-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WWY0iN8f1YtidGw0syZj2gAwZXeNOaVR37FkVTa/2ot6496JniU16wKJFlB4KURV l3mo6asrZSRD9SI14x7NuA== 0001072613-06-001129.txt : 20060515 0001072613-06-001129.hdr.sgml : 20060515 20060515160506 ACCESSION NUMBER: 0001072613-06-001129 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20060331 FILED AS OF DATE: 20060515 DATE AS OF CHANGE: 20060515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SPIRE CORP CENTRAL INDEX KEY: 0000731657 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMMERCIAL PHYSICAL & BIOLOGICAL RESEARCH [8731] IRS NUMBER: 042457335 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-12742 FILM NUMBER: 06841097 BUSINESS ADDRESS: STREET 1: ONE PATRIOTS PARK CITY: BEDFORD STATE: MA ZIP: 01730-2396 BUSINESS PHONE: 6172756000 MAIL ADDRESS: STREET 2: ONE PATRIOTS PARK CITY: BEDFORD STATE: MA ZIP: 01730-2396 10QSB 1 form10-qsb_14364.txt FORM 10-QSB FOR QUARTER ENDED 3-31-06 ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB |X| Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended March 31, 2006; or |_| Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from ____________ to ____________ Commission file number: 0-12742 SPIRE CORPORATION (Name of small business issuer as specified in its charter) MASSACHUSETTS 04-2457335 ------------- ---------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) ONE PATRIOTS PARK BEDFORD, MASSACHUSETTS 01730-2396 --------------------------------- (Address of principal executive offices) 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 -------------------------------------------------------------------- (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 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 shell company (as defined in Rule 12b-2 of the Exchange Act). 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 8,189,663 outstanding shares of the issuer's only class of common equity, Common Stock, $0.01 par value, on May 1, 2006. Transitional Small Business Disclosure Format (check one): Yes |_| No |X| ================================================================================ TABLE OF CONTENTS Page ---- PART I. FINANCIAL INFORMATION Item 1. Financial Statements Unaudited Condensed Consolidated Balance Sheet as of March 31, 2006 ................................................... 1 Unaudited Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2006 and 2005 ............... 2 Unaudited Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2006 and 2005 ............... 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 .......................................... 20 PART II. OTHER INFORMATION Item 1. Legal Proceedings ................................................ 22 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds ...... 22 Item 3. Defaults Upon Senior Securities .................................. 22 Item 4. Submission of Matters to a Vote of Security Holders .............. 22 Item 5. Other Information ................................................ 22 Item 6. Exhibits ......................................................... 22 PART I FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS SPIRE CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
MARCH 31, 2006 -------------- ASSETS Current assets Cash and cash equivalents $ 2,805,247 Restricted cash 407,520 ------------ 3,212,767 Accounts receivable - trade, net 3,053,484 Inventories, net 1,856,923 Prepaid expenses and other current assets 518,440 ------------ Total current assets 8,641,614 Net property and equipment 4,109,689 Intangible and other assets (less accumulated amortization of $716,198) 725,105 Available-for-sale investments at quoted market value (cost of $1,082,422) 1,163,147 Restricted cash - long-term 121,000 Deposit - related party 191,250 ------------ Total assets $ 14,951,805 ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Current portion of capital lease obligation $ 341,806 Current portion of capital lease obligation - related party 792,566 Accounts payable 1,163,595 Accrued liabilities 1,668,797 Advances on contracts in progress 1,044,719 ------------ Total current liabilities 5,011,483 ------------ Long-term portion of capital lease obligation - related party 1,302,618 Deferred compensation 1,163,147 ------------ Total long-term liabilities 2,465,765 ------------ Total liabilities 7,477,248 ------------ Commitments and Contingencies: Stockholders' equity Common stock, $0.01 par value; 20,000,000 shares authorized; 7,248,487 shares issued and outstanding 72,485 Additional paid-in capital 10,963,196 Accumulated deficit (3,609,559) Accumulated other comprehensive income 48,435 ------------ Total stockholders' equity 7,474,557 ------------ Total liabilities and stockholders' equity $ 14,951,805 ============
See accompanying notes to unaudited condensed consolidated financial statements. 2 SPIRE CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED MARCH 31, ---------------------------- 2006 2005 ----------- ----------- Net sales and revenues Contract research, service and license revenues $ 2,509,516 $ 2,732,014 Sales of goods 2,863,927 1,447,501 ----------- ----------- Total net sales and revenues 5,373,443 4,179,515 ----------- ----------- Costs and expenses Cost of contract research, services and licenses 2,244,797 2,117,805 Cost of goods sold 2,353,698 1,418,760 Selling, general and administrative expenses 2,593,675 1,829,579 Internal research and development expenses 158,050 317,196 ----------- ----------- Total costs and expenses 7,350,220 5,683,340 ----------- ----------- Loss from operations (1,976,777) (1,503,825) Other expense, net (27,614) (76,617) ----------- ----------- Loss before income taxes (2,004,391) (1,580,442) Income tax benefit (expense) -- -- ----------- ----------- Net loss $(2,004,391) $(1,580,442) =========== =========== Loss per share of common stock - basic and diluted $ (0.28) $ (0.23) =========== =========== Weighted average number of common and common equivalent shares outstanding - basic and diluted 7,236,019 6,854,931 =========== ===========
See accompanying notes to unaudited condensed consolidated financial statements. 3 SPIRE CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
THREE MONTHS ENDED MARCH 31, ---------------------------- 2006 2005 ----------- ----------- Cash flows from operating activities: Net loss $(2,004,391) $(1,580,442) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 527,347 623,100 Deferred compensation 23,949 (17,112) Unearned purchase discount -- (38,203) Stock-based compensation 59,435 -- Changes in assets and liabilities: Restricted cash 397,025 (945,465) Accounts receivable, net 642,927 302,455 Inventories 803,566 (1,222,351) Prepaid expenses and other current assets 88,413 78,732 Accounts payable, accrued liabilities and other liabilities (356,736) 447,522 Advances on contracts in progress (713,760) 436,097 ----------- ----------- Net cash used in operating activities (532,225) (1,915,667) ----------- ----------- Cash flows from investing activities: Additions to property and equipment (99,793) (36,825) Increase in intangible and other assets (75,952) (37,679) ----------- ----------- Net cash used in investing activities (175,745) (74,504) ----------- ----------- Cash flows from financing activities: Principal payment on capital lease obligations (104,878) (97,807) Principal payment on capital lease obligations - related parties (152,798) (39,940) Proceeds from exercise of stock options 140,730 20,701 ----------- ----------- Net cash used in financing activities (116,946) (117,046) ----------- ----------- Net decrease in cash and cash equivalents (824,916) (2,107,217) Cash and cash equivalents, beginning of period 3,630,163 3,336,867 ----------- ----------- Cash and cash equivalents, end of period $ 2,805,247 $ 1,229,650 =========== =========== Supplemental disclosures of cash flow information: Cash paid (received) during the period for: Interest $ (8,863) $ 28,380 =========== =========== Interest - related party $ 38,452 $ 16,310 =========== =========== Income taxes $ -- $ -- =========== ===========
See accompanying notes to unaudited condensed consolidated financial statements. 4 SPIRE CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) MARCH 31, 2006 1. DESCRIPTION OF THE BUSINESS Spire Corporation (the "Company") develops, manufactures and markets highly-engineered products and services in four principal business areas: solar equipment, solar systems, biomedical and optoelectronics bringing to bear expertise in materials technologies across all four business areas. 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 170 factories in 43 countries. In the solar systems area, the Company provides custom and building integrated photovoltaic modules, stand-alone emergency power backup and electric power grid-connected distributed power generation systems employing photovoltaic technology developed by the Company. 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. In the optoelectronics area, the Company provides compound semiconductor foundry 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. 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 March 31, 2006 and the results of its operations and cash flows for the three months ended March 31, 2006 and 2005. The results of operations for the three months ended March 31, 2006 are not necessarily indicative of the results to be expected for the fiscal year ending December 31, 2006. 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, 2005. As described in Footnote 10, the Company adopted Financial Accounting Standards Board Statement No. 123(R), Share-Based Payment, on January 1, 2006. 3. ACCOUNTS RECEIVABLE/ADVANCES ON CONTRACTS IN PROGRESS Net accounts receivable, trade consists of the following: March 31, 2006 ---------- Amounts billed $3,001,065 Retainage 31,876 Accrued revenue 219,832 ---------- 3,252,773 Less: Allowance for sales returns and doubtful accounts (199,289) ---------- Net accounts receivable $3,053,484 ========== Advances on contracts in progress $1,044,719 ========== 5 SPIRE CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (UNAUDITED) MARCH 31, 2006 Accrued revenue represents revenue recognized on contracts for which billings have not been presented to customers as of the balance sheet date. These amounts are billed and generally collected within one year. 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 $32,000 at March 31, 2006. 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 2003. The Company has not incurred significant losses or adjustments as a result of government audits. 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: March 31, 2006 ---------- Raw materials $1,289,209 Work in process 317,418 Finished goods 250,296 ---------- $1,856,923 ========== 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 March 31, ----------------------- 2006 2005 --------- --------- Weighted average number of common and common equivalent shares outstanding - basic 7,236,019 6,854,931 Add: Net additional common shares upon assumed exercise of common stock options -- -- --------- --------- Adjusted weighted average number of common and common equivalents shares outstanding - diluted 7,236,019 6,854,931 ========= ========= 6 SPIRE CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (UNAUDITED) MARCH 31, 2006 For the three months ended March 31, 2006 and 2005, 6,250 and 78,250 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 months ended March 31, 2006 and 2005, 201,254 and 193,267 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. 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."
