-----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, VWzMsO9W2mVfL10LxsO5aL3gSPg3zzeDpmZeY3iqauRyK6bst0EI1jDu3Q8YomIu oUcwAmwtTxC/kBg36U/nOA== 0001072613-08-002134.txt : 20081124 0001072613-08-002134.hdr.sgml : 20081124 20081124172527 ACCESSION NUMBER: 0001072613-08-002134 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20080331 FILED AS OF DATE: 20081124 DATE AS OF CHANGE: 20081124 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SPIRE CORP CENTRAL INDEX KEY: 0000731657 STANDARD INDUSTRIAL CLASSIFICATION: SEMICONDUCTORS & RELATED DEVICES [3674] IRS NUMBER: 042457335 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-12742 FILM NUMBER: 081211374 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 10-Q/A 1 form10qa-033108_16178.txt AMENDMENT NO.1 TO FORM 10-Q ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q/A (AMENDMENT NO. 1) |X| Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended March 31, 2008; or |_| Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from ________ to ________ Commission file number: 0-12742 SPIRE CORPORATION ----------------- (Exact name of registrant as specified in its charter) MASSACHUSETTS 04-2457335 ------------- ---------- (State or other jurisdiction of (I.R.S. Employer Identification Number) incorporation or organization) ONE PATRIOTS PARK, BEDFORD, MASSACHUSETTS 01730-2396 - ----------------------------------------- ---------- (Address of principal executive offices) (Zip Code) 781-275-6000 ------------ (Registrant's telephone number including area code) Indicate by "X" whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. Yes |X| No |_| Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer |_| Accelerated filer |_| Non-accelerated filer (Do not check if a smaller reporting company) |_| Smaller reporting company |X| Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes |_| No |X| The number of shares of the registrant's common stock outstanding as of May 2, 2008 was 8,330,688. ================================================================================ TABLE OF CONTENTS
Page ---- Explanatory Note ......................................................................................... 1 PART I. FINANCIAL INFORMATION Item 1. Unaudited Condensed Consolidated Financial Statements: Unaudited Condensed Consolidated Balance Sheets as of March 31, 2008 (as restated) and December 31, 2007 (as restated) ......................................................... 3 Unaudited Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2008 (as restated) and 2007 ............................ 4 Unaudited Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2008 (as restated) and 2007 ............................ 5 Notes to Unaudited Condensed Consolidated Financial Statements (as restated) ................ 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations ....... 18 Item 3. Quantitative and Qualitative Disclosures About Market Risk .................................. 27 Item 4T. Controls and Procedures ..................................................................... 27 PART II. OTHER INFORMATION Item 1. Legal Proceedings ........................................................................... 29 Item 1A. Risk Factors ................................................................................ 29 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds ................................. 29 Item 3. Defaults Upon Senior Securities ............................................................. 29 Item 4. Submission of Matters to a Vote of Security Holders ......................................... 29 Item 5. Other Information ........................................................................... 29 Item 6. Exhibits .................................................................................... 29 Signatures .................................................................................. 31
EXPLANATORY NOTE In November 2008, our management notified the Audit Committee of the Board of Directors over a concern relating to the timing of revenue recognition with respect to a single contract with one customer that we recognized in prior periods. Management determined that this customer was provided a concession, which was previously undisclosed and undocumented, with respect to upgrade rights to a specific tool sold in conjunction with a module line delivered to this customer. As the upgrade was not available for sale at the time when certain elements of the contract were recognized, management determined that revenue for the entire contract should have been deferred until the upgrade was provided to the customer. Management informed both the Audit Committee and our independent registered public accounting firm when the concession was discovered. Management in concert with the Audit Committee initiated an internal review of other solar equipment contracts to determine if other concessions or side arrangements were timely conveyed, such that revenue was appropriately recognized. The review revealed that, except for the one contract in question, all customer concessions and modifications were conveyed on a timely basis and revenue was appropriately recorded in all other cases during the period under review. On November 18, 2008, as a result of these investigations, the Audit Committee concluded, in consultation with and upon the recommendation of management, that the previously issued financial statements for the fourth quarter and fiscal 2007 included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2007 and the previously issued financial statements included in our Quarterly Reports on Form 10-Q for the fiscal quarters ended March 31, 2008 (the "Original Report") and June 30, 2008 and the related earnings releases and similar communications relating to all such fiscal periods, should no longer be relied upon. Specifically, adjustments needed to be made in the fourth quarter of 2007 and the first quarter of 2008. In this Quarterly Report on Form 10-Q/A (the "Amended Report") we are restating our condensed consolidated balance sheet as of December 31, 2007 and March 31, 2008 and our condensed consolidated statements of operations, cash flows and related disclosures for the three-month period ended March 31, 2008 included in the Original Report to correct this error. We are also restating the consolidated financial statements for fiscal 2007 and condensed consolidated financial statements for second quarter of 2008 to correct this error. We anticipate filing on the same date as this Amended Report, an Annual Report on Form 10-K/A for fiscal 2007 and a Quarterly Report on Form 10-Q/A for the second quarter of 2008. We also anticipate filing our Quarterly Report on Form 10-Q for the three and nine months ended September 30, 2008, which will also include the effects of the restatements. We do not anticipate filing amended periodic reports for any periods prior to the fourth quarter of 2007. For a detailed discussion of the effect of the restatements, see Part I, Item 1, Note 2, "Restatement of Previously Issued Financial Statements" to the unaudited condensed consolidated financial statements. We have identified and reported "material weaknesses" to the Audit Committee of our Board of Directors and Vitale, Caturano & Company, Ltd., our independent registered public accounting firm. Please see "Item 4T. Controls and Procedures" in Part I for a description of these matters, and of the measures that we have implemented to date, as well as additional steps we plan to take to strengthen our controls. We are recording adjustments affecting our previously-reported financial statements for the fourth quarter of 2007 and for the first quarter of 2008, the cumulative effects of which are summarized in the table below. CUMULATIVE EFFECT OF ADJUSTMENTS ON ACCUMULATED DEFICIT The following table presents the cumulative effect of adjustments resulting from the reviews described above for the periods shown. Year Ended Quarter Ended December 31, 2007 March 31, 2008 ----------------- -------------- As Restated (1) ------------------------------- Net loss as originally reported $(1,686,000) $ (508,000) Adjustments related to: Revenue recognition (1,355,000) (380,000) Cost of goods sold 1,108,000 365,000 ----------- ----------- Net adjustments (247,000) (15,000) ----------- ----------- Net loss as restated $(1,933,000) $ (523,000) =========== =========== Cumulative effect to accumulated deficit $ 247,000 $ 262,000 =========== =========== (1) See Note 2, to the Unaudited Condensed Consolidated Financial Statements included in Part I, Item 1 1 For the reasons discussed above, we are filing this Amended Report in order to amend Part I, Item 1 "Unaudited Condensed Consolidated Financial Statements," Part I, Item 2 "Management's Discussion and Analysis of Financial Condition and Results of Operations" and Part I, Item 4T "Controls and Procedures" of the Original Report to the extent necessary to reflect the adjustments discussed above and to reflect the results of our evaluations of disclosure controls and procedures and internal control over financial reporting, taking into consideration these restatements. The remaining Items of our Original Report are not amended hereby and are repeated herein only for the reader's convenience. In order to preserve the nature and character of the disclosures set forth in the Original Report, except as expressly noted above, this report speaks as of the date of the filing of the Original Report, May 14, 2008, and we have not updated the disclosures in this report to speak as of a later date. All information contained in this Amended Report is subject to updating and supplementing as provided in our reports filed with the SEC subsequent to the date of the Original Report. 2 PART I FINANCIAL INFORMATION ITEM 1. UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SPIRE CORPORATION AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 31, DECEMBER 31, 2008 2007 ------------ ------------ AS RESTATED (1) ------------------------------ ASSETS Current assets Cash and cash equivalents $ 2,196,000 $ 2,372,000 Restricted cash - current portion 380,000 391,000 ------------ ------------ 2,576,000 2,763,000 Accounts receivable - trade, net 8,738,000 11,865,000 Inventories, net 14,400,000 11,570,000 Deferred cost of goods sold 8,264,000 8,044,000 Deposits on equipment for inventory 2,003,000 2,475,000 Prepaid expenses and other current assets 631,000 542,000 ------------ ------------ Total current assets 36,612,000 37,259,000 Property and equipment, net 6,277,000 6,209,000 Intangible and other assets, net 866,000 851,000 Available-for-sale investments, at quoted market value (cost of $1,693,000 and $1,696,000 at 3/31/08 and 12/31/07, respectively) 1,693,000 1,800,000 Equity investment in joint venture 2,134,000 2,264,000 Deposit - related party 304,000 304,000 ------------ ------------ Total other assets 4,997,000 5,219,000 ------------ ------------ Total assets $ 47,886,000 $ 48,687,000 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Current portion of capital lease obligation - related party $ 190,000 $ 486,000 Current portion of equipment line of credit 1,167,000 1,167,000 Accounts payable 3,923,000 2,909,000 Accrued liabilities 6,339,000 6,057,000 Current portion of advances on contracts in progress 23,200,000 24,053,000 ------------ ------------ Total current liabilities 34,819,000 34,672,000 Long-term portion of equipment line of credit 1,458,000 1,750,000 Long-term portion of advances on contracts in progress 1,765,000 1,950,000 Deferred compensation 1,693,000 1,800,000 Other long-term liabilities 72,000 60,000 ------------ ------------ Total long-term liabilities 4,988,000 5,560,000 ------------ ------------ Total liabilities 39,807,000 40,232,000 ------------ ------------ Stockholders' equity Common stock, $0.01 par value; 20,000,000 shares authorized; 8,328,688 and 8,321,188 shares issued and outstanding at March 31, 2008 and December 31, 2007, respectively 83,000 83,000 Additional paid-in capital 20,208,000 19,999,000 Accumulated deficit (12,212,000) (11,689,000) Accumulated other comprehensive income, net -- 62,000 ------------ ------------ Total stockholders' equity 8,079,000 8,455,000 ------------ ------------ Total liabilities and stockholders' equity $ 47,886,000 $ 48,687,000 ============ ============
See accompanying notes to unaudited condensed consolidated financial statements. (1) See Note 2. 3 SPIRE CORPORATION AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, ------------------------------ 2008 AS RESTATED(1) 2007 ------------- ------------ Net sales and revenues Sales of goods $ 10,995,000 $ 4,339,000 Contract research, service and license revenues 3,543,000 2,658,000 ------------ ------------ Total net sales and revenues 14,538,000 6,997,000 Costs of sales and revenues Cost of goods sold 8,494,000 3,526,000 Cost of contract research, services and licenses 2,374,000 2,173,000 ------------ ------------ Total cost of sales and revenues 10,868,000 5,699,000 ------------ ------------ Gross Margin 3,670,000 1,298,000 Operating expenses Selling, general and administrative expenses 3,778,000 3,008,000 Internal research and development expenses 111,000 45,000 ------------ ------------ Total operating expenses 3,889,000 3,053,000 ------------ ------------ Loss from operations (219,000) (1,755,000) Interest income (expense), net (60,000) 18,000 Loss on equity investment in joint venture (130,000) -- Foreign exchange loss (114,000) (9,000) ------------ ------------ Total other income (expense), net (304,000) 9,000 ============ ============ Net loss $ (523,000) $ (1,746,000) ============ ============ Loss per share - basic and diluted $ (0.06) $ (0.21) ============ ============ Weighted average number of common and common equivalent shares outstanding - basic and diluted 8,322,919 8,246,691 ============ ============
