,000 charge, to cost of contract research
and service revenues associated with an expected loss on completing a contract
with the NREL. The loss represents the unreimbursed portion of Spire's expected
expense to complete the contract.
OPERATING EXPENSES
The following table categorizes the Company's operating expenses for the
periods presented, stated in dollars and as a percentage of total sales and
revenues:
Three Months Ended June 30, Increase/(Decrease)
----------------------------------------- -------------------
2007 % 2006 % $ %
------------ ---- ------------ ---- ------------ ----
Selling, general and administrative $ 2,856,000 33% $ 2,217,000 57% $ 639,000 29%
Internal research and development 78,000 1% 195,000 5% (117,000) (60%)
------------ ------------ ------------
Operating expenses $ 2,934,000 34% $ 2,412,000 62% $ 522,000 22%
============ ============ ============
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
The increase in selling, general and administrative expense was due
primarily to commissions related to sales of solar equipment. The Company uses a
network of independent sales representatives in addition to its internal sales
personnel. The independent sales representatives are compensated on a straight
commission whereas internal sales personnel receive a base salary plus
commission. In addition royalty expense was up due to royalties on products sold
by the Company under licensing agreements with third parties. Selling, general
and administrative expense decreased to 33% of sales and revenues as compared to
57% in the prior year. The reduction was primarily due to the 120% increase in
sales and revenues compared to the 29% increase in expenses.
INTERNAL RESEARCH AND DEVELOPMENT
The decrease in research and development costs was primarily a result of
a reduction in internal research and development activities as a result of the
Company's current cost sharing contract with NREL nearing completion.
13
The following table categorizes the Company's operating expenses for the
periods presented, stated in dollars and as a percentage of total sales and
revenues:
Six Months Ended June 30, Increase/(Decrease)
----------------------------------------- -------------------
2007 % 2006 % $ %
------------ ---- ------------ ---- ------------ ----
Selling, general and administrative $ 5,864,000 38% $ 4,810,000 52% $ 1,054,000 22%
Internal research and development 123,000 1% 353,000 4% (230,000) (65%)
------------ ------------ ------------
Operating expenses $ 5,987,000 38% $ 5,163,000 56% $ 824,000 16%
============ ============ ============
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
The increase in selling, general and administrative expense was due
primarily to commissions related to sales of solar equipment. The Company uses a
network of independent sales representatives in addition to its internal sales
personnel. The independent sales representatives are compensated on a straight
commission whereas internal sales personnel receive a base salary plus
commission. In addition royalty expense was up due to royalties on products sold
by the Company under licensing agreements with third parties. Selling, general
and administrative expense decreased to 38% of sales and revenues as compared to
52% in the prior year. The reduction was primarily due to the 68% increase in
sales and revenues compared to the 22% increase in expenses.
INTERNAL RESEARCH AND DEVELOPMENT
The decrease in research and development costs was primarily a result of
a reduction in internal research and development activities as a result of the
Company's current cost sharing contract with NREL nearing completion.
OTHER EXPENSE, NET
The Company earned approximately $9,000 and $75,000 of interest income
for the three months ended June 30, 2007 and 2006, respectively. The Company
incurred interest expense of approximately $24,000 and $40,000 for the three
months ended June 30, 2007 and 2006, respectively. The decrease in interest
income is due to lower cash balances held by the Company. Interest expense
increased due to payments on the Company's outstanding Term Loan with Silicon
Valley Bank partially offset by lower interest expense with respect to certain
capital leases. The Company lost approximately $4,000 during the three month
period ending June 30, 2007, due to the conversion of Japanese Yen into U.S.
dollars as compared to income of $1,000 for the same period in 2006.
The Company earned approximately $53,000 and $94,000 of interest income
for the six months ended June 30, 2007 and 2006, respectively. The Company
incurred interest expense of approximately $50,000 and $88,000 for the six
months ended June 30, 2007 and 2006, respectively. The decrease in interest
income is due to lower cash balances held by the Company. Interest expense
decreased due to payments against the principal balance of certain capital
leases. The Company lost approximately $14,000 during the period ending June 30,
2007, due to the conversion of Japanese Yen into U.S. dollars as compared to
income of $3,000 for the same period in 2006.