Solar Solar Total Equipment Systems Biomedical Optoelectronics Company ---------- --------- ---------- --------------- ---------- For the three months ended March 31, 2006 - ----------------------------------------- Net sales and revenues $2,315,234 $ 222,873 $2,327,956 $507,380 $5,373,443 Loss from operations (82,621) (347,480) (651,491) (895,185) (1,976,777) For the three months ended March 31, 2005 - ----------------------------------------- Net sales and revenues $ 941,993 $ 53,450 $2,493,096 $690,976 $4,179,515 Loss from operations (390,106) (395,931) (137,410) (580,378) (1,503,825)
The following table shows net sales and revenues by geographic area (based on customer location): Three Months Ended March 31, -------------------------------------- 2006 % 2005 % --------- ---- ---------- ---- Foreign 2,492,000 46% $ 627,000 15% United States 2,881,000 54% 3,553,000 85% --------- ---- ---------- ---- 5,373,000 100% $4,180,000 100% ========= ==== ========== ==== Revenues from contracts with United States government agencies for the three months ended March 31, 2006 and 2005 were approximately $620,000 and $878,000, or 12% and 21% of consolidated net sales and revenues, respectively. Two customers accounted for approximately 32% and one customer accounted for approximately 12% of the Company's gross sales during the three months ended March 31, 2006 and 2005, respectively. One customer represented 27% of trade account receivables at March 31, 2006. 7 SPIRE CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (UNAUDITED) MARCH 31, 2006 7. INTANGIBLE AND OTHER ASSETS Patents amounted to $66,921, net of accumulated amortization of $608,735, at March 31, 2006. Licenses amounted to $167,537, net of accumulated amortization of $107,463 at March 31, 2006. 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 $486,692 of estimated amortization expense on a five-year straight-line basis related to patents that remain pending as of the balance sheet date. Estimated amortization expense for the periods ending December 31, is as follows: Amortization Year Expense --------------- ------------ 2006 $ 143,321 2007 184,124 2008 157,077 2009 114,650 2010 and beyond 121,978 ---------- $ 721,150 ========== Also included in other assets are $3,955 of refundable deposits made by the Company. 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: March 31, 2006 -------------- Equity investments $ 921,606 Government bonds 165,625 Cash and money market funds 75,916 ---------- $1,163,147 ========== 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 March 31, 2006, the net unrealized gain on these marketable securities was approximately $48,000. 9. NOTES PAYABLE AND CREDIT ARRANGEMENTS The Company has a $2,000,000 Loan Agreement (the "Agreement") with Citizens Bank of Massachusetts (the "Bank"), which expires on June 27, 2006. The Agreement provides Standby Letter of Credit Guarantees for foreign and domestic customers, which are 100% secured with cash. At March 31, 2006, the Company had approximately $529,000 of restricted cash associated with outstanding Letters of Credit. Standby Letters of Credit under this Agreement bear interest at 1%. The Agreement also provides the Company with the ability to convert to a $2,000,000 revolving line of credit, based upon eligible accounts receivable and certain conversion covenants. Loans under this revolving line of credit bear interest at the Bank's prime rate, as determined, plus 1/2% (8.25% at March 31, 2006.) At March 31, 2006, the Company had not exercised its conversion option and no amounts were outstanding under the revolving line of credit. A commitment fee of ..25% is charged on the unused portion of the borrowing base. The Agreement contains covenants including certain financial reporting requirements. At March 31, 2006, the Company was in compliance with its financial reporting requirements and cash balance covenants. 8 SPIRE CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (UNAUDITED) MARCH 31, 2006 10. 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 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 $60,000. Prior to January 1, 2006, the Company accounted for share-based payments under the recognition and measurement provisions for APB Opinion No. 25, Accounting for Stock Issued to Employees ("APB 25"), and related Interpretations, as permitted by Statement 123. In accordance with APB 25 no compensation cost was required to be recognized for options granted to employees that had an exercise price equal to the market value of the underlying common stock on the date of grant. The Company uses the Black-Scholes option pricing model as its method for determining fair value of stock option grants, which was also used by the Company for its pro forma information disclosures of stock-based compensation expense prior to the adoption of Statement 123(R). The Company uses the straight-line method of attributing the value of stock-based compensation expense for all stock option grants. Stock compensation expense for all stock-based grants and awards is recognized over the service or vesting period of each grant or award. Statement 123(R) requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates in order to derive the Company's best estimate of awards ultimately expected to vest. Forfeitures represent only the unvested portion of a surrendered option and are typically estimated based on historical experience. Based on an analysis of the Company's historical data, the Company applied a 14% forfeiture rate to stock options outstanding in determining its Statement 123(R) stock compensation expense for the quarter ended March 31, 2006, which it believes is a reasonable forfeiture estimate for the period. In the Company's pro forma information required under Statement No. 123 for the periods prior to 2006, the Company accounted for forfeitures as they occurred. The Company has one employee stock option plan: the 1996 Equity Incentive Plan. This plan was approved by stockholders and provides 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. A summary of award activity under this plan as of March 31, 2006 and changes during the three month period is as follows: Number of Weighted-Average Shares Exercise Price ------- -------------- Options Outstanding at December 31, 2005 406,314 $4.38 Granted 16,250 $8.66 Exercised (25,500) $5.52 Cancelled/expired (1,500) $5.70 ------- ----- Options Outstanding at March 31, 2006 395,564 $4.48 ======= ===== Options Exercisable at March 31, 2006 157,645 $3.75 ======= ===== 9 SPIRE CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (UNAUDITED) MARCH 31, 2006 The options outstanding and exercisable at March 31, 2006 were in the following exercise price ranges:
Options Outstanding Options Exercisable ----------------------------------------------- --------------------------------- Weighted -Average Weighted- Weighted- Number Remaining Average Aggregate Number Average Aggregate Range of of Shares Contractual Exercise Intrinsic of Shares Exercise Intrinsic Exercise Price Outstanding Life Price Value Exercisable Price Value - --------------- ----------- ----------- --------- ---------- ----------- --------- --------- $1.78 to $ 3.11 44,374 3.98 years $2.32 $269,854 40,874 $2.29 $249,904 $3.12 to $ 3.90 127,058 5.65 years $3.89 572,734 73,379 $3.89 331,178 $3.91 to $ 4.90 153,195 8.33 years $4.33 623,095 27,140 $4.18 114,617 $4.91 to $ 6.36 42,187 8.19 years $6.09 97,542 16,252 $6.07 37,830 $6.37 to $10.74 28,750 7.70 years $8.85 5,937 -- $ -- -- ------- ---------- ------- -------- 395,564 7.08 years $4.48 $1,569,162 157,645 $3.75 $733,529 ======= ========== ======= ========
The aggregate intrinsic value in the table above represents the total intrinsic value, based on the Company's closing stock price of $8.40 as of March 31, 2006, which would have been received by the option holders had all option holders exercised their options as of that date. The total intrinsic value of options exercised during the quarter ended March 31, 2006 was $123,786. The following table illustrates the pro forma effect on net loss and net loss per share if the Company had applied the fair value recognition provisions of Statement No. 123 to stock-based employee compensation, for the three month period ended March 31, 2005. Since stock-based compensation expense for the three months ended March 31, 2006, was calculated and recorded under the provisions of Statement 123(R), no pro forma disclosure for that period is presented. Three Months Ended March 31, 2005 -------------- Net loss, as reported $(1,580,442) Less: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects (81,776) ----------- Pro forma net loss $(1,662,218) ----------- Loss per share: Basic - as reported $ (0.23) ----------- Basic - pro forma $ (0.24) ----------- Diluted - as reported $ (0.23) ----------- Diluted - pro forma $ (0.24) ----------- The per-share weighted-average fair value of stock options granted during the quarters ended March 31, 2006 and 2005 was $4.34 and $3.17, 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 ---- -------------- ------------- ----------- ----------------- 2006 -- 4.69% 7.5 years 48.8% 2005 -- 4.50% 5 years 77.3% For the quarter ended March 31, 2006, 16,250 stock options were granted. 10 SPIRE CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (UNAUDITED) MARCH 31, 2006 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 March 31, -------------------------- 2006 2005 ----------- ----------- Net loss $(2,004,391) $(1,580,442) Other comprehensive income (loss): Unrealized gain (loss) on available for sale marketable securities, net of tax 23,949 (17,112) ----------- ----------- Total comprehensive loss $(1,980,442) $(1,597,554) =========== =========== 12. SUBSEQUENT EVENT Private Placement of Equity - --------------------------- On April 26, 2006, the Company entered into Stock Purchase Agreements with two accredited institutional investors in connection with the private placement of 941,176 shares of the Company's common stock at a purchase price of $8.50 per share. On April 28, 2006, the Company completed the private placement. The net proceeds of the sale were approximately $7.7 million after deducting placement fees and other closing costs. 11 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, 2005. 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 four principal business areas: solar equipment, solar systems, biomedical and optoelectronics bringing to bear expertise in materials technologies across all four 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 170 factories in 43 countries. In the solar systems area, the Company provides custom and building integrated photovoltaic modules, stand-alone emergency power backup and electric power grid-connected distributed power generation systems employing photovoltaic technology developed by the Company. 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. In the optoelectronics area, the Company provides compound semiconductor foundry 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. 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 46% of net sales and revenues for the three months ended March 31, 2006, continue to constitute a significant portion of the Company's net sales and revenues. 12 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 March 31, ---------------- 2006 2005 ------ ------ Net sales and revenues 100% 100% Cost of sales and revenues 86 85 ------ ------ Gross profit 14 15 Selling, general and administrative expenses 48 44 Internal research and development expenses 3 7 ------ ------ Loss from operations (37) (36) Other expense, net -- 2 ------ ------ Loss before income taxes (37) (38) Income tax benefit (expense) -- -- ------ ------ Net loss (37%) (38%) ====== ====== OVERALL The Company's total net sales and revenues for the three months ended March 31, 2006 ("2006") increased 29% compared to the three months ended March 31, 2005 ("2005"). The increase was primarily attributable to a $1.3 million increase in solar equipment sales. SOLAR BUSINESS UNIT Sales in the Company's solar business unit increased 155% during 2006 as compared to 2005 primarily due to the 175% increase in solar equipment sales resulting from the volume and timing of the delivery of equipment. BIOMEDICAL BUSINESS UNIT Revenues of the Company's biomedical business unit decreased 7% during 2006 as compared to 2005 as a result of a 32% decrease in revenue from Spire's government funded research and development activities. This decrease was partially offset by an 18% increase in biomedical processing services revenue. OPTOELECTRONICS BUSINESS UNIT Sales in the Company's optoelectronics business unit decreased 27% during 2006 primarily due to the timing of contract completion and a decrease in the size and dollar value of customers orders. Three Months Ended March 31, 2006 Compared to Three Months Ended March 31, 2005 - ------------------------------------------------------------------------------- NET SALES AND REVENUES The following table categorizes the Company's net sales and revenues for the periods presented: Three Months Ended March 31, Increase/(Decrease) ---------------------- ------------------- 2006 2005 $ % ---------- ---------- ---------- ----- Contract research, services and license revenues $2,509,000 $2,732,000 $ (223,000) (8%) Sales of goods 2,864,000 1,448,000 1,416,000 98% ---------- ---------- ---------- Net sales and revenues $5,373,000 $4,180,000 $1,193,000 29% ========== ========== ========== The 8% decrease in contract research, services and license revenues for the three months ended March 31, 2006 as compared to the three months ended March 31, 2005 is primarily attributable to a decrease in research and development 13 activities and, to a lesser extent, Bandwidth foundry services. These decreases were partially offset by an increase in biomedical processing services. Revenues from Spire's research and development activities decreased 32% in 2006 as compared to 2005 primarily due to a decrease in the number and value of contracts associated with funded research and development. In addition, Bandwidth foundry service revenue decreased 27% primarily due to the timing of contract completion and a decrease in the size and dollar value of customer orders. Revenue from Spire's biomedical processing services increased 18% in 2006 compared to 2005 as a result of increased demand for Spire's IonGuard(R) implant services among its existing customer base. The 98% increase in sales of goods for the three months ended March 31, 2006 as compared to the three months ended March 31, 2005 was primarily due to an increase in solar equipment revenues and, to a lesser extent, an increase in solar systems revenues. Solar equipment sales increased 175% in 2006 as compared to 2005 primarily due to the timing and delivery of customer orders. Solar systems sales increased 317% due to number and volume of customer orders. 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 March 31, Increase/(Decrease) ------------------------------ ------------------- 2006 % 2005 % $ % ---------- --- ---------- --- ---------- --- Cost of contract research, services and licenses $2,245,000 90% $2,118,000 78% $ 127,000 6% Cost of goods sold 2,354,000 82% 1,419,000 98% 935,000 66% ---------- ---------- ---------- Net cost of sales and revenues $4,599,000 86% $3,537,000 85% $1,062,000 30% ========== ========== ========== The $127,000 (6%) increase in cost of contract research and service revenues in 2006 is primarily due to increased costs within the Company's biomedical processing services and Bandwidth units. Bandwidth's costs increased 8% despite a 27% decrease in revenues primarily due to the contract mix. Biomedical processing services' costs increased 23% resulting from its 18% increase in revenues. Partially offsetting these increases was a 23% decrease in costs associated with funded research and development activities resulting from its 32% decrease in revenues. Cost of contract research, services and licenses as a percentage of revenue increased 12% primarily due to the increased costs at Bandwidth. The $935,000 (66%) increase in cost of goods sold is primarily due to increased costs within Spire's solar equipment and systems product lines. Solar equipment costs increased 86% as a result of its 175% increase in revenues. Solar systems costs increased 137% as a result of its 317% increase in revenues. The decrease in cost of goods sold as a percentage of revenue is the result of improved contribution margins in solar equipment and solar systems product lines. 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 March 31, Increase/(Decrease) -------------------------------- ------------------- 2006 % 2005 % $ % ---------- --- ---------- --- --------- ---- Selling, general and administrative $2,594,000 48% $1,830,000 44% $ 764,000 42% Internal research and development 158,000 3% 317,000 8% (159,000) (50%) ---------- ---------- --------- Operating expenses $2,752,000 51% $2,147,000 51% $ 605,000 28% ========== ========== =========