See accompanying notes to unaudited condensed consolidated financial statements. (1) See Note 2. 4 SPIRE CORPORATION AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, ------------------------------ 2008 AS RESTATED(1) 2007 ------------- ------------ Cash flows from operating activities: - ------------------------------------- Net loss $ (523,000) $ (1,746,000) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization 454,000 455,000 Loss on impairment of capital equipment -- 78,000 Loss on equity investment in joint venture 130,000 -- Deferred compensation (62,000) (1,000) Stock-based compensation 196,000 71,000 Decrease in accounts receivable reserves (21,000) (36,000) Decrease in inventory reserves (41,000) (157,000) Changes in assets and liabilities: Restricted cash 11,000 (1,000) Accounts receivable 3,148,000 987,000 Inventories (2,789,000) (3,161,000) Deferred cost of goods sold (220,000) -- Deposits, prepaid expenses and other current assets 383,000 1,249,000 Accounts payable, accrued liabilities and other liabilities 1,308,000 (1,275,000) Advances on contracts in progress (1,038,000) 1,012,000 ------------ ------------ Net cash provided by (used in) operating activities 936,000 (2,525,000) ------------ ------------ Cash flows from investing activities: Proceeds from maturity of short-term investments -- 5,000,000 Purchase of property and equipment (493,000) (279,000) Increase in intangible and other assets (44,000) (28,000) ------------ ------------ Net cash provided by (used in) investing activities (537,000) 4,693,000 ------------ ------------ Cash flows from financing activities: Principal payments on capital lease obligations - related parties (296,000) (210,000) Principal payments on equipment line of credit, net (292,000) -- Proceeds from exercise of stock options 13,000 104,000 ------------ ------------ Net cash used in financing activities (575,000) (106,000) ------------ ------------ Net increase (decrease) in cash and cash equivalents (176,000) 2,062,000 Cash and cash equivalents, beginning of period 2,372,000 1,536,000 ------------ ------------ Cash and cash equivalents, end of period $ 2,196,000 $ 3,598,000 ============ ============ Supplemental disclosures of cash flow information: Interest received $ 9,000 $ 44,000 ============ ============ Interest paid $ 62,000 $ 1,000 ============ ============ Interest paid - related party $ 7,000 $ 25,000 ============ ============
See accompanying notes to unaudited condensed consolidated financial statements. (1) See Note 2. 5 SPIRE CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2008 AND 2007 1. DESCRIPTION OF THE BUSINESS Spire Corporation ("Spire" or the "Company") is a Massachusetts corporation incorporated in 1969. The Company's principal offices are located at One Patriots Park, Bedford, Massachusetts, and its phone number is (781) 275-6000. The Company's SEC filings are available through its website, www.spirecorp.com. The Company's common stock trades on the Nasdaq Global Market under the symbol "SPIR". The Company principally develops, manufactures and markets customized turnkey solutions for the solar industry, including manufacturing equipment and full turnkey lines for cell and module production and testing. The Company also offers through its subsidiary Spire Semiconductor concentrator cell and light-emitting diode ("LED") fabrication services and through its joint venture, Gloria Spire Solar, photovoltaic ("PV") system integration services. The Company also operates a line of business associated with advanced biomedical applications. The foundation for the Company's business is its industry-leading expertise in materials technologies and surface treatments; this proprietary knowledge enables the Company to further develop its offerings in solar equipment, optoelectronics and biomedical products and services. In the PV solar area, the Company develops, manufactures and markets specialized equipment for the production of terrestrial photovoltaic modules from solar cells. The Company's equipment has been installed in approximately 190 factories in 50 countries. In addition to the Company's cell and module manufacturing solutions, it has a device fabrication facility where it produces, under contract with its customers, gallium arsenide (GaAs) concentrator cells. Under the name Spire Semiconductor, this division produces GaAs concentrator cells, high performance LEDs, and other custom semiconductor foundry services for the Company's customers. 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 coated and uncoated 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 July 2007, the Company entered into a joint venture with Gloria Solar Co., Ltd., a leading cell and module manufacturer in Taiwan, which designs, sells and manages installations of photovoltaic systems. The Company's 45% ownership stake in the joint venture, Gloria Spire Solar, LLC, was obtained through the contribution of its building integrated photovoltaic business to Gloria Solar. This transaction has allowed the Company to focus more of its attention on its core solar business, while continuing to expand the Spire brand name in the marketplace. The Company has been in the solar business for over 30 years and has been active in research and development in the space, with over $100 million of research and development conducted which has led to over 60 patents granted to date, as well as cell and module production, having been a pioneer in the early development of solar technology. This expertise has provided the platform and expertise for the Company's manufacturing equipment. Operating results will depend upon revenue growth and product mix, as well as the timing of shipments of higher priced products from the Company's solar equipment line. Export sales, which amounted to 62% of net sales and revenues for the quarter ending March 31, 2008, continue to constitute a significant portion of the Company's net sales and revenues. The Company has incurred significant operating losses in 2008, 2007 and 2006. Loss from operations, before gain on sales of trademarks, were $6.7 million and $8.3 million in 2007 and 2006, respectively. Loss from operations for the quarter ended March 31, 2008 was $219,000. These losses from operations have resulted in cash losses (loss from operations excluding gain on sales of trademark plus or minus non-cash adjustments) of approximately $6.1 million and $5.4 million in 2007 and 2006, respectively. The Company has funded these cash losses from cash receipts of $4.0 million from the sale of a solar PV module line along with the transfer of technology and rights to mark the modules with the Company's trademark in 2007 and $7.7 million from the sale of equity in 2006. For the quarter ended March 31, 2008, the cash gain (loss from operations plus or minus non-cash adjustments) was $437,000. As of March 31, 2008, the Company had unrestricted cash and cash equivalents of $2.2 million compared to unrestricted cash and cash equivalents of $2.4 million as of December 31, 2007. While the Company believes it has inherent assets and technology that it could sell or 6 license in the near term, there is no guarantee that the Company would be able to sell or license those assets on a timely basis and at appropriate values that would allow the Company to continue to fund its operating losses. The Company has developed several plans to mitigate cash losses primarily from increased revenues and, if required, potential cost reduction efforts and outside financing. As a result, the Company believes it has sufficient resources to continue as a going concern through at least March 31, 2009. 2. RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS BACKGROUND OF THE RESTATEMENT OF CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AND REMEDIAL MEASURES. REVIEW OF ACCOUNTING FOR PHOTOVOLTAIC MODULE EQUIPMENT TRANSACTIONS In November 2008, management, in concert with the Audit Committee, commenced a review of the revenue recognized during the fourth quarter of 2007 and the first quarter of 2008 with respect to a single contract due to the existence of a previously undisclosed and undocumented side agreement. The Company also conducted an internal review of other solar equipment contracts to determine if other concessions or side agreements were granted and not timely conveyed such that revenue could be appropriately recognized. The Company conducted a review of the solar equipment contracting process and order management activity, including a review of contract modifications. The results of this review revealed that during the fulfillment of several customer orders, concessions and contract modifications were made in the ordinary course of business to reflect changing facts and circumstances but that these changes were appropriately communicated and recorded. It was determined that the identified contract was the only instance where revenue recognition requirements were not met at the time revenue was initially recognized. As a result, the Company has recorded adjustments to both the fourth quarter of 2007 and the first quarter of 2008, by reversing the revenue recognized and associated costs of goods sold previously recorded in those periods. The revenue associated with this contract will be deferred until the remaining undelivered element is supplied to the customer. These adjustments are summarized below, and generally have the effect of deferring revenue and related cost of goods sold, previously recognized until later periods. CUMULATIVE EFFECT OF ADJUSTMENTS ON ACCUMULATED DEFICIT The following table presents the cumulative effect of adjustments resulting from the reviews described above for the periods shown. Year Ended Quarter Ended December 31, 2007 March 31, 2008 ----------------- -------------- As Restated -------------------------------- Net loss as originally reported $ (1,686,000) $ (508,000) Adjustments related to: Revenue recognition (1,355,000) (380,000) Cost of goods sold 1,108,000 365,000 ------------ ------------ Net adjustments (247,000) (15,000) ------------ ------------ Net loss as restated $ (1,933,000) $ (523,000) ============ ============ Cumulative effect to accumulated deficit $ 247,000 $ 262,000 ============ ============ The tables below set forth the effect of the adjustments as of March 31, 2008 and December 31, 2007 and for the three month period ended March 31, 2008 as applicable: 7 SPIRE CORPORATION AND SUBSIDIARIES UNAUDITED RESTATED CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 31, 2008 DECEMBER 31, 2007 ------------------------------ ------------------------------ As Reported As Restated As Reported As Restated ------------ ------------ ------------ ------------ ASSETS Current assets - -------------- Cash and cash equivalents $ 2,196,000 $ 2,196,000 $ 2,372,000 $ 2,372,000 Restricted cash - current portion 380,000 380,000 391,000 391,000 ------------ ------------ ------------ ------------ 2,576,000 2,576,000 2,763,000 2,763,000 Accounts receivable - trade, net 8,738,000 8,738,000 12,766,000 11,865,000 Inventories, net 21,191,000 14,400,000 18,506,000 11,570,000 Deferred cost of goods sold -- 8,264,000 -- 8,044,000 Deposits on equipment for inventory 2,003,000 2,003,000 2,475,000 2,475,000 Prepaid expenses and other current assets 631,000 631,000 542,000 542,000 ------------ ------------ ------------ ------------ Total current assets 35,139,000 36,612,000 37,052,000 37,259,000 Property and equipment, net 6,277,000 6,277,000 6,209,000 6,209,000 Intangible and other assets, net 866,000 866,000 851,000 851,000 Available-for-sale investments, at quoted market value (cost of $1,693,000 and $1,696,000 at 3/31/08 and 12/31/07, 1,693,000 1,693,000 1,800,000 1,800,000 respectively) Equity investment in joint venture 2,134,000 2,134,000 2,264,000 2,264,000 Deposit - related party 304,000 304,000 304,000 304,000 ------------ ------------ ------------ ------------ Total other assets 4,997,000 4,997,000 5,219,000 5,219,000 ------------ ------------ ------------ ------------ Total assets $ 46,413,000 $ 47,886,000 $ 48,480,000 $ 48,687,000 ============ ============ ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities - ------------------- Current portion of capital lease obligation - related $ 190,000 $ 190,000 $ 486,000 $ 486,000 party Current portion of equipment line of credit 1,167,000 1,167,000 1,167,000 1,167,000 Accounts payable 3,923,000 3,923,000 2,909,000 2,909,000 Accrued liabilities 6,339,000 6,339,000 6,057,000 6,057,000 Current portion of advances on contracts in progress 21,465,000 23,200,000 23,599,000 24,053,000 ------------ ------------ ------------ ------------ Total current liabilities 33,084,000 34,819,000 34,218,000 34,672,000 Long-term portion of equipment line of credit 1,458,000 1,458,000 1,750,000 1,750,000 Long-term portion of advances on contracts in progress 1,765,000 1,765,000 1,950,000 1,950,000 Deferred compensation 1,693,000 1,693,000 1,800,000 1,800,000 Other long-term liabilities 72,000 72,000 60,000 60,000 ------------ ------------ ------------ ------------ Total long-term liabilities 4,988,000 4,988,000 5,560,000 5,560,000 ------------ ------------ ------------ ------------ Total liabilities 38,072,000 39,807,000 39,778,000 40,232,000 ------------ ------------ ------------ ------------ Stockholders' equity - -------------------- Common stock, $0.01 par value; 20,000,000 shares authorized; 8,328,688 and 8,321,188 shares issued and outstanding at March 31, 2008 and December 31, 2007, respectively 83,000 83,000 83,000 83,000 Additional paid-in capital 20,208,000 20,208,000 19,999,000 19,999,000 Accumulated deficit (11,950,000) (12,212,000) (11,442,000) (11,689,000) Accumulated other comprehensive income, net -- -- 62,000 62,000 ------------ ------------ ------------ ------------ Total stockholders' equity 8,341,000 8,079,000 8,702,000 8,455,000 ------------ ------------ ------------ ------------ Total liabilities and stockholders' equity $ 46,413,000 $ 47,886,000 $ 48,480,000 $ 48,687,000 ============ ============ ============ ============