INCOME TAXES
The Company did not record an income tax benefit for the three and six
months ended June 30, 2007 and 2006. A valuation allowance has been provided
against the current period tax benefit due to uncertainty regarding the
realization of the net operating loss in the future.
NET LOSS
The Company reported a net loss for the three months ended June 30, 2007
of approximately $1,864,000, compared to a net loss of $2,081,000 in 2006. The
net loss decreased approximately $217,000 primarily due to the increase in sales
and revenues and the improvement in gross margins.
The Company reported a net loss for the six months ended June 30, 2007
of approximately $3,611,000, compared to a net loss of $4,085,000 in 2006. The
net loss decreased approximately $474,000 primarily due to the increase in sales
and revenues and the improvement in gross margins.
14
Liquidity and Capital Resources
-------------------------------
Increase/(Decrease)
June 30, December 31, ---------------------------
2007 2006 $ %
------------ ------------ ------------ ------------
Cash and cash equivalents $ 7,494,000 $ 1,536,000 $ 5,958,000 388%
Working capital (deficit) $ 3,186,000 $ 3,938,000 $ (752,000) (19%)
Cash and cash equivalents increased primarily due to cash from the
Company's bank borrowings and customer advances. Cash was used to pay the
outstanding balance on capital equipment acquired in 2006 for the expansion of
the optoelectronics business unit, and to acquire inventory to fulfill future
solar equipment orders. Generally the Company will receive advances from its
solar equipment customers to fund its acquisition of inventory. The overall
reduction in working capital is due to cash losses from operations and
additional investment in equipment of $508,000. The Company has historically
funded its operating cash requirements using operating cash flow and proceeds
from the sale and licensing of technology.
On May 25, 2007, the Company and its wholly-owned subsidiary, Bandwidth
Semiconductor, LLC ("Bandwidth"), entered into a Loan and Security Agreement
(the "Loan Agreement") with Silicon Valley Bank. Under the Loan Agreement, for a
one-year period, the Company and Bandwidth can borrow up to $3.5 million in the
aggregate to finance certain equipment purchases (including reimbursement of
certain previously-made purchases). Each advance made under the Loan Agreement
will be due thirty-six (36) months from the date the advance is made. Advances
made under the Loan Agreement will bear interest at one half of one percentage
point (0.5%) above Silicon Valley Bank's prime rate and payable in thirty-six
(36) consecutive monthly payments following the funding date of that advance. On
June 17, 2007 the Company did draw down the line for the full $3.5 million to
finance certain capital equipment purchased previously by Bandwidth.
Under the terms of the Loan Agreement, as long as any commitment remains
outstanding under the facility, the Company and Bandwidth must comply with an
adjusted quick ratio covenant and a minimum quarterly net income covenant. In
addition, until all amounts under the Loan Agreement are repaid, covenants under
the Loan Agreement impose restrictions on the Company's and Bandwidth's ability
to, among other things, incur additional indebtedness, create or permit liens on
the Company's or Bandwidth's assets, merge, consolidate or dispose of assets
(other than in the ordinary course of business), make dividend and other
restricted payments, make certain debt or equity investments, make certain
acquisitions, engage in certain transactions with affiliates or change the
business conducted by the Company, Bandwidth and their subsidiaries. Any failure
by the Company or Bandwidth to comply with the covenants and obligations under
the Loan Agreement could result in an event of default, in which case Silicon
Valley Bank ("SVB") may be entitled to declare all amounts owed to be due and
payable immediately. The Company's and Bandwidth's obligations under the Loan
Agreement are secured by substantially all of the Company's and Bandwidth's
assets, with the exception of any intellectual property owned or licensed by the
Company or Bandwidth. At June 30, 2007, the Company was not in compliance with
its profitability covenant for the second quarter. The Company has received a
waiver from the SVB with respect to this covenant.