INTERNAL RESEARCH AND DEVELOPMENT The decrease in research and development costs was primarily a result of a reduction in research and development activities at Bandwidth and, to a lesser extent, reductions in research and development efforts within our biomedical processing services unit and reduced efforts in the "next generation" solar energy module manufacturing equipment. The 14 decrease in research and development expenses as a percentage of sales and revenues was primarily due to the increase in sales and revenues and, to a lesser extent, the decreased costs described above. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES The increase was due primarily to costs associated with sales and marketing efforts throughout all of our product lines, ongoing litigation matters, and increased facility related costs. The increase in selling, general and administrative expenses as a percentage of sales and revenues was primarily due to the 42% increase in selling, general and administration costs discussed above offset by the 29% increase in sales and revenues. OTHER EXPENSE, NET The Company earned approximately $19,000 and $9,000 of interest income for the quarters ended March 31, 2006 and 2005, respectively. The Company incurred interest expense of approximately $48,000 and $86,000 for the quarters ended March 31, 2006 and 2005, respectively. The interest expense is primarily associated with interest incurred on capital leases associated with the semiconductor foundry. In addition, the Company recognized approximately $1,000 of currency transaction income related to the conversion of a Japanese Yen account into U.S. dollars at March 31, 2006. INCOME TAXES The Company did not record an income tax benefit for the three months ended March 31, 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 March 31, 2006 of approximately $2,004,000, compared to a net loss of $1,580,000 in 2005. The net loss increased approximately $424,000 primarily due to the increase in selling, general and administrative costs outlined above partially offset by the increase in revenues discussed above. Liquidity and Capital Resources - ------------------------------- March 31, December 31, Increase/(Decrease) ------------------- 2006 2005 $ % ---------- ----------- ----------- Cash and cash equivalents $2,805,000 $3,630,000 $ (825,000) (23%) Working capital 3,630,000 5,270,000 $(1,640,000) (31%) Cash and cash equivalents decreased primarily due to cash used in operating activities and, to a lesser extent, investments in property and equipment and payments on capital leases. These decreases were partially offset by the proceeds from the exercise of stock options. The Company has historically funded its operating cash requirements using operating cash flow and proceeds from the sale and licensing of technology. The Company's liquidity position benefitted as a result of cash receipts of $3,000,000 in both 2005 and 2004, arising from the sale of a hemodialysis patent license to Bard Access Systems. The Company received its final $3,000,000 payment under this arrangement in June 2005. In addition, the Company received JPY 400,000,000 (approximately $3.7 million) in June 2005 from the sale of a license to the Company's solar technology. The Company has a $2,000,000 Loan Agreement (the "Agreement") with Citizens Bank of Massachusetts (the "Bank"), which expires on June 27, 2006. The Agreement provides Standby Letter of Credit guarantees for certain foreign and domestic customers, which are 100% secured with cash. At March 31, 2006, the Company had approximately $529,000 of restricted cash associated with outstanding Letters of Credit. Standby Letters of Credit under this Agreement bear interest at 1%. The Agreement also provides the Company with the ability to convert to a $2,000,000 revolving line of credit, based upon eligible accounts receivable and certain conversion covenants. Loans under this revolving line of credit bear interest at the Bank's prime rate as determined plus 1/2% (8.25% at March 31, 2006.) At March 31, 2006, the Company had not exercised its conversion option and no amounts were outstanding under the revolving line of credit. A commitment fee of .25% is charged on the unused portion of the borrowing base. The Agreement contains covenants including certain 15 financial reporting requirements. At March 31, 2006, the Company was in compliance with its financial reporting requirements and cash balance covenants. 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. To date, there are no material commitments by the Company for capital expenditures. At March 31, 2006, the Company's accumulated deficit was approximately $3,610,000, compared to accumulated deficit of approximately $1,605,000 as of December 31, 2005. On April 26, 2006, the Company entered into Stock Purchase Agreements with two accredited institutional investors in connection with the private placement of 941,176 shares of the Company's common stock at a purchase price of $8.50 per share. On April 28, 2006, the Company completed the private placement. The net proceeds of the sale were approximately $7.7 million after deducting placement fees and other closing costs. The Company believes it has sufficient resources to finance its current operations for the foreseeable future from operating cash flow and working capital. 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. 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. 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. 16 SPI-Trust is required to maintain three (3) months of its anticipated operating costs within this escrow account. The Company believes that the terms of the Lease Extension are commercially reasonable. Rent expense under the Lease Extension for the quarter ended March 31, 2006 was approximately $310,000. No amounts were due from SPI-Trust as of March 31, 2006 for building related costs. 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 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 ($191,250 as of March 31, 2006.) The lease agreement does not provide for a transfer of ownership at any point. Interest costs were assumed at 7%. For the quarter ended March 31, 2006, interest expense was approximately $38,000. This lease has been classified as a related party capital lease and a summary of payments (including interest) is as 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 March 31, 2006, approximately $793,000 and $1,303,000 are reflected as the current and long-term portions of capital lease obligation - related party, respectively, in the 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, 2005 for a description of our accounting policies. 17 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 March 31, 2006, is as follows: Rebates Returns Total ------- -------- -------- Balance - December 31, 2005 $91,600 $ 19,100 $110,700 Provision 101,512 31,032 132,544 Utilization (96,955) (35,736) (132,691) ------- -------- -------- Balance - March 31, 2006 $96,157 $ 14,396 $110,553 ------- -------- -------- 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 been approximately 13% to 15% of inventory held by distributors over the last two years. 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 $720,000 at March 31, 2006. 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 18 cost-to-cost methodology. A percentage of the contract revenues and estimated profits is 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. 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 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 $60,000. Contractual Obligations, Commercial Commitments and Off-Balance Sheet - --------------------------------------------------------------------- Arrangements - ------------ The following table summarizes the Company's gross contractual obligations at March 31, 2006 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 - ---------------------------------- --------- --------- --------- ------- --------- PURCHASE OBLIGATIONS $ 261,000 $ 261,000 $ -- $ -- $ -- CAPITAL LEASES: Unrelated party capital lease $ 386,000 $ 386,000 $ -- $ -- $ -- Related party capital lease 2,277,000 915,000 1,362,000 -- -- OPERATING LEASES: Unrelated party operating leases $ 271,000 $ 124,000 $ 131,000 $16,000 $ -- Related party operating lease 2,070,000 1,242,000 828,000 -- --
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. 19 At March 31, 2006, the Company maintained a Japanese yen account that held approximately JPY 31,607,000 (approximately $269,000). Total currency translation income for the quarter ended March 31, 2006 of approximately $1,000 is reflected in other expense, net in the accompanying unaudited condensed consolidated statement of operations. Outstanding letters of credit totaled approximately $529,000 at March 31, 2006. 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. 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 March 31, 2006. 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. Furthermore, management considered certain matters deemed by the Company's independent auditors to constitute a material weakness in the Company's internal control over financial reporting described below. Based upon the required evaluation, the Chief Executive Officer and President and the Chief Financial Officer concluded that as of March 31, 2006, due to the material weakness in internal control over financial reporting described below, the Company's disclosure controls and procedures were not 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. On March 21, 2006, the Company's independent auditor, Vitale, Caturano & Company, Ltd. ("VCC") issued a letter advising management and the Audit Committee, that, in connection with its audit of the Company's consolidated financial statements for the year ended December 31, 2005, it noted certain matters involving internal control and its operation that it considered to be a material weakness under standards of the Public Company Accounting Oversight Board. VCC noted that, since its March 2005 letter, in which VCC noted material weaknesses in the Company's internal controls in connection with its audit of the Company's 2004 financial statements, the Company has made significant strides over the past year to improve its internal control structure. These include: o An improved reconciliation process; o A disciplined and timely monthly close process; and o Detailed reviews of monthly close packages by the appropriate levels of management. However, VCC also noted that improvements still need to be made in the reconciliation and documentation and information flow processes. In particular, the Company lost several key individuals who were integral to the accounting department in general and the closing process specifically. While the finance group was able to close the books and analyze the accounts on a timely basis, the staff was resource constrained and the established controls, policies and procedures could not be fully implemented during the year end close. The Company supplemented the staff with outside assistance and the Chief Financial Officer assumed responsibility of the reconciliations of certain accounts and various review roles. However, VCC noted that the finance department will not be alleviated and control structure improved until such time as the full finance team is assembled. In addition, VCC noted that the Company does not have sufficient internal knowledge and expertise of its enterprise reporting system, Solomon, including technical knowledge. The Company utilizes external consultants to help them develop reports and troubleshoot the system; however without a fully dedicated resource, the risk of errors being generated in or by the system is significant. VCC noted that the Company should develop a comprehensive training program associated with the system so that employees are aware of the system and all of its capabilities in order to obtain the efficiencies the system 20 can provide. The full utilization and knowledge of the ERP system is critical to the Company's internal control over financial reporting. The Company should focus on developing the in-house knowledge of the ERP system, either through trainings or recruiting of an experienced information technology professional with the requisite knowledge. The Company concurs with VCC's findings noted above and is continuing to make changes in its internal controls and procedures. Unfortunately, the Company was operating without a Controller, Assistant Controller and Senior Cost Accountant during the latter half of 2005. These positions are critical to the oversight and review of the finance group's output. As VCC noted, the Company supplemented those functions through the use of outside consultants and through the Chief Financial Officer assuming certain preparation and review roles. Unfortunately, this weakens the internal control structure as the review process is compressed and streamlined. The Company has hired a Senior Cost Accountant and expects to have its Assistant Controller position filled during the second quarter of 2006. The Company has had difficulty recruiting a full time Controller and will continue to search for a replacement. The Company has made significant strides in its monthly closing processes and expects that its internal controls will improve once a full finance staff is in place. Changes in Internal Control Over Financial Reporting - ---------------------------------------------------- There was no change in the Company's internal control over financial reporting that occurred during the first fiscal quarter of 2006 that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting. 21 PART II OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS None. 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 None. ITEM 5. OTHER INFORMATION On May 10, 2006, James F. Parslow notified the Company that he would be resigning as Chief Financial Officer and Treasurer of the Company, effective May 19, 2006, to pursue an opportunity with another company. The Company has begun considering possible successors for these positions. Until a successor is appointed, the Company's existing management team will handle these responsibilities. ITEM 6. EXHIBITS 10(q) Turn-Key Project Agreement, dated March 16, 2006. * 10(r) Wafer Supply Agreement, dated March 16, 2006. * 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. * Portions of this Exhibit have been omitted pursuant to a request for confidential treatment. 