8 SPIRE CORPORATION AND SUBSIDIARIES UNAUDITED RESTATED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2008 --------------------------------- AS REPORTED AS RESTATED ------------ ------------ Net sales and revenues - ---------------------- Sales of goods $ 11,375,000 $ 10,995,000 Contract research, service and license revenues 3,543,000 3,543,000 ------------ ------------ Total net sales and revenues 14,918,000 14,538,000 Costs of sales and revenues - --------------------------- Cost of goods sold 8,859,000 8,494,000 Cost of contract research, services and licenses 2,374,000 2,374,000 ------------ ------------ Total cost of sales and revenues 11,233,000 10,868,000 ------------ ------------ Gross Margin 3,685,000 3,670,000 Operating expenses - ------------------ Selling, general and administrative expenses 3,778,000 3,778,000 Internal research and development expenses 111,000 111,000 ------------ ------------ Total operating expenses 3,889,000 3,889,000 ------------ ------------ Loss from operations (204,000) (219,000) - -------------------- Interest income (expense), net (60,000) (60,000) Loss on equity investment in joint venture (130,000) (130,000) Foreign exchange loss (114,000) (114,000) ------------ ------------ Total other income (expense), net (304,000) (304,000) ============ ============ Net loss $ (508,000) $ (523,000) - -------- ============ ============ Loss per share - basic and diluted $ (0.06) $ (0.06) - ---------------------------------- ============ ============ Weighted average number of common and common equivalent shares outstanding - basic and diluted 8,322,919 8,322,919 ============ ============
9 SPIRE CORPORATION AND SUBSIDIARIES UNAUDITED RESTATED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 2008 --------------------------------- AS REPORTED AS RESTATED ------------ ------------ Cash flows from operating activities: - ------------------------------------- Net loss $ (508,000) $ (523,000) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization 454,000 454,000 Loss on impairment of capital equipment -- -- Loss on equity investment in joint venture 130,000 130,000 Deferred compensation (62,000) (62,000) Stock-based compensation 196,000 196,000 Decrease in accounts receivable reserves (21,000) (21,000) Decrease in inventory reserves (41,000) (41,000) Changes in assets and liabilities: Restricted cash 11,000 11,000 Accounts receivable 4,049,000 3,148,000 Inventories (2,644,000) (2,789,000) Deferred cost of goods sold -- (220,000) Deposits, prepaid expenses and other current assets 383,000 383,000 Accounts payable, accrued liabilities and other liabilities 1,308,000 1,308,000 Advances on contracts in progress (2,319,000) (1,038,000) ------------ ------------ Net cash provided by (used in) operating activities 936,000 936,000 ------------ ------------ Cash flows from investing activities: - ------------------------------------- Proceeds from maturity of short-term investments -- -- Purchase of property and equipment (493,000) (493,000) Increase in intangible and other assets (44,000) (44,000) ------------ ------------ Net cash provided by (used in) investing activities (537,000) (537,000) ------------ ------------ Cash flows from financing activities: - ------------------------------------- Principal payments on capital lease obligations - related parties (296,000) (296,000) Principal payments on equipment line of credit, net (292,000) (292,000) Proceeds from exercise of stock options 13,000 13,000 ------------ ------------ Net cash used in financing activities (575,000) (575,000) ------------ ------------ Net increase (decrease) in cash and cash equivalents (176,000) (176,000) Cash and cash equivalents, beginning of period 2,372,000 2,372,000 ------------ ------------ Cash and cash equivalents, end of period $ 2,196,000 $ 2,196,000 ============ ============ Supplemental disclosures of cash flow information: - -------------------------------------------------- Interest received $ 9,000 $ 9,000 ============ ============ Interest paid $ 62,000 $ 62,000 ============ ============ Interest paid - related party $ 7,000 $ 7,000 ============ ============
10 3. INTERIM FINANCIAL STATEMENTS The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission regarding interim financial reporting. Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted in accordance with such rules and regulations. These unaudited condensed consolidated financial statements should be read in conjunction with the annual audited consolidated financial statements and notes thereto for the year ended December 31, 2007, included in the Company's Annual Report on Form 10-K/A filed with the Securities and Exchange Commission. In the opinion of management, the accompanying unaudited, condensed consolidated financial statements contain all adjustments necessary to fairly present the Company's financial position as of March 31, 2008 and December 31, 2007 and the results of its operations and cash flows for the three months ended March 31, 2008 and 2007. The results of operations for the three months ended March 31, 2008 are not necessarily indicative of the results to be expected for the fiscal year ending December 31, 2008. The condensed consolidated balance sheet as of December 31, 2007 has been derived from audited financial statements as of that date. The accounting policies followed by the Company are set forth in Footnote 3 to the Company's consolidated financial statements in its Annual Report on Form 10-K/A for the year ended December 31, 2007. New Accounting Pronouncements - ----------------------------- In December 2007, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 141R ("FAS 141R"), BUSINESS COMBINATIONS, which revises FAS 141 and changes multiple aspects of the accounting for business combinations. Under the guidance in FAS 141R, the acquisition method must be used, which requires the acquirer to recognize most identifiable assets acquired, liabilities assumed, and non-controlling interests in the acquiree at their full fair value on the acquisition date. Goodwill is to be recognized as the excess of the consideration transferred plus the fair value of the non-controlling interest over the fair values of the identifiable net assets acquired. Subsequent changes in the fair value of contingent consideration classified as a liability are to be recognized in earnings, while contingent consideration classified as equity is not to be re-measured. Costs such as transaction costs are to be excluded from acquisition accounting, generally leading to recognizing expense, and, additionally, restructuring costs that do not meet certain criteria at acquisition date are to be subsequently recognized as post-acquisition costs. FAS 141R is effective for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The Company is currently evaluating the impact that this issuance will have on its financial position and results of operation. In December 2007, the FASB issued SFAS No. 160 ("FAS 160"), NON-CONTROLLING INTEREST IN CONSOLIDATED FINANCIAL STATEMENTS - AN AMENDMENT OF ARB NO. 151. FAS 160 requires that a non-controlling interest in a subsidiary (i.e. minority interest) be reported in the equity section of the balance sheet instead of being reported as a liability or in the mezzanine section between debt and equity. It also requires that the consolidated income statement include consolidated net income attributable to both the parent and non-controlling interest of a consolidated subsidiary. A disclosure must be made on the face of the consolidated income statement of the net income attributable to the parent and to the non-controlling interest. Also, regardless of whether the parent purchases additional ownership interest, sells a portion of its ownership interest in a subsidiary or the subsidiary participates in a transaction that changes the parent's ownership interest, as long as the parent retains controlling interest, the transaction is considered an equity transaction. FAS 160 is effective for annual periods beginning after December 15, 2008. The Company is currently evaluating the impact, if any, that this standard will have on its financial position and results of operations. In March 2008, the FASB issued Statement of Financial Accounting Standards No. 161 ("FAS 161"), DISCLOSURES ABOUT DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES--AN AMENDMENT OF FASB STATEMENT NO. 133. FAS 161 requires enhanced disclosures about an entity's derivative and hedging activities. Entities are required to provide enhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under Statement No. 133 and its related interpretations, and (c) how derivative instruments and related hedged items affect an entity's financial position, financial performance, and cash flows. FAS161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. FAS 161 encourages, but does not require, comparative disclosures for earlier periods at initial adoption. The Company is currently evaluating the impact that this issuance will have on its financial position and results of operation. 11 4. ACCOUNTS RECEIVABLE/ADVANCES ON CONTRACTS IN PROGRESS Net accounts receivable, trade consists of the following: December 31, March 31, 2007 2008 As Restated ------------ ------------ Amounts billed $ 7,810,000 $ 11,142,000 Retainage 8,000 8,000 Accrued revenue 1,129,000 945,000 ------------ ------------ 8,947,000 12,095,000 Less: Allowance for sales returns and doubtful accounts (209,000) (230,000) ------------ ------------ Net accounts receivable, trade $ 8,738,000 $ 11,865,000 ============ ============ Advances on contracts in progress $ 24,965,000 $ 26,003,000 ============ ============ Retainage represents revenues on certain United States government sponsored research and development contracts. These amounts, which usually represent 15% of the Company's research fee on each applicable contract, are not collectible until a final cost review has been performed by government auditors. Included in retainage are amounts expected to be collected after one year, which totaled approximately $8,000 at March 31, 2008 and December 31, 2007. The government's most recent audit was as of December 31, 2006, with no adverse impact. All other accounts receivable are expected to be collected within one year. Accrued revenue represents revenues 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. 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, either as deposits or progress payments against future shipments, but revenue has not been recognized. 5. INVENTORIES AND DEFERRED COST OF GOODS SOLD Inventories, net of $313,000 and $354,000 of reserves at March 31, 2008 and December 31, 2007, respectively, consist of the following at: March 31, December 31, 2008 2007 ------------ ------------ As Restated ----------------------------- Raw materials $ 4,860,000 $ 4,989,000 Work in process 8,142,000 4,663,000 Finished goods 1,398,000 1,918,000 ------------ ------------ Net Inventory $ 14,400,000 $ 11,570,000 ============ ============ Deferred cost of goods sold $ 8,264,000 $ 8,044,000 ============ ============ Deferred costs of goods sold represents costs on equipment that has shipped to the customer and title has passed. The Company defers these costs until related revenue is recognized. 12 6. INCOME (LOSS) PER SHARE The following table provides a reconciliation of the denominators of the Company's reported basic and diluted income (loss) per share computations for the periods ended:
Three Months Ended March 31, ---------------------------- 2008 2007 ---------- ---------- Weighted average number of common and common equivalent shares outstanding - basic 8,322,919 8,246,691 Add: Net additional common shares upon assumed exercise of common stock options -- -- ---------- ---------- Adjusted weighted average number of common and common equivalents shares outstanding - diluted 8,322,919 8,246,691 ========== ==========
For the three months ended March 31, 2008 and 2007, 208,847 and 101,050 shares, respectively, of common stock related to stock options were excluded from the calculation of dilutive shares because the inclusion of such shares would be anti-dilutive due to the Company's net loss position. In addition, for the three months ended March 31, 2007, 6,250 shares of common stock issuable relative to stock options were excluded from the calculation of diluted shares because their inclusion would have been anti-dilutive, due to their exercise prices exceeding the average market price of the stock for the period. 7. OPERATING SEGMENTS AND RELATED INFORMATION The following table presents certain operating division information in accordance with the provisions of SFAS No. 131, "Disclosure about Segments of an Enterprise and Related Information."