The Company had a $2,000,000 Loan Agreement (the "Prior Loan Agreement")
with Citizens Bank of Massachusetts (the "Bank"), which expired on June 27,
2007. The Prior Loan Agreement provided Standby Letter of Credit guarantees for
certain foreign and domestic customers, which are 100% secured with cash. At
June 30, 2007, the Company had approximately $132,000 of restricted cash
associated with outstanding Letters of Credit. Standby Letters of Credit under
this Prior Loan Agreement bear interest at 1%.
The Company maintains allowances for doubtful accounts for estimated
losses resulting from the inability of its customers to pay amounts due. The
Company actively pursues collection of past due receivables as the circumstances
warrant. Customers are contacted to determine the status of payment and senior
accounting and operations management are included in these efforts as is deemed
necessary. A specific reserve will be established for past due accounts over 60
days and over a specified amount, when it is probable that a loss has been
incurred and the Company can reasonably estimate the amount of the loss. The
Company does not record an allowance for government receivables and invoices
backed by letters of credit as realizeability is reasonably assured. Bad debts
are written off against the allowance when identified. There is no dollar
threshold for account balance write-offs. While rare, a write-off is only
recorded when all efforts to collect the receivable have been exhausted and only
in consultation with the appropriate business line manager.
There are no material commitments by the Company for capital
expenditures. At June 30, 2007, the Company's accumulated deficit was
approximately $13,366,000, compared to accumulated deficit of approximately
$9,756,000 as of December 31, 2006.
15
On July 31, 2007, the Company entered into contractual relationship with
Gloria Solar pursuant to which (i) the Company agreed to sell to Gloria Solar
certain assets belonging to the Company's solar systems business for $4,000,000
and (ii) the Company and Gloria Solar agreed to form a joint venture for the
purpose of pursuing the solar photovoltaic systems market within the United
States; the joint venture will design, market, sell and manage the installation
of systems for the generation of electrical power by solar photovoltaic means in
primarily commercial/industrial and utility segments of such market (the "JV
Systems Business"). Gloria Solar will own 55% of the joint venture and the
Company will own 45% of the joint venture. In connection with the formation of
the joint venture, (i) the Company agreed to contribute to the joint venture its
assets primarily relating to the JV Systems Business, including certain
intellectual property and know-how, access to information technology assets and
relationships, relationships with current and previous customers, contract
backlog and project opportunities, certain registered trademarks, and employment
relationships with staff members and (ii) Gloria Solar agreed to contribute
$5,000,000 in cash.
The Company believes it has sufficient resources to finance its current
operations for the foreseeable future from operating cash flow and working
capital.
Foreign Currency 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. The
Company received Japanese yen in exchange for the sale of a license to its solar
technology. In addition, purchases made and royalties received under the
Company's Consortium Agreement with its Japanese partner will be in Japanese
yen. The Company does not believe that foreign exchange fluctuations will
materially affect its operations. The Company has committed to purchase certain
pieces of equipment from European vendors; these commitments are denominated in
Euros. The Company bears the risk of any currency fluctuations that may be
associated with these commitments. The Company does not believe that foreign
exchange fluctuations will materially affect its operations.
Related Party Transactions
--------------------------
The Company subleased 77,000 square-feet in a building leased by
Mykrolis Corporation, who in turn leased the building from SPI-Trust, a Trust of
which Roger Little, Chairman of the Board, Chief Executive Officer and President
of the Company, is the 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 sublease agreement provided for
minimum rental payments plus annual increases linked to the consumer price
index. Effective December 1, 2005, the Company entered into a two-year Extension
of Lease Agreement (the "Lease Extension") directly with SPI-Trust.
The Company assumed certain responsibilities of Mykrolis, the tenant
under the former lease, as a result of the Lease Extension including payment of
all building and real estate related expenses associated with the ongoing
operations of the property. The Company will allocate a portion of these
expenses to SPI-Trust based on pre-established formulas utilizing square footage
and actual usage where applicable. These allocated expenses will be invoiced
monthly and be paid utilizing a SPI-Trust escrow account of which the Company
has sole withdrawal authority. SPI-Trust is required to maintain three (3)
months of its anticipated operating costs within this escrow account. On
December 1, 2006, the Company and SPI-Trust amended the Lease Extension. The
amendment increases the leased area to 91,701 square feet. Rent expense under
this lease, as extended and amended, for the three month period ended June 30,
2007 was approximately $340,000. In connection with this lease, the Company is
invoiced and pays certain SPI-Trust related expenses, including building
maintenance and insurance. The Company invoices SPI-Trust on a monthly basis and
SPI-Trust reimburses the Company for all such costs. The Company believes that
the terms of the Lease Extension, as amended, are commercially reasonable.