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: May 15, 2006 By: /s/ Roger G. Little ----------------------------- Roger G. Little Chairman of the Board, Chief Executive Officer and President Dated: May 15, 2006 By: /s/ James F. Parslow ----------------------------- James F. Parslow Chief Financial Officer and Treasurer 23 EXHIBIT INDEX Exhibit Description ------- ----------- 10(q) Turn-Key Project Agreement, dated March 16, 2006. * 10(r) Wafer Supply Agreement, dated March 16, 2006. * 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 * Portions of this Exhibit have been omitted pursuant to a request for confidential treatment. EX-10.Q 2 exh10-q_14364.txt TURN-KEY PROJECT AGREEMENT EXHIBIT 10(q) ------------- Confidential Treatment Requested as to certain information contained in this Exhibit 10(q) and filed separately with the Securities and Exchange Commission. TURN-KEY PROJECT AGREEMENT March 16, 2006 1. THE PARTIES Spire Corporation (the "Seller"), a business incorporated in the Commonwealth of Massachusetts, with its principal place of business at One Patriots Park, Bedford, Massachusetts, 01730-2396, U.S.A.; *** (the "Buyer"), a business organized under the laws of ***, with a principal place of business at *** 2. OBJECT OF AGREEMENT Seller agrees to deliver at Buyer's site a fully operative Photovoltaic Cell Manufacturing Line on "turn-key" basis, providing a nominal ***MW annual production line producing 15% efficient cells (the "Manufacturing Line"), consisting of the products defined in Article 3 below (the "Products") which Buyer agrees to buy from Seller and Seller agrees to sell to Buyer and install at Buyer's site, pursuant to the provisions of this Agreement hereinafter set forth. Such provisions shall prevail and no other article, condition, clause or term shall have any effect unless specifically admitted by this document. The Manufacturing Line will produce a minimum of 15% efficient cells from mono- crystalline or multi-crystalline wafers based upon wafers with a silicon minority carrier lifetime specified by Seller. The Manufacturing Line shall be an automated cell manufacturing line capable of handling wafer sizes of 100mm, 125mm and 156mm and said mono and multi crystalline wafers. Seller further agrees to supply to Buyer prior to the starting date of production of the cells by the Manufacturing Line or within 60 days after shipment of the Products, approximately 1,500,000 wafers, a volume which should approximate a cell electrical capacity of ***MW under the specific terms and conditions set forth in Article 11. 3. SHIPMENT OF THE PRODUCTS The Products bought by Buyer and sold by Seller are set forth in this Article 3 and will be shipped to Seller as further described in Article 4 on or before October 31, 2006. Partial shipments are allowed as needed and any shipment may be transshipped as may be appropriate. The Products may be delivered to Buyer directly by Seller or by any of Seller's sub-vendors, but in the latter case, Seller shall be responsible for the compliance of the shipment schedule to be agreed with Buyer in the Final Design Review Meeting (as such term is defined in Article 5.b). The principal items among the Products are set forth below (specifications for these items appear in Attachment A): *** Represents text omitted pursuant to a request for confidential treatment. The omitted material has been filed separately with the Securities and Exchange Commission. 1 Etch Station (Quantity: 1) Dopant Spray Coater (Quantity: 2) Belt Diffusion Furnace (Quantity: 2) Plasma Etcher (Quantity: 1) HF Etch Station (Quantity: 1) Surface Resistivity Tester (Quantity: 1) PECVD AR Coater (Quantity: 1) Screen Printer & Collator (Quantity: 1) Belt IR Furnace (Quantity: 1) Screen Printer & Collator (Quantity: 1) Belt IR Dryer (Quantity: 1) Screen Printer & Collator (Quantity: 1) Belt IR Furnace (Quantity: 1) Screen Tension Gauge (Quantity: 1) Spare Parts/Miscellaneous (Quantity: 1) Non-Major Equipment ------------------- Surface Resistivity Tester (Quantity: 1) Vacuum Leak Detector (Quantity: 1) Screen Cleaner (Quantity: 1) Microscope (stereo zoom 10.5 to 45.0x (Quantity: 1) Wafer Lifetime Tester (Quantity: 1) All transport mechanisms needed to move and handle the processed wafers between the major equipment during the manufacturing process of the Manufacturing Line, including cassettes, carriers, carts, and the like. 4. PRICE AND TERMS OF PAYMENT The price for the Manufacturing Line, including engineering support, technical and design documents, technical services, the installation of all the Products and the Manufacturing Line, in conformity with all applicable technical or other *** regulations or standards, technical training, 30kW of training materials, start up operations to make the Manufacturing Line fully operative in accordance with the provisions set forth below, and Warranty (after-service support) during the first two (2) years of operation, is a total of U.S. $6,750,000.00 (Six Million, Seven Hundred Fifty Thousand U.S. Dollars), hereinafter the "Purchase Price", Ex-Works Factory ("Factory" in this case refers to the factory from which any unit of equipment is shipped to Buyer's site). Buyer shall provide all reasonable support possible to Seller regarding applicable *** regulations or standards. The price breakdown of the Products is as listed below: *** Represents text omitted pursuant to a request for confidential treatment. The omitted material has been filed separately with the Securities and Exchange Commission. 2 Item Quantity Item Price U.S. $ ------------------------------------------------------------------------------- 1 1 Etch Station $*** 2 2 Dopant Spray Coater *** 3 2 Belt Diffusion Furnace *** 4 1 Plasma Etcher *** 5 1 HF Etch Station *** 6 1 Surface Resistivity Tester *** 7 1 PECVD AR Coater *** 8 1 Vacuum Leak Detector *** 9 1 Screen Printer & Collater *** 10 1 Belt IR Drier and Furnace *** 11 1 Screen Printer & Collater *** 12 1 Belt IR Dryer *** 13 1 Screen Printer & Collater *** 14 1 Belt IR Drier & Furnace *** 15 1 Screen Cleaner *** 16 1 Screen Tension Gauge *** 17 1 Microscope, Stereo Zoom 10.5 to 45x *** 18 1 Wafer Lifetime Tester *** 19 Miscellaneous and 30kW of training Materials *** 20 1 Spare Parts included above 21 All transport mechanisms needed to move and handle the processed wafers between the major equipment during the manufacturing process of the Manufacturing Line, including cassettes, Carriers, carts and the like. included above -------------- Total Equipment $*** -------------- 22 1 Engineering $*** 23 1 Installation and Training $*** -------------- Total $6,750,000 -------------- Buyer shall arrange for milestone payments to Seller in accordance with the schedule outlined below: A. Within 10 business days as of the execution date of this Agreement, Buyer shall pay Seller a down payment of US$*** U.S. Dollars ("Initial Down Payment"). B. Within 15 business days as of the date of conclusion of the Preliminary Design Review Meeting and delivery by Seller to Buyer of the Provisional Project Documents, both C. terms defined in Article 5(b), Buyer shall pay Seller US$*** U.S. Dollars. *** Represents text omitted pursuant to a request for confidential treatment. The omitted material has been filed separately with the Securities and Exchange Commission. 3 D. Within 15 business days as of the date of conclusion of the Final Design Review Meeting and delivery by Seller to Buyer of the Final Project Documents, both terms defined in Article 5(b), Buyer shall pay Seller US$*** U.S. Dollars unless Buyer notifies Seller within this term its decision to not proceed with this Project as referred to hereunder. E. Within 15 business days as of the date of conclusion of the training to be carried out at Buyer's site or, as previously agreed between the parties in the aforementioned Final Design Review Meeting, at the site of the Seller and any of the Seller's sub-vendors, in accordance with the details set out in Article 7(c) below, Buyer shall pay Seller US$*** U.S. Dollars. F. Buyer shall establish through the appropriate banking facility a Irrevocable Confirmed Letter of Credit for the amount of US$*** U.S. Dollars. The above US$*** Irrevocable Confirmed Letter of Credit shall be opened by Buyer for the benefit of Seller within 120 days of the execution date of this Agreement and will be drawn down by Seller upon Ex-Works shipment of the Products by Seller in accordance with Article 3 above and with this Article 4. Such amount is to be proportionally drawn down against the equipment prices indicated in this Article. F. Within 15 business days as of the date of signature by Seller and Buyer of the Acceptance Form of Installation of the Manufacturing Line as defined in Article 5 (c), Buyer shall pay Seller US$*** U.S. Dollars. G. Buyer shall pay Seller US$*** U.S. Dollars in accordance with the below payment schedule: Upon the Manufacturing Line attaining the following performance specifications, Buyer shall release payment to Seller as below: Cell Cell afer Throughput Efficiency Reject Rate ----------------- ---------- ----------- a. Payment of $*** to Seller upon *** MW annualized 13.4% <5% b. Payment of $*** to Seller upon *** MW annualized 13.75% <5% c. Payment of $*** to Seller upon *** MW annualized 14% <5% d. Payment of $*** to Seller upon *** MW annualized 14.50% <5% e. Payment of $*** to Seller upon *** MW annualized 15% <5% *** Represents text omitted pursuant to a request for confidential treatment. The omitted material has been filed separately with the Securities and Exchange Commission. 4 The performance specifications and related payments outlined above shall be based upon consistent performance aggregated over a calendar month period and shall be inclusive of the accumulated values of the released payments. It is understood that such performance specification evaluation period shall extend nine (9) months from the Acceptance Form of Installation of the Manufacturing Line. Such performance specification evaluation period may be extended beyond the subject period if applicable and mutually agreed by Buyer and Seller. Regarding the Cell Efficiency parameters laid down above, a +-5% deviation due to measurement errors will be tolerated. Save otherwise agreed by Buyer and Seller, should the Manufacturing Line not perform in accordance with the specifications described in paragraph a. of the aforementioned payment schedule within 90 days as of the date of signature of the Acceptance Form of Installation of the Manufacturing Line, the Buyer shall be fully entitled to claim the right of non-payment for the amount mentioned under said point a. of the referred payment schedule, this is to say, $*** which will be treated as a reduction of the Purchase Price for non performance of the Manufacturing Line Save otherwise agreed by Buyer and Seller, should the Manufacturing Line not perform satisfactorily in accordance with the terms and conditions agreed in Article 5(c) within 9 months as of the date of signature of the Acceptance Form of Installation of the Manufacturing Line, the Buyer shall be fully entitled to claim the right of non-payment for any subject balance amount not yet released and paid, which will be treated as a reduction of the Purchase Price for non performance of the Manufacturing Line. If for any reason after the Final Design Review Meeting (as defined in Article 5.b) below), Buyer decides to not proceed further with this Project, Buyer shall notify Seller in writing of such decision within 10 days as of the date on which said meeting was held, and, upon receipt of said notification, Seller shall reimburse 50% of the amounts pre-paid by Buyer to Seller in account of the Purchase Price pursuant to section A) and B) above, that is to say, US$***, being the Seller entitled to keep the remaining 50%, that is to say, US$*** as the only compensation due by Buyer to Seller pursuant to the termination by Buyer of this Agreement The shipment schedule referred to in Article 3 is contingent upon receipt by Seller of Buyer's Initial Down Payment to be made within 10 business days as of the execution date of this Agreement. Any failure by Buyer to adhere to the payment plan as outlined in this Article 4 may cause Seller to revise said shipment schedule to be agreed between the parties in the Final Design Review Meeting. Should Seller fail to deliver any of the Products ultimately by January 31, 2007, Seller shall be liable to the following monthly Purchase Price reductions: o ***% of the Purchase Price if delivery is not made by the end of the month of February 2007; o ***% of the Purchase Price if delivery is not made by the end of the month of March 2007; *** Represents text omitted pursuant to a request for confidential treatment. The omitted material has been filed separately with the Securities and Exchange Commission. 5 o ***% of the Purchase Price if delivery is not made by the end of the month of April 2007; o ***% of the Purchase Price if delivery is not made by the end of the month of May 2007. Should the delay be longer than May 31, 2007, Buyer shall be entitled to terminate this Agreement by notifying Seller in writing of such decision and Seller shall immediately reimburse Buyer all payments made by Buyer to Seller on account of the Purchase Price. Upon receipt of said reimbursement, Buyer shall return to Seller all Products delivered to Buyer. Seller shall exclusively bear all costs, duties and related fees required for the re-packaging and shipment of said Products to Seller. In this case, Seller shall be liable to pay Buyer a penalty in the amount equivalent to ***% of the Purchase Price, which shall be paid by Seller to Buyer together with the aforementioned reimbursement. Notwithstanding the above, should the Buyer, at his sole discretion, decide not to exercise its right to terminate the Agreement according to the above paragraph, the penalty established for the month of May 2007 will remain applicable for each month of delay until all the Products are delivered to Buyer. Purchase Price reduction referred to above may be applied by Buyer against any outstanding amount of the Purchase Price due by Buyer to Seller pursuant to this Agreement. 5. PERFORMANCE AND PERFORMANCE PERIOD a. CONDITIONS PRECEDENT FOR SELLER TO BEGIN PERFORMANCE (i) Turn-Key Project Agreement signed by both Parties; (ii) Initial Down Payment received by Seller. b. PERFORMANCE A Preliminary Design Review Meeting ("PDRM") shall be held at Buyer's site within the first four (4) to five (5) weeks after the execution date of this Agreement. During the PDRM Seller shall provide Buyer with preliminary documents including but not limited to the following ("Provisional Project Documents"): i) All appropriate preliminary design documents, including general arrangement drawings, utilities, process flow diagrams, detailed facility infrastructure requirements, and the like. ii) Preliminary Project Schedule (including Products delivery/shipment targets). iii) Listing of potential vendors, including their delivery schedule, payment, technical specification, guarantee conditions, and the like. iv) Outline of training agenda and technical process manuals. v) Cell analysis (solar cell device modeling). *** Represents text omitted pursuant to a request for confidential treatment. The omitted material has been filed separately with the Securities and Exchange Commission. 