Total Solar Company As Restated Biomedical Optoelectronics As Restated ----------- ---------- --------------- ----------- For the three months ended March 31, 2008 - ----------------------------------------- Net sales and revenues $10,293,000 $2,808,000 $1,437,000 $14,538,000 Income (loss) from operations $ 313,000 $ (176,000) $ (356,000) $ (219,000) Total Solar Biomedical Optoelectronics Company ----------- ---------- --------------- ----------- For the three months ended March 31, 2007 - ----------------------------------------- Net sales and revenues $ 3,594,000 $2,505,000 $ 898,000 $ 6,997,000 Loss from operations $ (583,000) $ (512,000) $ (660,000) $(1,755,000)
The following table shows net sales and revenues by geographic area (based on customer location): Three Months Ended March 31, --------------------------------------------- 2008 As Restated % 2007 % ----------- ------- ----------- ------- United States $ 5,470,000 38% $ 3,211,000 46% Europe/Africa 5,219,000 36% 1,702,000 24% Asia 3,647,000 25% 1,997,000 29% Rest of the world 202,000 1% 87,000 1% ----------- ------- ----------- ------- $14,538,000 100% $ 6,997,000 100% =========== ======= =========== ======= Revenues from contracts with United States government agencies for the three months ended March 31, 2008 and 2007 were approximately $400,000 and $254,000, or 3% and 4% of consolidated net sales and revenues, respectively. One customer accounted for approximately 20% and three customers accounted for approximately 50% of the Company's gross sales during the three months ended March 31, 2008 and 2007, respectively. One customer represented 31% of trade account receivables at March 31, 2008 and two customer represented 46% of trade account receivables at December 31, 2007. 13 8. INTANGIBLE AND OTHER ASSETS Patents amounted to $130,000 net of accumulated amortization of $700,000, at March 31, 2008. Licenses amounted to $93,000, net of accumulated amortization of $232,000 at March 31, 2008. 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 $603,000 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: Year Amortization Expense ----------------------------------- --------------------------- 2008 remaining 9 months $ 153,000 2009 171,000 2010 166,000 2011 159,000 2012 and beyond 177,000 --------- $ 826,000 ========= Also included in other assets are approximately $40,000 of refundable deposits made by the Company at March 31, 2008. 9. 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, 2008 December 31, 2007 -------------- ----------------- Equity investments $1,410,000 $1,411,000 Government bonds 259,000 303,000 Cash and money market funds 24,000 86,000 ---------- ---------- $1,693,000 $1,800,000 ========== ========== These investments have been classified as long-term available-for-sale investments and are reported at fair value, with unrealized gains and losses included in accumulated other comprehensive loss, net of related tax effect. As of March 31, 2008, the net unrealized gain on these marketable securities was less than $1,000. Effective January 1, 2008, the Company adopted SFAS No. 157, "Fair Value Measurements" ("FAS 157"). In February 2008, the FASB issued FASB Staff Position No. FAS 157-2, "Effective Date of FASB Statement No. 157," which provides a one year deferral of the effective date of FAS 157 for non-financial assets and non-financial liabilities, except those that are recognized or disclosed in the financial statements at fair value at least annually. Therefore, the Company has adopted the provisions of FAS 157 with respect to its financial assets and liabilities only. FAS 157 defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. The new standard provides a consistent definition of fair value which focuses on an exit price which is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The standard also prioritizes, within the measurement of fair value, the use of market-based information over entity specific information and establishes a three-level hierarchy for fair value measurements based on the nature of inputs used in the valuation of an asset or liability as of the measurement date. The hierarchy established under FAS 157 gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). As required by FAS 157, the Company's available for sale investments are classified within the fair value hierarchy based on the lowest level of input that is significant to the fair value measurement. The three levels of the fair value hierarchy under FAS 157, and its applicability to the Company's available for sale investments, are described below: Level 1 - Pricing inputs are quoted prices available in active markets for identical investments as of the reporting date. As required by FAS 157, the Company does not adjust the quoted price for these investments, even in situations where the Company holds a large position and a sale could reasonably impact the quoted price. 14 Level 2 - Pricing inputs are quoted prices for similar investments, or inputs that are observable, either directly or indirectly, for substantially the full term through corroboration with observable market data. Level 2 includes investments valued at quoted prices adjusted for legal or contractual restrictions specific to these investments. Level 3 - Pricing inputs are unobservable for the investment, that is, inputs that reflect the reporting entity's own assumptions about the assumptions market participants would use in pricing the asset or liability. Level 3 includes investments that are supported by little or no market activity. The following table presents the financial instruments carried at fair value as of March 31, 2008 by FAS 157 valuation hierarchy (as defined above). Level 1 Level 2 Level 3 Total ---------------------------------------------- Available for sale investments $ 1,377,000 $ 316,000 -- $1,693,000 Percent of total 81% 19% -- 100% 10. NOTES PAYABLE AND CREDIT ARRANGEMENTS The Company had a $2,000,000 Loan Agreement with Citizens Bank of Massachusetts which expired on June 26, 2007. On May 25, 2007, the Company and its wholly-owned subsidiary, Spire Semiconductor, LLC, entered into a Loan and Security Agreement (the "Equipment Credit Facility") with Silicon Valley Bank (the "Bank"). Under the Equipment Credit Facility, for a one-year period, the Company and Spire Semiconductor could borrow up to $3,500,000 in the aggregate to finance certain equipment purchases (including reimbursement of certain previously-made purchases). Each advance made under the Equipment Credit Facility would be due thirty-six (36) months from the date the advance is made. Advances made under the Equipment Credit Facility would bear interest at the Bank's prime rate, as determined, plus 0.5% and payable in thirty-six (36) consecutive monthly payments following the funding date of that advance. On March 31, 2008, the Company entered into a second Loan and Security Agreement (the "Revolving Credit Facility") with the Bank. Under the terms of the Revolving Credit Facility, the Bank agreed to provide the Company with a credit line up to $5,000,000. The Company's obligations under the Equipment Credit Facility are secured by substantially of its assets and advances under the Revolving Credit Facility are limited to 80% of eligible receivables and the lesser of 25% of the value of its eligible inventory, as defined, or $2,500,000 if the inventory is backed by a customer letter of credit. Interest on outstanding borrowings accrues at a rate per annum equal to the greater of Prime Rate plus one percent (1.0%) or seven percent (7%) (7% at March 31, 2008). In addition, the Company agreed to pay to the Bank a collateral monitoring fee of $750 per month in the event the Company is in default of its covenants and agreed to the following additional terms: (i) $50,000 commitment fee; (ii) an unused line fee in the amount of 0.75% per annum of the average unused portion of the revolving line; and (iii) an early termination fee of 0.5% of the total credit line if the Company terminates the Revolving Credit Facility prior to 12 months from the Revolving Credit Facility's effective date. The Revolving Credit Facility, if not sooner terminated in accordance with its terms, expires on March 30, 2009. In addition the Company's existing Equipment Credit Facility was amended whereby the Bank granted a waiver for the Company's defaults for not meeting its December 31, 2007 quarter liquidity and profit covenants and for not meeting its January and February 2008 liquidity covenants. Further the covenants were amended to match the new covenants contained in the Revolving Credit Facility. The Company's interest rate under the Equipment Credit Facility was also modified from Bank Prime plus one half percent to the greater of Bank Prime plus one percent (1%) or seven percent (7%) (7% at March 31, 2008). Under the terms of the Equipment Credit Facility, as long as any commitment remains outstanding under the facility, the Company must comply with an adjusted quick ratio covenant and a minimum quarterly net income covenant. In addition, until all amounts under the credit facilities with the Bank are repaid, covenants under the credit facilities impose restrictions on the Company's ability to, among other things, incur additional indebtedness, create or permit liens on the Company's assets, merge, consolidate or dispose of assets (other than in the ordinary course of business), make dividend and other restricted payments, make certain debt or equity investments, make certain acquisitions, engage in certain transactions with affiliates or change the business conducted by the Company and its subsidiaries. Any failure by the Company to comply with the covenants and obligations under the credit facilities could result in an event of default, in which case the Bank may be entitled to declare all amounts owed to be due and payable immediately. The Company's obligations under the credit facilities are secured by substantially all of its assets. At March 31, 2008, the Company's outstanding borrowings from the Equipment Credit Facility amounted to $2,625,000 and there were no borrowings from the Revolving Credit Facility. The Company was not in compliance with its covenants as of March 31, 2008, but not in default because a Bank waiver has been received. 15 On May 13, 2008, the Bank amended each of the Equipment Credit Facility and the Revolving Credit Facility, modifying the Company's net income profitability covenant requirements in exchange for a three quarters percent (0.75%) increase in the Company's interest rate and waiver restructuring fee equal to one half percent (.05%) of amounts outstanding under the Equipment Credit Facility and committed under the Revolving Credit Facility. In addition, the Company's term loan balance will be factored in when calculating the Company's borrowing base under the Revolving Credit Facility. 11. STOCK OPTION PLAN AND STOCK-BASED COMPENSATION On January 1, 2006, the Company adopted the fair value recognition provisions of FASB Statement No. 123(R), Share-Based Payment ("Statement 123(R)") using the modified prospective method. Based on an analysis of the Company's historical data, for the three months ended March 31, 2008 and 2007, the Company applied 8% and 14% forfeiture rates, respectively, to stock options outstanding in determining its Statement 123(R) stock-based compensation expense which it believes are reasonable forfeiture estimates for the periods. The impact of Statement 123(R) on the Company's results of operations resulted in recognition of stock-based compensation expense of approximately $196,000 and $71,000 for the three months ended March 31, 2008 and 2007, respectively. The total non-cash, stock-based compensation expense included in the condensed consolidated statement of operations for the periods presented is included in the following expense categories: Three Months Ended March 31, ---------------------------- 2008 2007 -------- -------- Cost of contract research, services and licenses $ 13,000 $ 5,000 Cost of goods sold 32,000 1,000 Selling, general and administrative 151,000 65,000 -------- -------- Total stock-based compensation $196,000 $ 71,000 ======== ======== At March 31, 2008 the Company had outstanding options under two stock option plans: the 1996 Equity Incentive Plan (the "1996 Plan") and the 2007 Stock Equity Plan (the "2007 Plan"). Both plans were approved by stockholders and provided that the Board of Directors may grant options to purchase the Company's common stock to key employees and directors of the Company. Incentive and non-qualified options must be granted at least at the fair market value of the common stock or, in the case of certain optionees, at 110% of such fair market value at the time of grant. The options may be exercised, subject to certain vesting requirements, for periods up to ten years from the date of issue. The 1996 Plan expired with respect to the issuance of new grants as of December 10, 2006. Accordingly, future grants may be made only under the 2007 Plan. A summary of options outstanding under the 2007 Plan and 1996 Plan as of March 31, 2008 and changes during the three-month period is as follows:
Average Weighted- Remaining Number of Average Contractual Aggregate Shares Exercise Price Life (Years) Intrinsic Value --------- -------------- ----------- --------------- Options Outstanding at December 31, 2007 495,177 $7.10 Granted 25,000 $12.75 Exercised (7,500) $1.78 Cancelled/expired (3,500) $9.60 -------- ------- Options Outstanding at March 31, 2008 509,177 $7.44 7.47 $4,032,549 ======== ======= Options Exercisable at March 31, 2008 223,492 $5.94 5.96 $2,106,295 ======== =======
16 No stock options were granted during the three months ended March 31, 2007. The per-share weighted-average fair value of stock options granted during the three months ended March 31, 2008 was $7.28 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 ---- -------------- ------------- ----------- ----------------- 2008 -- 2.42% 4.5 years 70.69% The risk free interest rate reflects treasury yields rates over a term that approximates the expected option life. The expected option life is calculated based on historical lives of all options issued under the plan. The expected volatility factor is determined by measuring the actual stock price volatility over a term equal to the expected useful life of the options granted. 12. 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, ------------------------------------ 2008 As Restated 2007 ----------- ----------- Net loss $ (523,000) $(1,746,000) Other comprehensive income: Unrealized gain on available for sale marketable securities, net of tax -- 1,000 ----------- ----------- Total comprehensive loss $ (523,000) $(1,745,000) =========== =========== 13. SUBSEQUENT EVENTS On May 13, 2008, the Bank amended each of the Equipment Credit Facility and the Revolving Credit Facility, modifying the Company's net income profitability covenant requirements in exchange for a three quarters percent (0.75%) increase in the Company's interest rate and waiver restructuring fee equal to one half percent (0.5%) of amounts outstanding under the Equipment Credit Facility and committed under the Revolving Credit Facility. In addition, the Company's term loan balance will be factored in when calculating the Company's borrowing base under the Revolving Credit Facility. 17 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. OUR 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-K/A FOR THE YEAR ENDED DECEMBER 31, 2007. THE FOLLOWING DISCUSSION AND ANALYSIS OF OUR FINANCIAL CONDITION AND RESULTS OF OPERATIONS SHOULD BE READ IN LIGHT OF THOSE FACTORS AND IN CONJUNCTION WITH OUR ACCOMPANYING CONSOLIDATED FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO. OVERVIEW We principally develop, manufacture and market customized turnkey solutions for the solar industry, including manufacturing equipment and full turnkey lines for cell and module production and testing. We also offer through our subsidiary Spire Semiconductor concentrator cell and light-emitting diode ("LED") fabrication services and through our joint venture Gloria Spire Solar photovoltaic ("PV") system integration services. We also operate a line of business associated with advanced biomedical applications. The foundation for our business is our industry-leading expertise in materials technologies and surface treatments; this proprietary knowledge enables us to further develop our offerings in solar equipment, optoelectronics and biomedical products and services. Our initial focus on high-energy physics led to the development of our first product, the SPI-PULSE electron beam generator, to support research in radiation effects testing. We moved into the space solar cell business after signing a contract to develop solar cell coverslip for radiation hardening. In addition, we began to develop a new technology based on ion implantation and pulsed electron beam annealing of silicon solar cells. As a result of the energy crisis in the early 1980s, which forced the United States to consider photovoltaics for terrestrial applications, we received our first terrestrial solar cell contract for low cost production using our ion implantation technology. We leveraged this knowledge to develop our state-of-the-art manufacturing equipment, in addition to our offerings in the optoelectronics and biomaterials industries. As photovoltaic cell and module manufacturers ramp up production to meet increasing demand, they will first need to acquire greater quantities of turnkey equipment in order to produce more photovoltaic cells and modules. We believe that we are one of the world's leading suppliers of the manufacturing equipment and technology needed to produce solar photovoltaic power systems. Our individual manufacturing equipment products and our SPI-LINETM integrated turnkey cell and module production lines can be highly scaled, customized, and automated with high throughput. These systems are designed to meet the needs of a broad range of customers ranging from manufacturers relying on mostly manual processes, to some of the largest photovoltaic manufacturing companies in the world. In addition to our cell and module manufacturing solutions, we have a device fabrication facility where we produce, under contract with our customers, gallium arsenide (GaAs) concentrator cells. The state-of-the-art semiconductor fabrication and foundry facility is the foundation of our solar cell process technology for silicon, polysilicon, thin film and GaAs concentrator cells. Under the name Spire Semiconductor, this division produces GaAs concentrator cells, high performance LEDs, and other custom semiconductor foundry services for our customers. In July 2007, we entered into a joint venture with Gloria Solar Co., Ltd., a leading cell and module manufacturer in Taiwan, which designs, sells and manages installations of photovoltaic systems. Our 45% ownership stake in the joint venture, Gloria Spire Solar, LLC, was obtained through the contribution of our building integrated photovoltaic business to Gloria Solar. This transaction has allowed us to focus more of our attention on our core solar business, while continuing to expand the Spire brand name in the marketplace. Capitalizing on our expertise in surface treatments, we also have a biomedical division which manufactures medical devices and provides advanced medical device surface treatment processes to our customers. Our medical device business develops, manufactures and sells premium products for vascular access in chronic kidney disease patients. Our surface treatment business modifies the surfaces of medical devices to improve their performance. We have been in the solar business for over 30 years and have been active in research and development in the space, with over $100 million of research and development conducted which has led to over 60 patents granted to date, as well as 18 cell and module production, having been a pioneer in the early development of solar technology. This expertise has provided the platform and expertise for our manufacturing equipment. We have equipment deployed in approximately 50 countries. Operating results will depend upon revenue growth and product mix, as well as the timing of shipments of higher priced products from our solar equipment line. Export sales, which amounted to 62% of net sales and revenues for the three months ended March 31, 2008, continue to constitute a significant portion of our net sales and revenues. Restatements - ------------ We restated our previously issued consolidated financial statements as of and for the year ended December 31, 2007 and as of and for the quarter ended March 31, 2008 to correct errors under generally accepted accounting principles ("GAAP") in the United States relating to the recognition of revenue. We determined that a single customer of our solar equipment business unit was provided certain upgrade rights in connection with the sale of products, as a result of which the revenue associated with those sales should not have been recognized upon shipment of the products to the customers under GAAP because the upgrade was not available at that time. We determined that revenue for the entire contract should have been deferred until the upgrade was provided to the customer. These orders resulted in aggregate gross revenues of approximately $1.4 million during the fourth quarter of 2007 and $380,000 during the first quarter of 2008. To correct this error, we reversed this revenue and the associated cost of goods sold in each of those quarters. See Note 2 to the unaudited condensed consolidated financial statements. 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, ------------------------- 2008 As Restated 2007 ----------- ---------- Net sales and revenues 100% 100% Cost of sales and revenues 75 81 ----------- ---------- Gross margin 25 19 Selling, general and administrative expenses 26 43 Internal research and development expenses 1 1 ----------- ---------- Loss from operations (2) (25) Other income (expense), net (2) -- ----------- ---------- Loss before income tax benefit (4) (25) Income tax benefit -- -- ----------- ---------- Net loss (4%) (25%) ----------- ---------- 19 OVERALL Our total net sales and revenues for the three months ended March 31, 2008 ("2008") were $14,538,000 as compared to $6,997,000 for the three months ended March 31, 2007 ("2007"), which represents an increase of $7,541,000 or 108%. The increase was primarily attributable to a $6,699,000 increase in solar sales and a $539,000 increase in optoelectronics sales. SOLAR BUSINESS UNIT Sales in our solar business unit increased 186% during 2008 to $10,293,000 as compared to $3,594,000 in 2007. The increase is the result of shipments of solar equipment reflecting the overall increase in activity in the solar power industry. We have focused our sales and marketing efforts on establishing ourselves as one of the premier suppliers of equipment to the solar power industry for the manufacture of photovoltaic power modules. BIOMEDICAL BUSINESS UNIT Revenues of our biomedical business unit increased 12% during 2008 to $2,808,000 as compared to $2,505,000 in 2007. The increase reflects increased revenues from our research and development contracts and orthopedics coatings services offset by reduced revenues from catheter products. OPTOELECTRONICS BUSINESS UNIT Revenues in our optoelectronics business unit increased 60% to $1,437,000 during 2008 as compared to $898,000 in 2007. The increase reflects an overall increase in optoelectronics activities attributable to a shift in product mix to larger scale commercial orders compared with smaller sized research and development projects. Three Months Ended March 31, 2008 Compared to Three Months Ended March 31, 2007 - ------------------------------------------------------------------------------- NET SALES AND REVENUES The following table categorizes our net sales and revenues for the periods presented:
Three Months Ended March 31, Increase ---------------------------- ---------------------- $ % 2008 ----------- ------ As Restated 2007 As Restated ----------- ---------- ---------------------- Sales of goods $10,995,000 $4,339,000 $6,656,000 153% Contract research, services and license revenues 3,543,000 2,658,000 885,000 33% ----------- ---------- ---------- Net sales and revenues $14,538,000 $6,997,000 $7,541,000 108% =========== ========== ==========
The 153% increase in sales of goods for the three months ended March 31, 2008 as compared to the three months ended March 31, 2007 was primarily due to an increase in solar equipment revenues, partially offset by a decrease in catheter products sales. Solar equipment sales increased 198% in 2008 as compared to 2007 primarily due to an overall increase in solar power industry activity. Sales of catheters decreased approximately 3%. The 33% increase in contract research, services and license revenues for the three months ended March 31, 2008 as compared to the three months ended March 31, 2007 is primarily attributable to an increase in orthopedics, optoelectronics and government research and development activities. Revenue from our optoelectonics processing services (Spire Semiconductor) increased 60% in 2008 compared to 2007 as a result of an overall increase in optoelectronics activities attributable to a shift in product mix to larger scale commercial orders compared with smaller sized research and development projects. Revenues from our research and development activities increased 64% in 2008 as compared to 2007 primarily due to an increase in the number and value of contracts associated with funded research and development. Revenues from our orthopedic activities increased 8% in 2008 as compared to 2007. COST OF SALES AND REVENUES The following table categorizes our cost of sales and revenues for the periods presented, stated in dollars and as a percentage of related sales and revenues: 20