In conjunction with the acquisition of Bandwidth by the Company,
SPI-Trust, 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 from Stratos Lightwave, Inc. (Bandwidth's former owner)
the building that Bandwidth occupies in Hudson, New Hampshire for $3.7 million.
Subsequently, the Company entered into a lease for the building (90,000 square
feet) with SPI-Trust whereby the Company will pay $4.1 million to the SPI-Trust
over an initial five-year term expiring in 2008 with a Company option to extend
for five years. In addition to the rent payments the lease obligates the Company
to keep on deposit with SPI-Trust the equivalent of three months rent ($304,000
as of June 30, 2007.) The lease agreement does not provide for a transfer of
ownership at any point. Interest costs were assumed at 7%. For the three months
ended June 30,
16
2007, interest expense was approximately $25,000. This lease has been classified
as a related party capital lease and a summary of payments (including interest)
follows:
Rate Per Security
Year Square Foot Annual Rent Monthly Rent Deposit
--------------------------- ----------- ----------- ------------ ---------
June 1, 2003 - May 31, 2004 $6.00 $ 540,000 $45,000 $135,000
June 1, 2004 - May 31, 2005 7.50 675,000 56,250 168,750
June 1, 2005 - May 31, 2006 8.50 765,000 63,750 191,250
June 1, 2006 - May 31, 2007 10.50 945,000 78,750 236,250
June 1, 2007 - May 31, 2008 13.50 1,215,000 101,250 303,750
-----------
$4,140,000
===========
At June 30, 2007, the remaining balance of capital lease obligation -
related party in the amount of $1,065,000 is reflected as a current liability in
the Company's consolidated balance sheet.
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 revenue recognition, reserves for
doubtful accounts and sales returns and allowances, reserve for excess and
obsolete inventory, impairment of long-lived assets, income taxes, and warranty
reserves. 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.
Refer to Footnote 2 of our notes to consolidated financial statements in our
Annual Report on Form 10-KSB for the year ended December 31, 2006 for a
description of our accounting policies.
REVENUE RECOGNITION
The Company derives its revenues from three primary sources: (1)
commercial products including, but not limited to, solar energy manufacturing
equipment, solar energy systems and hemodialysis catheters; (2) biomedical and
semiconductor processing services; and (3) United States government funded
research and development contracts.
We generally recognize product revenue upon shipment of products
provided there are no uncertainties regarding customer acceptance, persuasive
evidence of an arrangement exists, the sales price is fixed or determinable, and
collectibility is reasonably assured. These criteria are generally met at the
time of shipment when the risk of loss and title passes to the customer or
distributor, unless a consignment arrangement exists. Revenue from consignment
arrangements is recognized based on product usage indicating sales are complete.
The Company utilizes a distributor network to market and sell its
hemodialysis catheters domestically. The Company generally recognizes revenue
when the catheters are shipped to its distributors. Gross sales reflect
reductions attributable to customer returns and various customer incentive
programs including pricing discounts and rebates. Product returns are permitted
in certain sales contracts and an allowance is recorded for returns based on the
Company's history of actual returns. Certain customer incentive programs require
management to estimate the cost of those programs. The allowance for these
programs is determined through an analysis of programs offered, historical
trends, expectations regarding customer and consumer participation, sales and
payment trends, and experience with payment patterns associated with similar
programs that had been previously offered. An analysis of the sales return and
rebate activity for the three months ended June 30, 2007, is as follows:
Rebates Returns Total
------------ ------------ ------------
Balance - March 31, 2007 $ 110,600 $ 11,300 $ 121,900
Provision 60,419 8,148 68,567
Utilization (67,619) (6,848) (74,467)
------------ ------------ ------------
Balance - June 30, 2007 $ 103,400 $ 12,600 $ 116,000
============ ============ ============
17
o Credits for rebates are recorded in the month of the actual sale.
o Credits for returns are processed when the actual merchandise is
received by the Company.
o Substantially all rebates and returns are processed no later than
three months after original shipment by the Company.