6 Seller and Buyer shall agree to the design specifications to be implemented in the Project. Upon the receipt of Seller's detailed facility infrastructure requirements, Buyer shall provide to Seller all applicable technical information associated with the construction of the facility being designed and constructed to house such Manufacturing Line. Upon the conclusion of the PDRM, the Provisional Project Documents shall be signed by both parties to evidence their acceptance. A Final Design Review Meeting (FDRM) shall be held at Buyer's site (unless otherwise mutually agreed between the Parties) within the first four (4) to five (5) weeks after the PDRM was held. During the FDRM Seller shall provide Buyer with final documents as addressed in the PDRM to include, but not limited to the following ("Final Project Documents"): i) All final design documents, including general arrangement drawings, utilities process flow diagrams, detailed facility infrastructure requirements and general lay - out, maintenance and operation manuals, and the like. ii) Final Project Schedule (including Products delivery/shipment schedules). iii) Final selection of all Vendors including delivery schedule, technical specifications, guarantee conditions, and the like. iv) Final training agenda, dates and location(s). v) Final Cell analysis (solar cell device modeling, including technical and quality standards to be met). vi) Acceptance Protocols for individual Product(s)/equipment for mutual understanding purposes shall be mutually agreed upon. However, it is understood the Acceptance Form of Performance of the Manufacturing Line shall be the final document to establish contractual and Letter of Credit completion. The Final Project Documents shall be forwarded to Buyer prior to FDRM. Seller and Buyer shall attempt to aggregate shipments as best possible and utilize such aggregation of Product(s)/equipment for the applicable Letter of Credit drawn down by Seller. Seller shall make delivery in full of the Products, including all Products components, installation at the Buyer's site in accordance with standard industry practices as well as equipment training (use and maintenance), in accordance with the shipment schedule referred to in Article 3 (as stated in greater and more definitive detail in the shipment schedule to be agreed by the parties in the FDRM). Installation shall be defined as the mechanical set-up of all applicable equipment, and the mechanical operation such that the equipment performs the mechanical functions it was designed for as outlined in Attachment A. Seller shall provide all training services, training materials, Products equipment manuals, and the like, to Buyer within one (1) month of the complete installation of the Manufacturing Line. Training shall be conducted in accordance with the agenda and schedule to be agreed upon between Seller and Buyer in the FDRM. This requirement may be waived or altered by Buyer at its discretion (except that any expansion of this period may affect the total price as stated above). Every deliverable Products component shall be new; shall evidence high-quality 7 workmanship, and be free of any defects in design, assembly and installation that may inhibit the smooth operation; and which satisfies the purpose of this Agreement. Each unit of deliverable Products, where applicable, shall correspond to the specifications attached as Attachment A; be accompanied by a standard spare parts package which shall be defined by Seller prior to the Ex-Works shipment; and be subject to a warranty as specified in Article 8 of this Agreement. Seller shall ensure that Buyer can enforce and take full benefit of each and every Products guarantee under the same terms and conditions guaranteed to Seller by the suppliers of the Products or their manufacturers. All of the Products components delivered by the Seller shall be packed using new and strong packaging appropriate for shipping, transportation, loading and unloading. According to the requirements of each unit of Products equipment and any other items included with them, the Seller shall, consistent with accepted industry practices, supply any protection necessary to protect such Products equipment and other items from humidity, water, rust, erosion, or any other environmental factor which may damage the Products equipment or other items, and to insure that the Products arrive at the Buyer's site safe and intact. Each package, box or crate shall include the following documents: 1. Two copies of a detailed packing list; 2. Operation, service and repair manuals; 3. Spare parts list; 4. Two copies of assembly drawing as required for routine repair and maintenance; 5. Original guarantees of each and every Product and any other legal documentation of the Products. c. PERFORMANCE PERIOD The period of performance shall commence when the conditions precedent as described above are met and shall conclude with the delivery of the Products, the satisfactory installation of the same at a site specified by the Buyer, the satisfactory performance of the Manufacturing Line and the training of Seller's personnel as specified herein, are completed. The Products will be considered to be satisfactorily installed, when the Manufacturing Line is fully operative and capable of production. In such case, Seller and Buyer shall sign two originals of the so called "Acceptance Form of Installation of the Manufacturing Line" in accordance with the draft form enclosed herewith as Attachment B. The Manufacturing Line will be considered to be performing satisfactorily, should not later than the ninth (9th) month after the date of signature of the Acceptance Form of Installation of the Manufacturing Line, the following criteria be consistently met: (a) a minimum production capacity of 90% (1.875MW per month); (b) a minimum of 15% efficient cells produced (with a maximum margin of error of 5%, that is to say, a minimum of 14.25% efficient cells); and (c) a rejection level lower than 5% cells of total production. In the case that Parties cannot agree on the cell electrical characterization, the Parties agree that Fraunhofer Institute for Solar Energy Systems shall perform such independent evaluation for electrical characterization and be the definitive authority. In such case, Seller and Buyer shall sign two originals of the so called "Acceptance Form of Performance of the Manufacturing Line" in accordance with the draft form enclosed herewith as Attachment C. Notwithstanding the foregoing, the required minimum 8 monthly production capacity of 1.875MW per month referred to above may be modified for one or various months/time periods provided that the parties agree so in writing. 6. ALTERATIONS TO PRODUCTS The Products specified in Article 3 above and as described in detail in Attachment A hereto are Products manufactured, assembled and/or procured by Seller. Any requirement by Buyer to have Seller modify specifications and features of the Products beyond the specification and features agreed in the FDRM may affect the Purchase Price, even if such modification eliminates a feature or relaxes a specification, as all changes require an engineering charge. Other charges may apply. Buyer will submit all such requirements to Seller as soon as they become known. Seller will advise Buyer as soon as practical the effect all such requirements are estimated to have on price, delivery schedule, performance, and warranties as herein stated. In particular, Buyer agrees that any subsequent requirement other than addressed above thereafter agreed upon by the Parties will constitute a change in Seller's performance requirements and may further affect the delivery schedule cited above. In the event of any changes required by Buyer, Buyer hereby releases Seller from strict adherence to this schedule, although Seller is expected to minimize or eliminate any delay that may result from changes required by Buyer. Seller reserves the right to make changes to the type or source of parts used to manufacture the components of the Products to eliminate any procurement problems or to improve quality of operations. Prior to the implementation of any of those changes, Seller shall explain to Buyer the proposed Products alterations/changes and provide Buyer with sufficient evidence that the proposed changes or alterations of the Products do not jeopardize the quality and technical specifications of the originally agreed Products to be alter or replaced. 7. CERTAIN RESPONSIBILITIES OF BUYER AND SELLER a. INSTALLATION SITE PREPARATION. Buyer will have an installation site, including but not limited to utility/facility (power, water, compressed air, factory floor space) requirements in accordance with the lay-out agreed with Seller in the FDRM, prepared for Seller to install the Products at the time of its arrival at the location/address specified by Buyer. Within thirty (30) days after the arrival of the last Product at such location/address, Buyer and Seller shall agree on the date on which Seller shall start the installation of the Products at Buyer's site. Any delay for any reason (save for FORCE MAJEURE) arising with the Buyer that delays the starting date of the installation beyond one hundred twenty (120) days after the agreed start installation date of the Products at Buyer's site, will entitle Seller, at its option, to terminate this Agreement by notifying Buyer in writing of such decision and Seller shall be entitled to retain all payments made by Buyer on account of the Purchase Price. In addition, any direct added costs incurred by Seller by reason of Buyer's failure to proceed with installation of the Products and training of its personnel shall be charged to Buyer, invoiced separately, and payable thirty (30) days from invoice date with the maximum limit of US$*** U.S. Dollars). *** Represents text omitted pursuant to a request for confidential treatment. The omitted material has been filed separately with the Securities and Exchange Commission. 9 Any delay for any reason (save for FORCE MAJEURE) arising with the Seller that delays the starting date of the installation beyond one hundred twenty (120) days after the agreed start installation date of the Products at Buyer's site, will entitle Buyer, at its option, to terminate this Agreement by notifying Seller in writing of such decision and Seller shall immediately reimburse Buyer all payments made by Buyer to Seller on account of the Purchase Price against return to the Seller of the Products. In addition, any direct added costs incurred by Buyer by reason of Seller's failure to proceed with installation of the Products, including the expenses and costs incurred by the Buyer for the construction and preparation of the Buyer's site in accordance with the Final Project Documents, hiring and training of personnel and obligations assumed in relation to third parties (clients, suppliers, public authorities, lost of subsidies, etc.) shall be charged to Seller, invoiced separately, and payable thirty (30) days from invoice date with the maximum limit of US$***U.S. Dollars). b. OPENING AND UNPACKING PRODUCTS AT BUYER'S SITE. Buyer shall inform Seller of the date upon which it intends to open and unpack shipping containers so as to give Seller twenty (20) days notice. Seller may send its representative(s) to witness opening and unpacking task at its expense. If Seller witnesses the opening and unpacking task at Buyer's site, it shall make note of any missing, defective or damaged equipment or part, or of any other non-conformity once the same is jointly established by both parties. If Seller is not present and there is any missing, defective, or damaged equipment or part, or there is any other non-conformity present, Buyer shall notify Seller immediately in writing with appropriate documentation. Seller shall correct such non-conformities in accordance to the extent necessary to ensure that all deliverable item in proper working order are present when installation commences, provided that any non-conformity is the sole responsibility of Seller Seller has the right to photograph or videotape the container opening and inspection process. Defects discovered during the warranty period will be treated in accordance with the provisions of the warranty attached hereto as Attachment D. c. TRAINING. Seller will provide to Buyer training during the course of the installation process for up to four (4) operators per unit of equipment at Buyer's site. All such training is understood to be additional to any training conducted at the Seller's site, or if previously agreed by the parties at any sub-vendor's facility, and is associated with any "on-the-job-training" conducted during the installation process. Additionally, Seller will fully train Buyer's technicians at Seller's site prior to the installation of the Manufacturing Line and on the period and conditions previously agreed with Buyer during the FDRM. All the foregoing training costs will be deemed to be included in the Purchase Price. All such trainees must be proficient in spoken and written English, or Buyer must provide a skilled interpreter/ translation expert to render Seller's trainer/installer's instructions into trainee's native language in an effective and efficient manner. Seller will provide operation, repair and maintenance manuals to Buyer in English, and will attempt to provide them to Buyer sufficiently in advance of the installation process to allow Buyer to translate or have them translated and copied. Seller does not warrant the content of such documents if translated. Further details regarding the training program for Buyer's personnel to be agreed between the Parties in the FDRM. Seller will provide Buyer with training materials capable of producing a minimum of 30kW of 15% efficient cells (included in the Purchase Price). *** Represents text omitted pursuant to a request for confidential treatment. The omitted material has been filed separately with the Securities and Exchange Commission. 10 d. WARRANTY (AFTER-SERVICE SUPPORT). Seller will provide Buyer appropriate warranty (after-service support) associated with the Manufacturing Line and the Products during the first two (2) years after the date of signing by Seller and Buyer of the Acceptance Form of Installation of the Manufacturing Line referred to in Article 5 (c). e. INTERNATIONAL QUALITY CERTIFICATIONS. Seller will cooperate with Buyer to assist it to obtain the necessary international quality certification(s), allowing Buyer to sell its cells on the worldwide market. 8. WARRANTY Seller sells the Products set forth herein with a Warranty as shown in Attachment D hereto. It is this Warranty and no other that shall apply to any claims of defects in parts and/or labor on any unit of the Products, save for any mandatory product liability rules applicable in the jurisdiction of the Buyer. 9. PERFORMANCE GUARANTEE: Provided that the Buyer has satisfied its obligations as set forth herein, Seller will provide Performance Guarantees in accordance with the Acceptance Protocols to be agreed between the parties in the FDRM. In the event that the results of the Acceptance Protocols show that the Product(s) fail to meet one or more of the Performance Guarantee conditions, and such failure is not demonstrably attributable to Buyer, Seller, at no additional charge to Buyer, shall undertake actions to correct such defective performance. The liabilities expressly or implicitly assumed by Seller under this Agreement shall be Seller's only liability hereunder, at contract and law (save for mandatory rules which will necessarily apply), and Buyer hereby releases Seller from any and all liability and claims of liability in excess thereof. 10. INDEMNITY Buyer shall indemnify, defend, protect and hold harmless Seller from any action, suit, complaint, allegation and controversy of whatever kind which originates in Buyer's operation of the installed Products and the sale or use of any products that was manufactured using the Products, provided that Buyer failed to follow the instructions for use provided by Seller in their entirety, and provided also that no portion of the cause has its origin in any act of gross negligence on the part of Seller. Seller shall indemnify, defend, protect and hold harmless Buyer from any action, suit, complaint, allegation and controversy of whatever kind directed against Buyer which originates from a violation or infringement of any of the invention rights, patents, designs, copyrights, trade marks, service marks, data basis, topographic rights, trade secrets, know-how and other similar rights which may apply to the Products, whether or not such rights have been registered. Seller shall have the right to modify, at its own expense, the design and/or the Product(s) in order to remove any infringement violation so long as such modifications do not alter the performance of such Product(s). 