Three Months Ended March 31, Increase ------------------------------------------------ --------------------- 2008 % 2007 % $ % ----------- ------- ----------- ------- -------- ------- As Restated As Restated ---------------------- ---------------------- --------------------- Cost of goods sold $ 8,494,000 77% $ 3,526,000 81% $ 4,968,000 141% Cost of contract research, services and licenses 2,374,000 67% 2,173,000 82% 201,000 9% ----------- ----------- ----------- Net cost of sales and revenues $10,868,000 75% $ 5,699,000 81% $ 5,169,000 91% =========== =========== ===========
Cost of goods sold increased 141% in 2008 as compared to 2007, primarily as a result of the 153% increase in related revenues. As a percentage of sales, cost of goods sold was 77% of sales of goods in 2008 as compared to 81% of sales in 2007. This reduction in the percentage of sales in 2008 is due to higher levels of revenue along with better utilization of solar manufacturing overhead. Cost of contract research, services and licenses increased 9% in 2008 as compared to 2007, primarily as a result of the 33% increase in related revenues and increased costs at our optoelectronics facility (Spire Semiconductor) along with increased costs of our contract research activities due to higher volumes. Cost of contract research, services and licenses as a percentage of revenue decreased to 67% of revenues in 2008 from 82% in 2007, primarily due to the increase in related revenues and better utilization of biomedical and its optoelectronic factory overhead. Cost of sales and revenues also includes approximately $45,000 and $6,000 of stock-based compensation for the three months ending March 31, 2008 and 2007, respectively, due to the adoption of SFAS 123(R) in 2006. OPERATING EXPENSES The following table categorizes the our operating expenses for the periods presented, stated in dollars and as a percentage of total sales and revenues:
Three Months Ended March 31, Increase ------------------------------------------------ --------------------- 2008 % 2007 % $ % ----------- ------- ----------- ------- -------- ------- As Restated As Restated ---------------------- ---------------------- --------------------- Selling, general and administrative $ 3,778,000 26% $ 3,008,000 43% $ 770,000 26% Internal research and development 111,000 1% 45,000 1% 66,000 147% ----------- ----------- ----------- Operating expenses $ 3,889,000 27% $ 3,053,000 44% $ 836,000 27% =========== =========== ===========
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and administrative expense increased 26% in 2008 as compared to 2007, primarily as a result of an increase in stock-based compensation, professional services used by us and higher head count and related employee costs. In addition, commissions to our network of independent sales representatives related to sales of solar equipment were up due to increased sales and revenues. Selling, general and administrative expense decreased to 26% of sales and revenues in 2008 as compared to 43% in 2007. The reduction was primarily due to the 108% increase in sales and revenues partially offset by the 26% increase in expenses. Operating expenses includes approximately $151,000 and $65,000 of stock-based compensation for the three months ending March 31, 2008 and 2007, respectively, due to the adoption of SFAS 123(R) in 2006. INTERNAL RESEARCH AND DEVELOPMENT Internal research and development expense increased 147% in 2008 as compared to 2007, primarily as a result of our cost sharing contract with the National Renewable Energy Laboratory ("NREL") reducing 2007 costs. OTHER INCOME (EXPENSE), NET We earned $9,000 and $44,000 of interest income for the quarters ended March 31, 2008 and 2007, respectively. The decreased interest income is due to lower cash balances held by us during 2008 compared with 2007. We incurred interest expense of $69,000 and $26,000 for the quarters ended March 31, 2008 and 2007, respectively. The increased interest expense is due to higher interest payments associated with the $3.5 million term loan outstanding with Silicon Valley Bank compared with 2007 interest expenses primarily associated with interest incurred on capital leases associated with the semiconductor foundry. 21 We recorded a $130,000 loss on equity investment in joint venture with Gloria Solar for the quarter ended March 31, 2008. Due to the conversion of U.S. dollars into Japanese Yen, we lost approximately $114,000 and $9,000 during the quarters ended March 31, 2008 and 2007, respectively. INCOME TAXES We did not record an income tax benefit for the three months ended March 31, 2008 and 2007. 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 INCOME We reported a net loss for the three months ended March 31, 2008 of approximately $523,000, compared to a net loss of $1,746,000 in 2007. The net loss decreased approximately $1,223,000 primarily due to the increase in sales and revenues and the improvement in gross margins. Liquidity and Capital Resources - ------------------------------- Decrease March 31, December 31, ------------------- 2008 2007 $ % As Restated As Restated ------------------------- ------------------- Cash and cash equivalents $2,196,000 $2,372,000 $ (176,000) (7%) Working capital $1,793,000 $2,587,000 $ (794,000) (31%) Cash and cash equivalents decreased slightly due to cash used in investing and financing activities, partially offset by cash provided by operating activities. The overall reduction in working capital is due to cash losses from operations and an additional investment in property and equipment of $493,000. We have historically funded our operating cash requirements using operating cash flow, proceeds from the sale and licensing of technology and proceeds from the sale of equity securities. We had a $2,000,000 Loan Agreement with Citizens Bank of Massachusetts which expired on June 26, 2007. On May 25, 2007, we and our wholly-owned subsidiary, Spire Semiconductor, LLC, entered into a Loan and Security Agreement (the "Equipment Credit Facility") with Silicon Valley Bank (the "Bank"). Under the Equipment Credit Facility, for a one-year period, we and Spire Semiconductor could borrow up to $3,500,000 in the aggregate to finance certain equipment purchases (including reimbursement of certain previously-made purchases). Each advance made under the Equipment Credit Facility would be due thirty-six (36) months from the date the advance is made. Advances made under the Equipment Credit Facility would bear interest at the Bank's prime rate, as determined, plus 0.5% and payable in thirty-six (36) consecutive monthly payments following the funding date of that advance. On March 31, 2008, we entered into a second Loan and Security Agreement (the "Revolving Credit Facility") with the Bank. Under the terms of the Revolving Credit Facility, the Bank agreed to provide us with a credit line up to $5,000,000. Our obligations under the Equipment Credit Facility are secured by substantially all of our assets and advances under the Revolving Credit Facility are limited to 80% of eligible receivables and the lesser of 25% of the value of our eligible inventory, as defined, or $2,500,000 if the inventory is backed by a customer letter of credit. Interest on outstanding borrowings accrues at a rate per annum equal to the greater of Prime Rate plus one percent (1.0%) or seven percent (7%) (7% at March 31, 2008). In addition, we agreed to pay to the Bank a collateral monitoring fee of $750 per month in the event we are in default of our covenants and agreed to the following additional terms: (i) $50,000 commitment fee; (ii) an unused line fee in the amount of 0.75% per annum of the average unused portion of the revolving line; and (iii) an early termination fee of 0.5% of the total credit line if we terminate the Revolving Credit Facility prior to 12 months from the Revolving Credit Facility's effective date. The Revolving Credit Facility, if not sooner terminated in accordance with its terms, expires on March 30, 2009. In addition, our existing Equipment Credit Facility was amended whereby the Bank granted a waiver for our defaults for not meeting our December 31, 2007 quarter liquidity and profit covenants and for not meeting our January and February 2008 liquidity covenants. Further the covenants were amended to match the new covenants contained in the Revolving Credit Facility. Our interest rate under the Equipment Credit Facility was also modified from Bank Prime plus one half percent to the greater of Bank Prime plus one percent (1%) or seven percent (7%) (7% at March 31, 2008). 22 Under the terms of the Equipment Credit Facility, as long as any commitment remains outstanding under the facility, we must comply with an adjusted quick ratio covenant and a minimum quarterly net income covenant. In addition, until all amounts under the credit facilities with the Bank are repaid, covenants under the credit facilities impose restrictions on our ability to, among other things, incur additional indebtedness, create or permit liens on our assets, merge, consolidate or dispose of assets (other than in the ordinary course of business), make dividend and other restricted payments, make certain debt or equity investments, make certain acquisitions, engage in certain transactions with affiliates or change the business conducted by us and our subsidiaries. Any failure by us to comply with the covenants and obligations under the credit facilities could result in an event of default, in which case the Bank may be entitled to declare all amounts owed to be due and payable immediately. Our obligations under the credit facilities are secured by substantially all of our assets. At March 31, 2008, we had outstanding borrowings from the Equipment Credit Facility amounting to $2,625,000 and there were no borrowings from the Revolving Credit Facility. We were not in compliance with our covenants as of March 31, 2008, but not in default because a Bank waiver has been received. On May 13, 2008, the Bank amended each of the Equipment Credit Facility and the Revolving Credit Facility, modifying the our net income profitability covenant requirements in exchange for a three quarters percent (0.75%) increase in our interest rate and waiver restructuring fee equal to one half percent (0.5%) of amounts outstanding under the Equipment Credit Facility and committed under the Revolving Credit Facility. In addition, our term loan balance will be factored in when calculating our borrowing base under the Revolving Credit Facility. We maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to pay amounts due. We 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 we can reasonably estimate the amount of the loss. We do not record an allowance for government receivables and invoices backed by letters of credit as realizability is reasonably assured. Bad debts are written off against the allowance when identified. There is no dollar threshold for account balance write-offs. While rare, a write-off is only recorded when all efforts to collect the receivable have been exhausted and only in consultation with the appropriate business line manager. There are no material commitments by us for capital expenditures. At March 31, 2008, our accumulated deficit was approximately $12,212,000, compared to accumulated deficit of approximately $11,689,000 as of December 31, 2007. We have an effective shelf registration statement on file with the Securities and Exchange Commission allowing us to sell up to $60 million of common stock. We believe it is prudent to maintain shelf registration capacity in order to facilitate future capital raising activities. To date there have been no issuances of common stock under this shelf registration statement. We believe we have sufficient resources to finance our current operations for the foreseeable future from operating cash flow and working capital. We may, however, raise additional capital through the sale of equity securities, under the shelf registration statement or otherwise, under appropriate circumstances. Foreign Currency Fluctuation - ---------------------------- We sell only in U.S. dollars, generally against an irrevocable confirmed letter of credit through a major United States bank. Accordingly, we are not directly affected by foreign exchange fluctuations on our current orders. However, fluctuations in foreign exchange rates do have an effect on our customers' access to U.S. dollars and on the pricing competition on certain pieces of equipment that we sell in selected markets. We received Japanese yen in exchange for the sale of a license to our solar technology. In addition, purchases made and royalties received under our Consortium Agreement with our Japanese partner are in Japanese yen. We have committed to purchase certain pieces of equipment from European vendors; these commitments are denominated in Euros. We bear the risk of any currency fluctuations that may be associated with these commitments. We do not believe that foreign exchange fluctuations will materially affect our operations. Related Party Transactions - -------------------------- We 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, our Chairman of the Board, Chief Executive Officer and President, 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. 