The reserve percentage has declined to 9%, of inventory held by
distributors from approximately 15%, over the last two years. This reflects
lower rebates and returns associated with the Company's new heparin coated
catheters. The Company performs various sensitivity analyses to determine the
appropriate reserve percentage to use. To date, actual quarterly reserve
utilization has approximated the amount provided. The total inventory held by
distributors covered by sales incentive programs was approximately $1,300,000 at
June 30, 2007.
If sufficient history to make reasonable and reliable estimates of
returns or rebates does not exist, revenue associated with such practices is
deferred until the return period lapses or a reasonable estimate can be made.
This deferred revenue will be recognized as revenue when the distributor reports
to us that it has either shipped or disposed of the units (indicating that the
possibility of return is remote).
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 EX-Works 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 multiple elements, the Company allocates fair
value to each element in the contract and revenue is recognized upon delivery of
each element. If the Company is not able to establish fair value of undelivered
elements, all revenue is deferred.
The Company recognizes revenues and estimated profits on long-term
government contracts on the accrual basis where the circumstances are such that
total profit can be estimated with reasonable accuracy and ultimate realization
is reasonably assured. The Company accrues revenue and profit utilizing the
percentage of completion method using a cost-to-cost methodology. A percentage
of the contract revenues and estimated profits are determined utilizing the
ratio of costs incurred to date to total estimated cost to complete on a
contract by contract basis. 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 audits 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. The Company recorded a $78,000 charge, to cost of
contract research and service revenues, for the impairment of production
equipment which based on managements assessment had no future value to the
Company. The products originally manufactured on the equipment were no longer
economical to produce.
STOCK-BASED COMPENSATION
On January 1, 2006, the Company adopted the fair value recognition
provisions of Financial Accounting Standards Board ("FASB") Statement No.
123(R), Share-Based Payment ("Statement 123(R)") using the modified prospective
method. In accordance with the modified prospective method, the Company has not
restated its consolidated financial statements for prior periods. Under this
transition method, stock-based compensation expense for the first quarter of
2006
18
includes stock-based compensation expense for all of the Company's stock-based
compensation awards granted prior to, but not yet vested as of, January 1, 2006,
based on the grant-date fair value estimated in accordance with the provisions
of FASB Statement No. 123, Accounting for Stock-Based Compensation ("Statement
123"). Stock-based compensation expense for all stock-based compensation awards
granted on or after January 1, 2006 will be based on the grant-date fair value
estimated in accordance with the provisions of Statement 123(R). The impact of
Statement 123(R) on the Company's results of operations resulted in recognition
of stock option expense of approximately $137,000 and $208,000 for the three and
six months ended June 30, 2007.
Contractual Obligations, Commercial Commitments and Off-Balance Sheet
---------------------------------------------------------------------
Arrangements
------------
The following table summarizes the Company's gross contractual obligations at
June 30, 2007 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 2 - 3 4 - 5 More Than
Contractual Obligations Total 1 Year Years Years 5 Years
----------------------------------- ------------ ------------ ------------ ------------ ------------
Equipment line of credit (SVB) $ 3,965,000 $ 1,416,000 $ 2,549,000 -- --
Purchase obligations $ 3,821,000 $ 3,762,000 $ 59,000 -- --
Capital leases:
Related party capital lease $ 1,065,000 $ 1,065,000 -- -- --
Operating leases:
Unrelated party operating leases $ 383,000 $ 125,000 $ 204,000 $ 54,000 --
Related party operating lease $ 567,000 $ 567,000 -- -- --
Purchase obligations include all open purchase orders outstanding
regardless of whether they are cancelable or not.
Capital lease obligations outlined above include both the principal and
interest components of these contractual obligations.