11 11. WAFERS SUPPLY COMMITMENTS Seller undertakes to supply Buyer a maximum of approximately 1,500,000 wafers, a volume which should approximate a cell electrical capacity of ***MW prior to the starting date of production of the cells by the Manufacturing Line or within 60 days after the shipment of the Products. Buyer shall confirm to Seller the amount of wafers to be supplied through specific written orders. Said supply orders shall include (i) quantity of wafers ordered (ii) date of delivery (iii) purchase price (iv) payment conditions and (v) technical specifications of the wafers ordered. Before Seller purchases from any third party (supplier, sub-vendor, etc.) the wafers to be supplied to Buyer according to this Article 11, Seller should notify Buyer the terms and conditions of such purchase. Buyer shall provide approval for the purchase of said wafers within a maximum of 1 month as of the date Seller requested its approval for the purchase. Such approval will not be unreasonable withheld. This Seller's supply obligation may be cancelled by Buyer, provided that Buyer gives Seller, at least, one (1) month's written notice of cancellation from the date Buyer ordered the wafers from Seller. The quality of the wafers supplied by Seller to Buyer must be sufficient to guarantee that the Manufacturing Line produces cells with a minimum of 15% electrical efficiency. Should Buyer purchase from other suppliers mono-crystalline or multi-crystalline wafers with the same quality (as defined in the FDRM documents) than those that Seller would be able to supply to Buyer but on better price conditions, Seller shall not be able to allege that those wafers do not allow the Manufacturing Line to produce cells with the agreed electrical efficiency which is the subject matter of this Agreement. Without prejudice to the above, should Purchaser acquires from a third party wafers with lower quality than those defined in the FDRM documents, the Parties shall agree in writing on the cell electrical characterization of the cells to be produced by the Manufacturing Line from such wafers. Should the Parties fail to reach an agreement on the cell electrical characterization of the cells to be produced from said wafers acquired by the Purchaser, it is hereby agreed that Fraunhofer Institute for Solar Energy Systems shall determine whether the quality and technical conditions of said wafers are sufficient to produce 15% electrical efficiency cells and, if applicable, what would be the maximum electrical efficiency to be achieved with wafers of such quality conditions. In such event, Fraunhofer Institute for Solar Energy Systems will be the definitive authority and its decision will be binding between the Parties. The purchase price of the wafers shall be agreed between Seller and Buyer for each supply on the basis of the wafers worldwide market conditions, failing which purchase price of said wafers shall be fixed by the parties on the basis of the average purchase price of major recognized international wafer vendors, including but not limited to following vendors: ***. Upon receipt of the quotation of such vendors either party will inform the other party of the appropriate purchase price. It is understood that Buyer shall pay Seller the purchase price of the wafers supplied by Seller pursuant to this Article 11 separated from the Purchase Price of the Manufacturing Line. *** Represents text omitted pursuant to a request for confidential treatment. The omitted material has been filed separately with the Securities and Exchange Commission. 12 12. CONFIDENTIALITY Certain matters regarding this relationship embodied by this Agreement may be considered confidential or sensitive to one or the other Party to this Agreement. The Parties agree that all such matters, once identified, will be treated in accordance with the Confidential Disclosure Agreement attached hereto as Attachment E. This Agreement does not confer any right of ownership to any technical data disclosed to Buyer for Process Technology development purposes, and Buyer shall not release any technical data to any third party without the written approval of Seller. It is understood that certain aspects of this Agreement may be required to be revealed to governmental authorities, including without limit *** and United States regulatory authorities. 13. NO LICENSE This Agreement does not convey any license to Buyer to use Seller's name or any form of its corporate identification in any jurisdiction. Buyer is allowed a limited non-exclusive license to use certain technical data for the purpose of developing process technology. 14. GENERAL PROVISIONS a. NO WAIVER. Waiver of any provision of this Agreement, in whole or in part, in any one instance shall not constitute a waiver of any other provision in the same instance, or any waiver of the same provision in any other instance, but each provision shall continue in full force and effect with respect to any other then-existing or subsequent breach. b. NOTICE. Any notice required or permitted under this Agreement shall be given in writing to the Parties at their respective addresses as specified above, or at such other address for a Party as that Party may specify by notice (i) by delivery in hand or, (ii) registered or certified mail, return receipt requested, or courier or some other form of expedited delivery service that provides for delivery to the sender of a signed receipt. Notice so sent shall be effective upon receipt unless otherwise specified herein or in the notice. c. ARBITRATION OF DISPUTES. All disputes arising out of or in connection with this Agreement that cannot be readily or amicably solved by the Parties shall be finally settled pursuant to the Rules of Arbitration of the International Chamber of Commerce by three arbitrators appointed in accordance with said rules. The place of arbitration shall be *** and the arbitration shall be conducted in the English language. d. FORCE MAJEURE. Neither Party to this Agreement shall be responsible to the other Party for delays or errors in its performance or other breach under this Agreement occurring solely by reason of circumstances beyond its control, including acts of civil or military authority, national emergencies, fire, labor disputes, flood or catastrophe, acts of God, insurrection, war, riots, severe weather, delays of suppliers if not under Seller's control, or failure of transportation, communication or power supply. *** Represents text omitted pursuant to a request for confidential treatment. The omitted material has been filed separately with the Securities and Exchange Commission. 13 e. MISCELLANEOUS. This Agreement: (i) may be executed in any number of counterparts, each of which, when executed by both Parties to this Agreement shall be deemed to be an original, and all of which counterparts together shall constitute one in the same instrument; (ii) shall be governed by and construed under the laws of the ***, without application to the principle of conflict of laws; (iii) except and to the extent expressly provided for in Article 12, this Agreement constitutes the entire agreement between the Parties with respect to its subject matter, superceding all prior oral and written (except as previously noted) written communications, proposals, negotiations, representations, understandings, courses of dealing, agreements, contracts, and the like between the Parties in such respect; (iv) may be amended, modified, and any right under this Agreement may be waived in whole or in part, only by a writing signed by both Parties; (v) contains headings only for convenience, which headings do not form part, and shall not be used in construction, of this Agreement; (vi) shall bind and inure to the benefit of the Parties and their respective legal representatives, successors and assigns, including, without limitation, to a Parties corporate parents or affiliates, provides that no Party may delegate any of its obligations under this Agreement or assign this Agreement except to a related entity or successor by sale or merger, without prior written consent of the other party. This Agreement is in the English language only which language shall be controlling in all aspects. f. In the event either Party is in default for a hundred and twenty (120) days in any obligation hereunder, and the other Party has given written notice specifying the claimed particulars of such default, which shall continue for a period of thirty (30) days after the date of such notice, the party giving notice may thereupon terminate this Agreement forthwith by giving the other Party ten (10) days written notice of termination. 15. UNITED STATES EXPORT REGULATIONS Seller is subject to the Export Regulations of the United States Department of Commerce and other regulatory agencies that regulate the export from the United States of certain technical data and information. Because of these regulations, the Parties to this Agreement recognize that Seller can furnish such technical data to Buyer only on the condition that Buyer not re-export the technical data and/or information to any country to which Seller may not, without a validated export license, export such data directly. 16. COMPLIANCE WITH LAWS GENERALLY Both Parties agree that they will diligently comply with all relevant laws, statutes, orders and administrative regulations of all relevant jurisdictions, at all relevant times. Each Party additionally agrees to indemnify and hold the other Party harmless from any governmental action at law that results from the willful or negligent failure of the indemnifying Party to comply with any relevant law, statute, order or administrative regulation. The Parties hereby certify that they are, to the best of their knowledge, compliant with all such laws, statutes, orders, and administrative regulations. *** Represents text omitted pursuant to a request for confidential treatment. The omitted material has been filed separately with the Securities and Exchange Commission. 14 17. ASSIGNMENT This Agreement shall not be assignable by either party hereto without the express prior written consent of the other party, except that it may be assigned without such consent to the successors to and assigns of substantially the entire assets and business of such party. No assignment hereof shall be valid without the assumption in writing by such successors or assigns of all obligations under this Agreement. When duly assigned in accordance with the foregoing, this Agreement shall be binding upon and inure to the benefit of the assignee. 18. MAXIMUM AGGREGATE LIABILITY OF SELLER Seller shall be exclusively compelled to pay Buyer an aggregate maximum amount of up to US$*** U.S. Dollars) as a consequence of its liability and/or penalties for failure to deliver the Products to the Buyer on due time according to Article 4 above, failure to start the installation beyond the agreed start installation date according to Article 7.a above and loss of profits and other consequential damages resulting from a failure or defect of the equipment/Products(s) according to Attachment D. In addition to the above the maximum liability of the Seller for the non satisfactory performance of the Manufacturing Line in accordance with the terms and conditions of Article 5 (c), will be limited to the reduction of the Purchase Price referred to in Article 4.G. IN WITNESS WHEREOF, the Parties hereto have set their respective hand and seals signifying their concurrence and endorsement with and of the foregoing, in a number of counterpart copies, each of which shall be deemed to be an original for all purposes and deemed effective and binding on the date at the head of this document. *** /S/ *** - --------------------------------- By: *** Title: *** Place: *** Date: March 16, 2006 Spire Corporation /s/ Rodger W. LaFavre - --------------------------------- By: Rodger W. LaFavre Title: Chief Operating Officer, Spire Corporation Place: Bedford, Massachusetts, U.S.A. Date: March 16, 2006 *** Represents text omitted pursuant to a request for confidential treatment. The omitted material has been filed separately with the Securities and Exchange Commission. 15 ATTACHMENT A DATA SHEETS (***) *** *** Represents text omitted pursuant to a request for confidential treatment. The omitted material has been filed separately with the Securities and Exchange Commission. 16 ATTACHMENT B ACCEPTANCE FORM OF INSTALLATION OF THE MANUFACTURING LINE SIGNED BY APPLICANT AND BENEFICIARY Agreement: Turn-Key Project Agreement dated January 18, 2006 Beneficiary: Spire Corporation Applicant: *** Description of Items Installed of the Manufacturing Line: Etch Station: US$*** Dopant Spray Coater: US$*** Belt Diffusion Furnace: US$*** Plasma Etcher: US$*** HF Etch Station: US$*** Surface Resistivity Tester: US$*** PECVD AR Coater: US$*** Vacuum Leak Detector: US$*** Screen Printer & Collater: US$*** Belt IR Drier and Furnace: US$*** Screen Printer & Collater: US$*** Belt IR Dryer: US$*** Screen Printer & Collater: US$*** Belt IR Drier & Furnace: US$*** Screen Cleaner: US$*** Screen Tension Gauge: US$*** Microscope, Stereo Zoom 10.5 to 45x: US$*** Wafer Lifetime Tester: US$*** Miscellaneous and 30kW of training Materials: US$*** Spare Parts: Price included above All transport mechanisms needed to move and handle the processed wafers between the major equipment during the manufacturing process of the Manufacturing Line, including cassettes, carriers, carts and the like: Price Included above. This document confirms in entirety the installation of the Manufacturing Line according to the terms and conditions of the aforementioned Agreement entered into by the Applicant and Beneficiary, which is signed below by both parties on [ ]. *** SPIRE CORPORATION Signature: Signature: ----------------------- ------------------------- Typed Name: Typed Name: ----------------------- ------------------------- Title: Title: ----------------------- ------------------------- *** Represents text omitted pursuant to a request for confidential treatment. The omitted material has been filed separately with the Securities and Exchange Commission. 17 ATTACHMENT C ACCEPTANCE FORM OF PERFORMANCE OF THE MANUFACTURING LINE SIGNED BY APPLICANT AND BENEFICIARY Agreement: Turn-Key Project Agreement dated January 18, 2006 Beneficiary: Spire Corporation Applicant: *** Description of Performance of the Manufacturing Line: Satisfactory Performance This document confirms in entirety the performance of the Manufacturing Line according to the terms and conditions of the aforementioned Agreement entered into by the Applicant and Beneficiary, which is signed below by both parties on [ ]. *** Signature: ------------------------------- Typed Name: ------------------------------- Title: ------------------------------- SPIRE CORPORATION Signature: ------------------------------- Typed Name: ------------------------------- Title: ------------------------------- *** Represents text omitted pursuant to a request for confidential treatment. The omitted material has been filed separately with the Securities and Exchange Commission. 18 ATTACHMENT D STANDARD WARRANTY FOR SPIRE EQUIPMENT/PRODUCTS Seller's Warranty: Seller warrants this equipment/Product(s) against defective components (excluding expendables) and workmanship and warrants that the equipment/Product(s) will operate in accordance with current specification sheets for that equipment/Product(s). Seller's warranty is limited to the repair and replacement of the equipment/Product(s), including all necessary parts and labor, for a period of two (2) years after the date of signing by Seller and Buyer of the Acceptance Form of Installation of the Manufacturing Line referred to in Attachment B of the Agreement. It is understood that Buyer's personnel will be responsible for the replacement of parts of the Product(s) that can reasonably and safely be replaced in under two hours. This warranty is void where it is determined that the equipment/Product(s) in question was subject to accident, negligence, misuse, using the equipment for purposes other than what it was designed for, or not maintaining the equipment/Product(s) in accordance with the specifications and instructions provided. The subject equipment/Product(s) is designed to operate on a nominal 24 hour per day period (exclusive of normal maintenance time), as such, the nominal 24 hour per day operation (exclusive of normal maintenance time) is not considered abuse. Repairs and modifications are warranted only when performed by Seller's personnel or Buyer's personnel authorized by Seller. This warranty is valid only to the original purchaser of the equipment.. Items not covered by this include lamps, test fixtures, vacuum cups filters and other expendable items. 