23 The sublease agreement provided for minimum rental payments plus annual increases linked to the consumer price index. Effective December 1, 2005, we entered into a two-year Extension of Lease Agreement (the "Lease Extension") directly with SPI-Trust. We 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. We 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 we have sole withdrawal authority. SPI-Trust is required to maintain three (3) months of its anticipated operating costs within this escrow account. On December 1, 2006, we and SPI-Trust amended the Lease Extension to include the lease of an additional 15,000 square feet from SPI-Trust for a one-year term. The additional space was leased at a rate of $8.06 per square foot on annual basis. The additional space was used to expand our solar operations. On November 30, 2007, we entered into a new Lease Agreement (the "New Lease") with SPI-Trust, with respect to 144,230 square feet of space comprising the entire building in which we have occupied space since December 1, 1985. The term of the New Lease commenced on December 1, 2007 and continues for five (5) years until November 30, 2012. We have the right to extend the term of the New Lease for an additional five (5) year period. The annual rental rate for the first year of the Lease is $12.50 per square foot on a triple net basis, whereby the tenant is responsible for operating expenses, taxes and maintenance of the building. The annual rental rate increases on each anniversary by $0.75 per square foot. If we exercises our right to extend the term of the New Lease, the annual rental rate for the first year of the extended term will be the greater of (a) the rental rate in effect immediately preceding the commencement of the extended term or (b) the market rate at such time, and on each anniversary of the commencement of the extended term the rental rate will increase by $0.75 per square foot. We believe that the terms of the New Lease are commercially reasonable. Rent expense under the New Lease for the three months ended March 31, 2008 was $505,000. In conjunction with our acquisition of Spire Semiconductor in May 2003, SPI-Trust purchased from Stratos Lightwave, Inc. (Spire Semiconductor's former owner) the building that Spire Semiconductor occupies in Hudson, New Hampshire for $3.7 million. Subsequently, we entered into a lease for the building (90,000 square feet) with SPI-Trust whereby we agreed to pay $4.1 million to the SPI-Trust over an initial five-year term expiring in 2008 with an option for us to extend for five years. In addition to the rent payments, the lease obligates us to keep on deposit with SPI-Trust the equivalent of three months rent ($304,000 as of March 31, 2008.) The lease agreement does not provide for a transfer of ownership at any point. Interest costs were assumed at 7%. Interest expense was approximately $6,800 for the three months ended March 31, 2008. This lease has been classified as a related party capital lease and a summary of payments (including interest) follows: Rate Per Annual Monthly Security Year Square Foot Rent 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, 2008, $190,000 reflected the current portion of capital lease obligation - related party, 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 it believes 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 24 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 3 of the notes to consolidated financial statements in our Annual Report on Form 10-K/A for the year ended December 31, 2007 for a description of our significant accounting policies. REVENUE RECOGNITION We derive our 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 recognizes 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. We utilize a distributor network to market and sell our hemodialysis catheters domestically. We generally recognizes revenue when the catheters are shipped to our 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 our 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, 2008, is as follows: Rebates Returns Total -------- ------- -------- Balance - December 31, 2007 $ 77,000 $10,000 $ 87,000 Provision 109,000 9,000 118,000 Utilization (100,000) (9,000) (109,000) -------- ------- -------- Balance - March 31, 2008 $ 86,000 $10,000 $ 96,000 ======== ======= ======== o Credits for rebates are recorded in the month of the actual sale. o Credits for returns are processed when we receive the actual returned merchandise. o Substantially all rebates and returns are processed no later than three months after our original shipment. The reserve percentage of inventory held by distributors over the past quarters has increased to approximately 9% at March 31, 2008, when compared to 8% at December 31, 2007. We perform 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 was approximately $987,000 at March 31, 2008. 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). Our OEM capital equipment solar energy business builds complex customized machines to order for specific customers. Most of these orders are sold on a FOB Bedford, Massachusetts (or EX-Works Factory) basis. It is our 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 our 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. For arrangements with multiple elements, we allocate fair value to each element in the contract and revenue is recognized upon delivery of each element. If we are not able to establish fair value of undelivered elements, all revenue is deferred. We recognize 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. We accrue revenue and profit utilizing the percentage of completion method using a cost-to-cost methodology. A 25 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. Our policy is to take into revenue the full value of the contract, including any retainage, as we perform against the contract because we have 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, we 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, we have not restated our consolidated financial statements for prior periods. Under this transition method, stock-based compensation expense includes stock-based compensation expense for all of our 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 is based on the grant-date fair value estimated in accordance with the provisions of Statement 123(R). The impact of Statement 123(R) on our results of operations resulted in recognition of stock option expense of approximately $196,000 and $71,000 for the three months ended March 31, 2008 and 2007, respectively. Contractual Obligations, Commercial Commitments and Off-Balance Sheet - --------------------------------------------------------------------- Arrangements - ------------ The following table summarizes our gross contractual obligations at March 31, 2008 and the maturity periods and the effect that such obligations are expected to have on our liquidity and cash flows in future periods:
Payments Due by Period ------------------------------------------------------------------ Less than 2 - 3 4 - 5 More Than Contractual Obligations Total 1 Year Years Years 5 Years - ----------------------------------- ---------- ---------- ---------- ---------- --------- Equipment Credit Facility (SVB) $2,841,000 $1,313,000 $1,528,000 -- -- Revolving Credit Facility (SVB) -- -- -- -- -- Purchase obligations $1,412,000 $1,405,000 $ 7,000 -- -- Capital leases: Related party capital lease $ 192,000 $ 192,000 -- -- -- Operating leases: Unrelated party operating leases $ 345,000 $ 135,000 $ 210,000 -- -- Related party operating lease $9,495,000 $1,839,000 $4,002,000 $3,654,000 --
Purchase obligations include all open purchase orders outstanding regardless of whether they are cancelable or not. Included in purchase obligations are raw material and equipment needed to fulfill customer orders. Capital lease and Credit Facility obligations outlined above include both the principal and interest components of these contractual obligations. 26 We closed our Japanese yen account during the first quarter of 2008. Total foreign exchange loss for the quarter ended March 31, 2008 of approximately $114,000 is reflected in other income (expense), net in the accompanying unaudited condensed consolidated statement of operations. Outstanding letters of credit totaled approximately $250,000 at March 31, 2008. 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 we do not perform as contractually required. These letters of credit expire through 2008 and are 100% secured by cash. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Market risk to which we are subject consists of the risk of loss arising from adverse changes in market interest rates and foreign exchange rates. Exposure to market rate risk for changes in interest rates relates to our investment portfolio. We have not used derivative financial instruments in our investment portfolio. We seek to place our investments with high-quality issuers and we have policies limiting, among other things, the amount of credit exposure to any one issuer. We seek to limit default risk by purchasing only investment-grade securities. We do not believe we have any material market risk with respect to our financial instruments. ITEM 4T. CONTROLS AND PROCEDURES Restatement of Consolidated Financial Statements - ------------------------------------------------ In November 2008, we detected a side arrangement of which its existence was not taken into account when we recognized revenue on the multi-element contract. The identified contract was partially recognized in the fourth quarter of 2007 and partially in the first quarter of 2008 under multi-element arrangement accounting rules. As we could not establish the fair value of the undelivered elements given under the side arrangement, we incorrectly recognized the revenue rather than deferring all revenue until all elements were delivered. Under the direction of the Audit Committee and with the assistance of the Chief Operating Officer, the Company's Chief Financial Officer conducted a review of the solar equipment contracting process and order management activity, including a review of contract modifications. Sales personnel and key managers in the solar equipment department who are involved with the execution of contracts were interviewed with respect to the knowledge of internal procedures on customer requests for concessions as well as their knowledge of any previously granted customer concessions or modifications. Additionally, the Company contacted a large sample of external customers to confirm the completeness of deliverables as called for by the written contract or any other means of communications. The review revealed that, except for the one contract in question, all customer concessions and modifications were conveyed on a timely basis and revenue was appropriately recorded in all other cases during the period under review. The error that caused the improper recognition of revenue was not timely identified by our procedures and controls in place and $1.735 million was incorrectly recognized as goods revenue, resulting in a material overstatement of goods revenue for the fourth quarter of fiscal year 2007 and the first quarter of 2008. On November 18, 2008, the Audit Committee of the Board of Directors, in consultation with and upon recommendation of management, concluded that due to the error in accounting for goods revenue, our previously issued financial statements for the fourth quarter and fiscal 2007 included in the Annual Report on Form 10-K for the fiscal year ended December 31, 2007 and our previously issued financial statements included in the Quarterly Reports on Form 10-Q for the fiscal quarters ended March 31, 2008 and June 30, 2008 should no longer be relied upon and should be restated. Please refer to Note 2 of the notes to the consolidated financial statements for a quantification of the restatement. Evaluation of Disclosure Controls and Procedures - ------------------------------------------------ Our management, under the supervision of and with the participation of the Chief Executive Officer and Chief Financial Officer, performed an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) under the Securities Exchange Act of 1934 (the "Exchange Act")) as of the end of the period covered by this report, March 31, 2008. Based on its evaluation, and taking into consideration the material weaknesses in internal control over financial reporting referenced below, our management, including the Chief Executive Officer and Chief Financial Officer, concluded that our disclosure controls and procedures were not effective as of March 31, 2008. 