At June 30, 2007, the Company maintained a Japanese yen account that
held approximately JPY 89,753 (approximately $1,000). Total currency translation
loss for the quarter ended June 30, 2007 of approximately $4,000 is reflected in
other expense, net in the accompanying unaudited condensed consolidated
statement of operations.
Outstanding letters of credit totaled approximately $132,000 at June 30,
2007. The letters of credit principally secure performance obligations, and
allow holders to draw funds up to the face amount of the letter of credit if the
Company does not perform as contractually required. These letters of credit
expire through 2007 and are 100% secured by cash.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk to which we are subject consists of the risk of loss arising
from adverse changes in market interest rates and foreign exchange rates.
Exposure to market rate risk for changes in interest rates relates to our
investment portfolio. We have not used derivative financial instruments in our
investment portfolio. We seek to place our investments with high-quality issuers
and we have policies limiting, among other things, the amount of credit exposure
to any one issuer. We seek to limit default risk by purchasing only
investment-grade securities. We do not believe we have any material market risk
with respect to our financial instruments.
ITEM 4. 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 Chief Executive Officer and President and the Chief Financial Officer, of
the effectiveness of the Company's disclosure controls and procedures as of June
30, 2007. 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
19
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 President and the Chief
Financial Officer concluded that as of June 30, 2007, the Company's disclosure
controls and procedures were effective 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 rules and forms.
The Company has made significant strides in its monthly closing
processes and expects that its internal controls will continue to improve.
Changes in Internal Control Over Financial Reporting
----------------------------------------------------
Except as noted below, there was no change in the Company's internal
control over financial reporting that occurred during the first fiscal quarter
of 2007 that has materially affected, or is reasonably likely to materially
affect, the Company's internal control over financial reporting.
On May 22, 2007, the Company's Chief Accounting Officer resigned,
effective June 8, 2007. The Company is actively seeking an individual to perform
the former Chief Accounting Officer's functions.
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In a complaint filed July 11, 2007 in the U.S. District Court for the
Eastern District of Pennsylvania, Medical Components, Inc. (the "Plaintiff")
alleges that the Company and its wholly-owned subsidiary, Spire Biomedical,
Inc., through the manufacture and sale of its multilumen catheter products
infringes upon one of Plaintiff's patents. The Plaintiff seeks unspecified
damages, including enhanced damages and attorneys fees and costs, and an
injunction against certain manufacturing techniques. The Company believes it has
meritorious defenses and intends to vigorously defend itself against the claim.
The Company is currently in the process of evaluating this case, and has not
concluded that a loss is probable or estimable.
ITEM 1A. RISK FACTORS
Other than as set forth below, there have been no material changes in
the Risk Factors described in Part I, Item 1A ("Risk Factors") of our Annual
Report on Form 10-KSB for the year ended December 31, 2006.
OUR JOINT VENTURE TRANSACTION WITH GLORIA SOLAR MAY NOT REALIZE ALL OF
ITS INTENDED BENEFITS.
On July 17, 2007, we announced that we had entered into a contractual
relationship with Gloria Solar, pursuant to which, among other things, we agreed
to form a joint venture, to be owned 55% by Gloria Solar and 45% by us, for the
purpose of pursuing the solar photovoltaic systems market within the United
States; the joint venture will design, market, sell and manage the installation
of systems for the generation of electrical power by solar photovoltaic means in
primarily commercial/industrial and utility segments of such market (the "JV
Systems Business"). In connection with the formation of the joint venture, (i)
we agreed to contribute to the joint venture our assets primarily relating to
the JV Systems Business, including certain intellectual property and know-how,
access to information technology assets and relationships, relationships with
current and previous customers, contract backlog and project opportunities,
certain registered trademarks, and employment relationships with staff members
and (ii) Gloria Solar agreed to contribute $5,000,000 in cash. In connection
with the establishment of the joint venture, we may experience:
o difficulties in integrating our and Gloria Solar's respective corporate
cultures and business objectives into the new joint venture;
o diversion of our management's time and attention from other business
concerns;
20
o higher than anticipated costs of integration at the joint venture;
o difficulties in retaining key employees who are necessary to manage the
joint venture; or
o difficulties in working with an entity based in Taiwan and thus remote
or inconvenient to our Bedford, Massachusetts headquarters.