19 ATTACHMENT E CONFIDENTIAL DISCLOSURE AGREEMENT AGREEMENT made this 18th day of January 2006 between SPIRE CORPORATION, One Patriots Park, Bedford, Massachusetts, 01730-2396 (hereinafter called "SPIRE"), and *** (hereinafter called "COMPANY"). WHEREAS, COMPANY and SPIRE have represented to each other that each owns, may own or is interested in receiving Proprietary Information (as defined below) pertaining to: The design, engineering, manufacture and marketing, and sale of a Photovoltaic Cell Manufacturing Line as further described in the Turn Key Project Agreement to which this Agreement is attached to: its use and operation, the establishment and operation of a photovoltaic device manufacturing business, business plans and strategies, etc. WHEREAS, COMPANY and SPIRE intend to exchange Proprietary Information for the following purpose(s): Establishment, development and maintenance of a vendor-customer relationship. NOW, THEREFORE, for the good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereby agree as follows: 1. DEFINITION For purposes of this Agreement, "Proprietary Information" means data, reports, specifications, designs, phototypes, test results, trade secrets, processes, patentable inventions, plans and other business, financial ort technical information in written, electronic magnetic or oral form (i) which is known only to the disclosing party, (or to others to whom the disclosing party has voluntarily disclosed it subject to restrictions similar to those set forth in this Agreement); (ii) as to which the disclosing party has taken reasonable precautions against disclosure; and (iii) which has been clearly labelled by the disclosing party as "confidential", "proprietary", "secret" or other term or similar import. Orally disclosed Proprietary Information shall retain its character as Proprietary Information so long as the proprietary, protected nature of the disclosed information is conveyed to the recipient: (a) orally at the same meeting or in the same conversation as the Proprietary Information is discussed and in writing within thirty (30) days of the original disclosure; or (b) in writing only, within ten (10) days of the original disclosure, in which case the recipient shall not be held liable for any disclosure of the Proprietary Information prior to it being so labelled. 2. OBLIGATION TO PROTECT PROPRIETARY INFORMATION a. Each party agrees that if it is a recipient under this Agreement, it will not publish or otherwise disclose Proprietary Information received from the disclosing party to any third party or to any person employed by the recipient other than those who have a "need to know" in order to evaluate Proprietary Information and make the decisions contemplated by this Agreement. Any employee, consultant or other agent to whom a recipient party discloses Proprietary Information received for a disclosing party as provided in this Agreement, shall be subject to confidentiality obligations to such recipient party covering the Proprietary Information to at least the same extent as the recipient party is obligated by this Agreement. Each recipient party agrees to exercise reasonable care to protect the disclosing party's Proprietary Information and shall utilize the same procedures and systems to protect such Proprietary Information as it utilizes to protect its own Proprietary Information and other proprietary data. *** Represents text omitted pursuant to a request for confidential treatment. The omitted material has been filed separately with the Securities and Exchange Commission. 20 b. Each party agrees to use Proprietary Information received from the other party only for the purposes described in this Agreement. c. Immediately upon the request of the disclosing party, the recipient shall return to the disclosing party any of the disclosing party's Proprietary Information so requested without retaining any copies thereof. Upon termination of the relationship or discussions contemplated by this Agreement, all Proprietary Information shall be returned by the recipient to the disclosing party without retaining any copies thereof. d. Unless otherwise stated in writing signed by the parties, a recipient's obligation to protect Proprietary Information shall continue for five (5) years from disclosure. e. Company further agrees that it will at no time during the five (5) years from the date written above use its access to Spire employees as an opportunity to solicit their employment elsewhere on Company's or any other party's behalf and for any purpose. 3. LIMITATIONS ON THE PARTIES' OBLIGATIONS No obligation to protect Proprietary Information shall exist under this Agreement with respect to any information which: (a) at the time of disclosure is in the public domain, (b) enters the public domain through no act or failure to act by the recipient, (c) comes into the possession of the recipient from a third party without obligation on the recipient to maintain it in confidence, or (d) at the time of disclosure to the recipient was already known to the recipient as evidenced by appropriate documentation. 4. EFFECT OF AGREEMENT All Proprietary Information remains the property of the disclosing party at all times. This Agreement does not constitute the promise or intention of either party to buy, or sell or market any products or services or to enter into any other type of arrangement or agreement. This Agreement does not constitute or imply the grant of any license or permission to use any intellectual property or Proprietary Information except to the limited extent and for the limited purposes set forth herein. 5. MISCELLANEOUS Any failure by either party to enforce its rights under this Agreement in any one instance shall not constitute a waiver of those rights in any other instance. The Parties acknowledge that a breach of this Agreement by a recipient may result in irreparable harm to the disclosing party not easily measured in monetary damages alone. Therefore, in addition to all other remedies available at law, the parties consent to the imposition of equitable remedies including injunctive relief without the necessity of proof of actual damages. This agreement shall be governed and construed under the laws of the ***. 6. TERM The term of this agreement shall be three (3) year(s) from the date written above, except as to the obligations set forth in paragraph 2. *** Represents text omitted pursuant to a request for confidential treatment. The omitted material has been filed separately with the Securities and Exchange Commission. 21 EX-10.R 3 exh10-r_14364.txt WAFERS SUPPLY AGREEMENT EXHIBIT 10(r) ------------- Confidential Treatment Requested as to certain information contained in this Exhibit 10(r) and filed separately with the Securities and Exchange Commission WAFERS SUPPLY AGREEMENT March 16, 2006 1. THE PARTIES Spire Corporation (the "Seller"), a business incorporated in the Commonwealth of Massachusetts, with its principal place of business at One Patriots Park, Bedford, Massachusetts, 01730-2396, U.S.A.; *** (the "Buyer"), a business organized under the laws of ***, with a principal place of business at ***. 2. OBJECT OF AGREEMENT Seller agrees to supply at Buyer's site a maximum of approximately 4,500,000 wafers, a volume which should approximate a cell electrical capacity of ***MW, such wafers shall be either mono-crystalline or multi-crystalline wafers, and based upon wafers sizes of 100mm, and/or 125mm and/or 156mm with a silicon minority carrier life time specified by Seller, hereinafter "wafers". It is understood that the intent of this supply is to allow Buyer to produce approximately ***MW of cells with an electrical efficiency of 15% through the Photovoltaic Cell Manufacturing Line (the "Manufacturing Line") to be supplied and installed by Seller at Buyer's site pursuant to the Turn-Key Project Agreement signed today between the Seller and the Buyer. 3. SUPPLY TERMS Seller commits to supply Buyer said maximum of approximately 4,500,000 wafers, a volume which should approximate a cell electrical capacity of ***MW to be used by Buyer for the production of the cells through the Manufacturing Line during the first three quarters of 2007 ("Maximum Term of Supply of Wafers"). Unless otherwise agreed between the Parties, Seller shall supply said wafers within the Maximum Term of Supply of Wafers on the basis of a minimum supply of ***MW and a maximum supply of ***MW per each of the said three quarters of 2007. Buyer shall confirm to Seller the amount of wafers to be supplied through specific written orders. Said supply orders shall include (i) quantity of wafers ordered (ii) date of delivery (iii) purchase price (iv) payment conditions and (v) technical specifications of the wafers ordered. *** Represents text omitted pursuant to a request for confidential treatment. The omitted material has been filed separately with the Securities and Exchange Commission. 1 Before Seller purchases from any third party (supplier, sub-vendor, etc.) the wafers to be supplied to Buyer pursuant to this Agreement, Seller should notify Buyer the terms and conditions of such purchase. Buyer shall provide approval for the purchase of said wafers within a maximum of 1 month as of the date Seller requested its approval for the purchase. Such approval will not be unreasonable withheld. This Seller's supply obligation may be cancelled by Buyer, provided that Buyer gives Seller, at least, one (1) month's written notice of cancellation from the date Buyer ordered the wafers from Seller. During the whole Maximum Term of Supply of Wafers, Buyer shall be freely entitled to purchase the wafers from other suppliers. In such case, Seller's obligation to supply wafers shall be reduced proportionally in the same amount of wafers to be purchased by Buyer from other suppliers. The quality of the wafers supplied by Seller to Buyer pursuant to this Agreement must be sufficient to guarantee that the Manufacturing Line produces cells with a 15% electrical efficiency, as further defined in the Turn-Key Project Agreement signed today. 4. PRICE AND TERMS OF PAYMENT The purchase price of the wafers shall be agreed between Seller and Buyer for each supply on the basis of the wafers worldwide market conditions, failing which purchase price of the wafers shall be fixed by the parties on the basis of the average purchase price of major recognized international wafers vendors, including but not limited to following vendors: ***. Upon receipt of the quotation of such vendors either Party will inform the other party of the appropriate purchase price. 5. WARRANTY Seller sells the wafers with a Warranty as shown in Attachment A hereto. It is this Warranty and no other that shall apply to any claims of defects in the wafers, save for any mandatory product liability rules applicable in the jurisdiction of the Buyer. 6. INDEMNITY Seller shall indemnify, defend, protect and hold harmless Buyer from any action, suit, complaint, allegation and controversy of whatever kind directed against Buyer which originates on a violation or infringement of any and all invention rights, patents, designs, copy-rights, trademarks, service marks, data basis, topographic rights, trade secrets, know how and other similar rights which may apply to the wafers supplied by Buyer, whether or not such rights have been registered. Buyer shall indemnify, defend, protect and hold harmless Seller from any action, suit, complaint, allegation and controversy of whatever kind which originates in Buyer's for the sale or use of any products that was manufactured using the wafers, provided that Buyer failed to follow the instructions for use provided by Seller in their entirety, and provided also that no portion of the cause has its origin in any act of gross negligence on the part of Seller. *** Represents text omitted pursuant to a request for confidential treatment. The omitted material has been filed separately with the Securities and Exchange Commission. 2 7. CONFIDENTIALITY Certain matters regarding this relationship embodied by this Agreement may be considered confidential or sensitive to one or the other Party to this Agreement. The Parties agree that all such matters, once identified, will be treated in accordance with the Confidential Disclosure Agreement attached hereto as Attachment B. This Agreement does not confer any right of ownership to any technical data disclosed to Buyer for Process Technology development purposes, and Buyer shall not release any technical data to any third party without the written approval of Seller. 8. GENERAL PROVISIONS a. No Waiver - Waiver of any provision of this Agreement, in whole or in part, in any one instance shall not constitute a waiver of any other provision in the same instance, or any waiver of the same provision in any other instance, but each provision shall continue in full force and effect with respect to any other then-existing or subsequent breach. b. Notice - Any notice required or permitted under this Agreement shall be given in writing to the Parties at their respective addresses as specified above, or at such other address for a Party as that Party may specify by notice (i) by delivery in hand or, (ii) registered or certified mail, return receipt requested, or courier or some other form of expedited delivery service that provides for delivery to the sender of a signed receipt. Notice so sent shall be effective upon receipt unless otherwise specified herein or in the notice. c. Arbitration of Disputes - All disputes arising out of or in connection with this Agreement that cannot be readily or amicably solved by the Parties shall be finally settled pursuant to the Rules of Arbitration of the International Chamber of Commerce by three arbitrators appointed in accordance with said rules. The place of arbitration shall be *** and the arbitration shall be conducted in the English language. d. Force Majeure - Neither Party to this Agreement shall be responsible to the other Party for delays or errors in its performance or other breach under this Agreement occurring solely by reason of circumstances beyond its control, including acts of civil or military authority, national emergencies, fire, labor disputes, flood or catastrophe, acts of God, insurrection, war, riots, severe weather, or failure of transportation, communication or power supply. *** Represents text omitted pursuant to a request for confidential treatment. The omitted material has been filed separately with the Securities and Exchange Commission. 