27 As previously reported in our Annual Report on Form 10-K, as filed with the Securities & Exchange Commission (SEC) on March 31, 2008, in connection with our assessment of the effectiveness of our internal control over financial reporting at the end of our last fiscal year, management identified material weaknesses in the internal control over financial reporting as of December 31, 2007. We had an ineffective control environment. This has been previously disclosed in prior filings. Efforts to remediate deficiencies were impeded by an evolving control environment brought on by the rapid expansion in our business over the past twelve months. We did not maintain an effective financial reporting process, ensure timely and accurate completion of financial statements and we did not maintain effective monitoring controls including reconciliations and analysis of key accounts. We did not have a sufficient level of staffing with the necessary knowledge, experience and training to ensure the completeness and accuracy of our financial statements. Specifically, the financial reporting organization structure was not adequate to support the size, complexity or activities of our Company. This affected our ability to maintain effective monitoring controls and related segregation of duties over automated and manual transactions processes. Specifically, inadequate segregation of duties led to untimely identification and resolution of accounting and disclosure matters and failure to perform timely and effective supervision and reviews. We did not maintain effective controls over our IT environment. Specifically, we did not perform a review of restricted user access in our application software system and file server critical worksheet directories. We lacked sufficient business continuity and back up polices and procedures. In addition to the material weaknesses discussed above, we did not maintain effective controls to identify and monitor the existence of side agreements. In November, we became aware of a preexisting undocumented side agreement made in connection with a multiple element arrangement. Timely notification of the existence of the oral agreement was not communicated to the Finance Department, and therefore the impact of such agreement was not considered in the evaluation of revenue recognition on the contract. As a result, our recognition of revenue was materially misstated with respect to the fourth quarter of 2007 and the first quarter of 2008 which required restatement of previously issued financial statements. In connection with the findings of our review related to the restatement, management and the Audit Committee reviewed the additional internal control procedures and processes that have been implemented since the original date of the error and have identified additional remediation to address the material weakness of untimely reporting of customer contract changes. We will be implementing new internal controls and enhanced accounting policies, as well as improved sales policies and procedures relating to customer contract management and order fulfillment. In addition, we have begun to strengthen our financial reporting competencies, develop internal controls and compliance training programs directed towards contract management, implement personnel changes where necessary and establish corporate policies, practices and controls which are clear, concise and consistent. As a result of the foregoing, management has concluded that our internal control over financial reporting was not effective as of December 31, 2007. Changes in Internal Control Over Financial Reporting - ---------------------------------------------------- Except as described below, there have been no changes during our fiscal quarter ended March 31, 2008 in our internal control over financial reporting that may have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Management is actively addressing the above noted material weaknesses and other operational, financial and internal control remediation efforts are also underway. New policies and procedures are being created and existing policies and procedures are being reviewed and will be modified as part of our documentation and testing of internal control over financial reporting. Management believes these new internal control policies and procedures, when fully implemented, along with the training of key personnel and testing of these key controls will be effective in remediating these material weaknesses. In February 2008, we hired a Director of Financial Reporting who will have the primary responsibility for the financial close and reporting process and our internal control and monitoring environment related to financial reporting. We implemented new IT policies and procedures and progress was made in addressing the controls over our IT environment. 28 PART II OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS During the second quarter of 2005 a suit was filed by Arrow International, Inc. against Spire Biomedical, Inc., our wholly owned subsidiary, alleging patent infringement by us. The complaint claims one of our catheter products induces and contributes to infringement when medical professionals insert it. We have responded to the complaint denying all allegations and have filed certain counterclaims. The discovery process in this case has continued and is nearly complete. We filed a motion for summary judgment, asserting patent invalidity resulting from plaintiff's failure to follow the administrative procedures of the U.S. Patent and Trademark Office ("USPTO") which failure has remained uncorrected. On August 4, 2006, the Court granted our motion and dismissed this lawsuit without prejudice. Plaintiffs applied to revive the applicable patent, which application was granted by the USPTO in August 2006. Plaintiffs refiled their lawsuit against us in September 2006. We have filed our answer and resumed our defense. The parties have been working to conclude discovery. Based on information presently available to us, we believe that we do not infringe any valid claim of the plaintiff's patent and that, consequently, we have meritorious legal defenses with respect to this action in the event it were to be reinstated. The parties have agreed to limit any potential damages to us to a pre-specified royalty rate. In an amended complaint filed on December 28, 2006, in the Eastern Division of the U.S. District Court for the Southern District of Ohio, the wife and executor of the estate of Darrell Adams, deceased, alleged that the failure of a hemodialysis catheter manufactured by us contributed to his death. In the quarter ended March 31, 2008, the case was settled between the parties. Our product liability insurance covered the settlement and all legal expenses, less our deductible. ITEM 1A. RISK FACTORS There have been no material changes in the Risk Factors described in Part I, Item 1A ("Risk Factors") of our Annual Report on Form 10-K for the year ended December 31, 2007. 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 13, 2008, the Bank amended each of the Equipment Credit Facility and the Revolving Credit Facility, modifying the our net income profitability covenant requirements in exchange for a three quarters percent (0.75%) increase in our interest rate and waiver restructuring fee equal to one half percent (0.5%) of amounts outstanding under the Equipment Credit Facility and committed under the Revolving Credit Facility. In addition, our term loan balance will be factored in when calculating our borrowing base under the Revolving Credit Facility. ITEM 6. EXHIBITS 10(z) Amended and Restated Deferred Compensation Plan with Roger G. Little dated as of January 1, 2005, incorporated by reference to the Company's Form 10-Q dated March 31, 2008 with the Securities and Exchange Commission filed on May 13, 2008. 10(aa) First Loan Modification Agreement, dated March 31, 2008, to the Loan and Security Agreement, dated May 25, 2007, among Spire Corporation, Bandwidth Semiconductor, LLC and Silicon Valley Bank, incorporated by reference to the Company's Form 10-Q dated March 31, 2008 with the Securities and Exchange Commission filed on May 13, 2008. 10(ab) Loan and Security Agreement, dated March 31, 2008, among Spire Corporation, Spire Solar, Inc., Spire Biomedical, Inc., Spire Semiconductor, LLC and Silicon Valley Bank, incorporated by reference to the Company's Form 10-Q dated March 31, 2008 with the Securities and Exchange Commission filed on May 13, 2008. 29 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. 30 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: November 24, 2008 By: /s/ Roger G. Little -------------------------------- Roger G. Little Chairman of the Board, Chief Executive Officer and President Dated: November 24, 2008 By: /s/ Christian Dufresne -------------------------------- Christian Dufresne, Ph. D. Chief Financial Officer and Treasurer 31 EXHIBIT INDEX Exhibit Description ------- ----------- 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. 32 EX-31.1 2 exh311-033108_16178.txt 302 CERTIFICATION OF THE C.E.O. 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-Q/A 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d - 15(f)) 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) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurances regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) 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 d) Disclosed in this report any change in the Company's internal control over financial reporting that occurred during the Company's fiscal quarter ended March 31, 2008 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: November 24, 2008 By: /s/ Roger G. Little --------------------------- Roger G. Little Chairman of the Board, Chief Executive Officer and President EX-31.2 3 exh312-033108_16178.txt 302 CERTIFICATION OF THE C.F.O. EXHIBIT 31.2 ------------ CERTIFICATION PURSUANT TO SS.302 OF THE SARBANES-OXLEY ACT OF 2002 I, Christian Dufresne, Chief Financial Officer and Treasurer of Spire Corporation (the "Company"), certify that: 1. I have reviewed this quarterly report on Form 10-Q/A 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d - 15(f)) 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) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurances regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) 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 d) Disclosed in this report any change in the Company's internal control over financial reporting that occurred during the Company's fiscal quarter ended March 31, 2008 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: November 24, 2008 By: /s/ Christian Dufresne ------------------------------ Christian Dufresne, Ph. D. Chief Financial Officer and Treasurer EX-32.1 4 exh321-033108_16178.txt 906 CERTIFICATION OF THE C.E.O. 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-Q/A (the "Report") for the period ended March 31, 2008 as filed with the Securities and Exchange Commission on the date hereof, I, Roger G. Little, 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: November 24, 2008 By: /s/ Roger G. Little ------------------------------- Roger G. Little 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 5 exh322-033108_16178.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-Q/A (the "Report") for the period ended March 31, 2008 as filed with the Securities and Exchange Commission on the date hereof, I, Christian Dufresne, 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: November 24, 2008 By: /s/ Christian Dufresne ------------------------------ Christian Dufresne, Ph. D. 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-----