For any of these reasons or as a result of other factors, we may not
realize the anticipated benefits of the joint venture, and cash flow or profits
derived from our ownership interest in the joint venture may be less than the
cash flow or profits that could have been derived had we retained the
transferred assets and continued to operate the JV Systems Business ourselves.
Either party has the right, at any time upon certain material breaches by the
other party of obligations under the joint venture documents, to acquire all of
the breaching party's interest in the joint venture at 90% fair market value. In
addition, in the event of a "change in control" of a member, the other members
may purchase such member's interest in the joint venture at fair market value.
Furthermore, our further participation in the business of the joint venture is
restricted; for a period of three (3) years, we may not mass manufacture, market
or sell solar cell modules with less than 575 watt capacity, and may do so
thereafter only outside the United States.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On May 17, 2007, the Company held a Special Meeting in Lieu of Annual
Meeting of Stockholders.
Proposal Number 1
-----------------
The number of directors was fixed at eight, leaving one vacancy. Udo
Henseler, David R. Lipinski, Mark C. Little, Roger G. Little, Michael J.
Magliochetti, Guy L. Mayer and Roger W. Redmond were elected to the Board of
Directors to hold office until the 2008 annual meeting of the stockholders. The
results for Proposal Number 1 were as follows:
Shares Voting Against
Nominee Shares Voting For or Authority Withheld Shares Abstaining Broker Non-Votes
------------------------ -----------------------------------------------------------------------------------------
Udo Henseler 6,198,216 486,607 -- --
David R. Lipinski 5,609,496 1,075,327 -- --
Mark C. Little 5,699,150 985,673 -- --
Roger G. Little 5,684,177 1,000,646 -- --
Michael J. Magliochetti 6,223,869 460,954 -- --
Guy L. Mayer 6,224,246 460,577 -- --
Roger W. Redmond 6,223,546 461,277 -- --
Proposal Number 2
-----------------
The Company's stockholders approved the adoption of the Company's 2007
Stock Equity Plan. The results for Proposal Number 2 were as follows:
Shares Voting Against
Shares Voting For or Authority Withheld Shares Abstaining Broker Non-Votes
------------------------ -----------------------------------------------------------------------------------------
Proposal Number 2 4,926,739 66,708 21,650 1,669,726
21
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS
10(v) Spire Corporation 2007 Stock Equity Plan, incorporated by
reference to Exhibit 4.1 to the Company's Form S-8 filed with
the Securities and Exchange Commission on June 5, 2007.
10(w) Loan and Security Agreement, dated May 25, 2007, among the
Company, Bandwidth Semiconductor, LLC and Silicon Valley Bank.
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 Chief Financial Officer and Treasurer
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 Chief Financial Officer and Treasurer
pursuant to 18 U.S.C. ss.1350, as adopted pursuant to ss.906
of the Sarbanes-Oxley Act of 2002.
22
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: August 14, 2007 By: /s/ Roger G. Little
-------------------------------------
Roger G. Little
Chairman of the Board, Chief
Executive Officer and President
Dated: August 14, 2007 By: /s/ Christian Dufresne
-------------------------------------
Christian Dufresne, Ph. D.
Chief Financial Officer and Treasurer
23
EXHIBIT INDEX
Exhibit Description
------- -----------
10(v) Spire Corporation 2007 Stock Equity Plan, incorporated by reference
to Exhibit 4.1 to the Company's Form S-8 filed with the Securities
and Exchange Commission on June 5, 2007
10(w) Loan and Security Agreement, dated May 25, 2007, among Spire
Corporation, Bandwidth Semiconductor, LLC and Silicon Valley Bank
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 Chief Financial Officer and Treasurer 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 Chief Financial Officer and Treasurer pursuant
to 18 U.S.C. ss.1350, as adopted pursuant to ss.906 of the
Sarbanes-Oxley Act of 2002
24