3 e. Miscellaneous - This Agreement: (i) may be executed in any number of counterparts, each of which, when executed by both Parties to this Agreement shall be deemed to be an original, and all of which counterparts together shall constitute one in the same instrument; (ii) shall be governed by and construed under the laws of the ***, without application to the principle of conflict of laws; (iii) except and to the extent expressly provided for in Article 11, this Agreement constitutes the entire agreement between the Parties with respect to its subject matter, superceding all prior oral and written (except as previously noted) written communications, proposals, negotiations, representations, understandings, courses of dealing, agreements, contracts, and the like between the Parties in such respect; (iv) may be amended, modified, and any right under this Agreement may be waived in whole or in part, only by a writing signed by both Parties; (v) contains headings only for convenience, which headings do not form part, and shall not be used in construction, of this Agreement; (vi) shall bind and inure to the benefit of the Parties and their respective legal representatives, successors and assigns, including, without limitation, to a Parties corporate parents or affiliates, provides that no Party may delegate any of its obligations under this Agreement or assign this Agreement except to a related entity or successor by sale or merger, without prior written consent of the other party. This Agreement is in the English language only which language shall be controlling in all aspects. f. In the event either Party is in default for hundred and twenty (120) days in any obligation hereunder, and the other Party has given written notice specifying the claimed particulars of such default, which shall continue for a period of thirty (30) days after the date of such notice, the party giving notice may thereupon terminate this Agreement forthwith by giving the other Party ten (10) days written notice of termination. 9. UNITED STATES EXPORT REGULATIONS Seller is subject to the Export Regulations of the United States Department of Commerce and other regulatory agencies that regulate the export from the United States of certain technical data and information. Because of these regulations, the Parties to this Agreement recognize that Seller can furnish such technical data to Buyer only on the condition that Buyer not re-export the technical data and/or information to any country to which Seller may not, without a validated export license, export such data directly. 10. COMPLIANCE WITH LAWS GENERALLY Both Parties agree that they will diligently comply with all relevant laws, statutes, orders and administrative regulations of all relevant jurisdictions, at all relevant times. Each Party additionally agrees to indemnify and hold the other Party harmless from any governmental action at law that results from the willful or negligent failure of the indemnifying Party to comply with any relevant law, statute, order or administrative regulation. The Parties hereby certify that they are, to the best of their knowledge, compliant with all such laws, statutes, orders, and administrative regulations. *** Represents text omitted pursuant to a request for confidential treatment. The omitted material has been filed separately with the Securities and Exchange Commission. 4 11. ASSIGNMENT This Agreement shall not be assignable by either Party hereto without the express prior written consent of the other Party, except that it may be assigned without such consent to the successors to and assigns of substantially the entire assets and business of such Party. No assignment hereof shall be valid without the assumption in writing by such successors or assigns of all obligations under this Agreement. When duly assigned in accordance with the foregoing, this Agreement shall be binding upon and inure to the benefit of the assignee. IN WITNESS WHEREOF, the Parties hereto have set their respective hand and seals signifying their concurrence and endorsement with and of the foregoing, in a number of counterpart copies, each of which shall be deemed to be an original for all purposes and deemed effective and binding on the date at the head of this document. *** /S/ *** - ------------------------------- By: *** Title: *** Place: *** Date: March 16, 2006 Spire Corporation /s/ Rodger W. LaFavre - ------------------------------- By: Rodger W. LaFavre Title: Chief Operating Officer, Spire Corporation Place: Bedford, Massachusetts, U.S.A. Date: March 16, 2006 *** Represents text omitted pursuant to a request for confidential treatment. The omitted material has been filed separately with the Securities and Exchange Commission. 5 ATTACHMENT A STANDARD WARRANTY FOR WAFERS SUPPLIED BY SPIRE Seller's Warranty: Seller warrants the wafers against defects and workmanship and warrants that the wafers will meet the quality and technical specifications agreed by the Parties in this Wafers Supply Agreement. Seller's warranty is limited to the replacement of those wafers which do not meet said quality and technical criteria, including labor, for a period of one (1) year after the date of supply of the wafers to Buyer, or until such wafers are utilized by Buyer in the Manufacturing Line, whichever comes first. This warranty is void where it is determined that the wafers in question were subject to accident, negligence, misuse, using the Manufacturing Line for purposes other than what it was supplied for, or not maintaining the wafers in accordance with the specifications and instructions provided by Seller. 6 ATTACHMENT B CONFIDENTIAL DISCLOSURE AGREEMENT AGREEMENT made this 18th day of January 2006 between SPIRE CORPORATION, One Patriots Park, Bedford, Massachusetts, 01730-2396 (hereinafter called "SPIRE"), and *** (hereinafter called "COMPANY"). WHEREAS, COMPANY and SPIRE have represented to each other that each owns, may own or is interested in receiving Proprietary Information (as defined below) pertaining to: The design, engineering, manufacture and marketing of wafers to be used by Buyer for the production of cell through the Photovoltaic Cell Manufacturing Line as further described in the Turn-Key Project Agreement executed today between the parties to which this Agreement is attached to. WHEREAS, COMPANY and SPIRE intend to exchange Proprietary Information for the following purpose(s): Establishment, development and maintenance of a vendor-customer relationship. NOW, THEREFORE, for the good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereby agree as follows: 1. DEFINITION For purposes of this Agreement, "Proprietary Information" means data, reports, specifications, designs, phototypes, test results, trade secrets, processes, patentable inventions, plans and other business, financial ort technical information in written, electronic magnetic or oral form (i) which is known only to the disclosing party, (or to others to whom the disclosing party has voluntarily disclosed it subject to restrictions similar to those set forth in this Agreement); (ii) as to which the disclosing party has taken reasonable precautions against disclosure; and (iii) which has been clearly labelled by the disclosing party as "confidential", "proprietary", "secret" or other term or similar import. Orally disclosed Proprietary Information shall retain its character as Proprietary Information so long as the proprietary, protected nature of the disclosed information is conveyed to the recipient: (a) orally at the same meeting or in the same conversation as the Proprietary Information is discussed and in writing within thirty (30) days of the original disclosure; or (b) in writing only, within ten (10) days of the original disclosure, in which case the recipient shall not be held liable for any disclosure of the Proprietary Information prior to it being so labelled. *** Represents text omitted pursuant to a request for confidential treatment. The omitted material has been filed separately with the Securities and Exchange Commission. 7 2. Obligation to Protect Proprietary Information a. Each party agrees that if it is a recipient under this Agreement, it will not publish or otherwise disclose Proprietary Information received from the disclosing party to any third party or to any person employed by the recipient other than those who have a "need to know" in order to evaluate Proprietary Information and make the decisions contemplated by this Agreement. Any employee, consultant or other agent to whom a recipient party discloses Proprietary Information received for a disclosing party as provided in this Agreement, shall be subject to confidentiality obligations to such recipient party covering the Proprietary Information to at least the same extent as the recipient party is obligated by this Agreement. Each recipient party agrees to exercise reasonable care to protect the disclosing party's Proprietary Information and shall utilize the same procedures and systems to protect such Proprietary Information as it utilizes to protect its own Proprietary Information and other proprietary data. b. Each party agrees to use Proprietary Information received from the other party only for the purposes described in this Agreement. c. Immediately upon the request of the disclosing party, the recipient shall return to the disclosing party any of the disclosing party's Proprietary Information so requested without retaining any copies thereof. Upon termination of the relationship or discussions contemplated by this Agreement, all Proprietary Information shall be returned by the recipient to the disclosing party without retaining any copies thereof. d. Unless otherwise stated in writing signed by the parties, a recipient's obligation to protect Proprietary Information shall continue for five (5) years from disclosure. e. Company further agrees that it will at no time during the five (5) years from the date written above use its access to Spire employees as an opportunity to solicit their employment elsewhere on Company's or any other party's behalf and for any purpose. 3. Limitations on the Parties' Obligations No obligation to protect Proprietary Information shall exist under this Agreement with respect to any information which: (a) at the time of disclosure is in the public domain, (b) enters the public domain through no act or failure to act by the recipient, (c) comes into the possession of the recipient from a third party without obligation on the recipient to maintain it in confidence, or (d) at the time of disclosure to the recipient was already known to the recipient as evidenced by appropriate documentation. 4. Effect of Agreement All Proprietary Information remains the property of the disclosing party at all times. This Agreement does not constitute the promise or intention of either party to buy, or sell or market any products or services or to enter into any other type of arrangement or agreement. This Agreement does not constitute or imply the grant of any license or permission to use any intellectual property or Proprietary Information except to the limited extent and for the limited purposes set forth herein. 8 5. Miscellaneous Any failure by either party to enforce its rights under this Agreement in any one instance shall not constitute a waiver of those rights in any other instance. The Parties acknowledge that a breach of this Agreement by a recipient may result in irreparable harm to the disclosing party not easily measured in monetary damages alone. Therefore, in addition to all other remedies available at law, the parties consent to the imposition of equitable remedies including injunctive relief without the necessity of proof of actual damages. This agreement shall be governed and construed under the laws of the ***. 6. Term The term of this agreement shall be three (3) year(s) from the date written above, except as to the obligations set forth in paragraph 2. *** Represents text omitted pursuant to a request for confidential treatment. The omitted material has been filed separately with the Securities and Exchange Commission. 9 EX-31.1 4 exh31-1_14364.txt 302 CERTIFICATION OF THE PRESIDENT EXHIBIT 31.1 ------------ CERTIFICATION PURSUANT TO SS.302 OF THE SARBANES-OXLEY ACT OF 2002 I, Roger G. Little, Chairman of the Board, Chief Executive Officer and President of Spire Corporation (the "Company"), certify that: 1. I have reviewed this quarterly report on Form 10-QSB of the Company. 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report. 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report. 4. The Company's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Evaluated the effectiveness of the Company's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the Company's internal control over financial reporting that occurred during the Company's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting. 5. The Company's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company's auditors and the audit committee of the Company's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company's internal control over financial reporting. Dated: May 15, 2006 By: /s/ Roger G. Little ----------------------------- Roger G. Little Chairman of the Board, Chief Executive Officer and President EX-31.2 5 exh31-2_14364.txt 302 CERTIFICATION OF THE C.F.O. EXHIBIT 31.2 ------------ CERTIFICATION PURSUANT TO SS.302 OF THE SARBANES-OXLEY ACT OF 2002 I, James F. Parslow, Chief Financial Officer and Treasurer of Spire Corporation (the "Company"), certify that: 1. I have reviewed this quarterly report on Form 10-QSB of the Company. 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report. 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report. 4. The Company's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Evaluated the effectiveness of the Company's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the Company's internal control over financial reporting that occurred during the Company's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting. 5. The Company's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company's auditors and the audit committee of the Company's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company's internal control over financial reporting. Dated: May 15, 2006 By: /s/ James F. Parslow ------------------------------ James F. Parslow Chief Financial Officer and Treasurer EX-32.1 6 exh32-1_14364.txt 906 CERTIFICATION OF THE PRESIDENT EXHIBIT 32.1 ------------ CERTIFICATION PURSUANT TO 18 U.S.C. SS.1350, AS ADOPTED PURSUANT TO SS.906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the quarterly report of Spire Corporation (the "Company") on Form 10-QSB (the "Report") for the period ended March 31, 2006 as filed with the Securities and Exchange Commission on the date hereof, I, Roger G. Little, Chairman of the Board, Chief Executive Officer and President of the Company, certify, pursuant to 18 U.S.C. ss.1350, as adopted pursuant to ss.906 of the Sarbanes-Oxley Act of 2002, that: 1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the report fairly presents, in all material respects, the financial condition and results of operations of the Company. Dated: May 15, 2006 By: /s/ Roger G. Little -------------------------- Roger G. Little Chairman of the Board, Chief Executive Officer and President A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signatures that appear in typed form within the electronic version of this written statement required by Section 906, has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request. EX-32.2 7 exh32-2_14364.txt 906 CERTIFICATION OF THE C.F.O. EXHIBIT 32.2 ------------ CERTIFICATION PURSUANT TO 18 U.S.C. SS.1350, AS ADOPTED PURSUANT TO SS.906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the quarterly report of Spire Corporation (the "Company") on Form 10-QSB (the "Report") for the period ended March 31, 2006 as filed with the Securities and Exchange Commission on the date hereof, I, James F. Parslow, Chief Financial Officer and Treasurer of the Company, certify, pursuant to 18 U.S.C. ss.1350, as adopted pursuant to ss.906 of the Sarbanes-Oxley Act of 2002, that: 1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Dated: May 15, 2006 By: /s/ James F. Parslow ----------------------------- James F. Parslow Chief Financial Officer and Treasurer A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signatures that appear in typed form within the electronic version of this written statement required by Section 906, has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request. -----END PRIVACY-ENHANCED MESSAGE-----