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                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                 ______________

                                   FORM 10-K/A
                                (AMENDMENT NO. 1)

     |X|  Annual Report Pursuant to Section 13 or 15(d) of the Securities
          Exchange Act of 1934
          For the fiscal year ended December 31, 2007 or

     |_|  Transition Report Pursuant to Section 13 or 15(d) of the Securities
          Exchange Act of 1934
          For the transition period from _____________ to _____________

                         Commission file number: 0-12742

                                SPIRE CORPORATION
--------------------------------------------------------------------------------
             (Exact name of registrant as specified in its charter)

       Massachusetts                                            04-24 7335
       -------------                                            ----------
(State or other jurisdiction of                              (I.R.S. Employer
 incorporation or organization)                           Identification Number)

                                One Patriots Park
                        Bedford, Massachusetts 01730-2396
                        ---------------------------------
                    (Address of principal executive offices)

                                 (781) 275-6000
                                 --------------
              (Registrant's telephone number, including area code)


           Securities registered pursuant to Section 12(b) of the Act:

                                                        Name of Each Exchange
         Title of Each Class                             on Which Registered
         -------------------                             -------------------
Common Stock, $0.01 par value per share                The Nasdaq Global Market


           Securities registered pursuant to Section 12(g) of the Act:
                                      None

     Indicate by check mark if the registrant is a well-known  seasoned  issuer,
as defined in Rule 405 of the Securities Act.                     Yes |_| No |X|

     Indicate by check mark if the  registrant  is not  required to file reports
pursuant to Section 13 or Section 15(d) of the Act.               Yes |_| No |X|

     Indicate  by check mark  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 if disclosure of delinquent  filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.                                                                   |_|

     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 the  definitions  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|

     Aggregate  market value of the voting stock held by  non-affiliates  of the
registrant  based on the last sale price of such stock as reported by The Nasdaq
Global Market on June 29, 2007: $41,581,000

                       DOCUMENTS INCORPORATED BY REFERENCE

     Portions of the definitive  proxy statement for the Special Meeting in Lieu
of  2008  Annual  Meeting  of  Stockholders  to be held  on May  22,  2008,  are
incorporated by reference in Part III of this Form 10-K.

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<PAGE>
                                SPIRE CORPORATION
                                   FORM 10-K/A
                      FOR THE YEAR ENDED DECEMBER 31, 2007

                                TABLE OF CONTENTS


Explanatory Note  ..........................................................   1


PART I

Item 1.    Business  .......................................................   3
Item 1A.   Risk Factors  ...................................................  10
Item 1B.   Unresolved Staff Comments Procedures  ...........................  17
Item 2.    Properties  .....................................................  17
Item 3.    Legal Proceedings  ..............................................  18
Item 4.    Submission of Matters to a Vote of Security Holders  ............  18


PART II

Item 5.    Market for Registrants Common Equity, Related Stockholder
           Matters and Issuer Purchases of Equity Securities  ..............  19
Item 6.    Selected Financial Data  ........................................  19
Item 7.    Management's Discussion and Analysis of Financial Condition
           and Results of Operations  ......................................  19
Item 7A.   Quantitative and Qualitative Disclosures About Market Risk  .....  32
Item 8.    Financial Statements  ...........................................  33
Item 9.    Changes in and Disagreements with Accountants on Accounting
           and Financial Disclosure  .......................................  62
Item 9A(T) Controls and Procedures  ........................................  62
Item 9B.   Other Information  ..............................................  65


PART III

Item 10.   Directors, Executive Officers and Corporate Governance  .........  65
Item 11.   Executive Compensation  .........................................  65
Item 12.   Security Ownership of Certain Beneficial Owners and Management
           and Related Stockholder Matters  ................................  65
Item 13.   Certain Relationships and Related Transactions, and Director
           Independence  ...................................................  65
Item 14.   Principal Accounting Fees and Services  .........................  65


PART IV

Item 15.   Exhibits, Financial Statements  .................................  66

           Signatures  .....................................................  69
<PAGE>

                                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 (the  "Original  Report")  and  previously
issued financial  statements  included in our Quarterly Reports on Form 10-Q for
the fiscal  quarters  ended  March 31,  2008 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  Annual  Report  on  Form  10-K/A  (the  "Amended  Report")  we are
restating  our  consolidated  balance  sheet  as of  December  31,  2007 and our
consolidated  statements of  operations,  stockholder's  equity,  cash flows and
related  disclosures  for the year  ended  December  31,  2007  included  in the
Original  Report to correct  this error.  We are also  restating  the  condensed
consolidated financial statement for first and second quarter of 2008 to correct
this  error.  We  anticipate  filing  on the same date as this  Amended  Report,
Quarterly  Reports on Form 10-Q/A for the first and second  quarters 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 8,  Note  2,  "Restatement  of
Previously   Issued  Financial   Statements"  to  the   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 9A(T). Controls
and  Procedures"  in Part II 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,      March 31,
                                                      2007            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  Consolidated  Financial  Statements  included in Part I,
Item 8

                                       1
<PAGE>

     For the reasons discussed above, we are filing this Amended Report in order
to  amend  Item 1  "Business,"  Item 1A  "Risk  Factors,"  Item 7  "Management's
Discussion and Analysis of Financial  Condition and Results of Operations," Item
8 "Financial  Statements and  Supplementary  Data," and Item 9A(T) "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,  March 31, 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
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                           FORWARD-LOOKING STATEMENTS

THIS REPORT CONTAINS  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 TIMING OF CERTAIN EVENTS COULD
DIFFER MATERIALLY FROM THOSE DISCUSSED IN THESE  STATEMENTS.  FACTORS THAT COULD
CONTRIBUTE TO THESE DIFFERENCES  INCLUDE BUT ARE NOT LIMITED TO, THOSE DISCUSSED
UNDER  "ITEM  1A.  RISK  FACTORS",  "MANAGEMENT'S  DISCUSSION  AND  ANALYSIS  OF
FINANCIAL  CONDITION  AND RESULTS OF  OPERATIONS"  AND ELSEWHERE IN THIS REPORT.
READERS ARE  ENCOURAGED TO CAREFULLY  REVIEW THESE RISK FACTORS.  THE CAUTIONARY
STATEMENTS  MADE IN THIS  REPORT  SHOULD  BE READ  AS  BEING  APPLICABLE  TO ALL
FORWARD-LOOKING  STATEMENTS WHEREVER THEY APPEAR IN THIS REPORT. WE UNDERTAKE NO
OBLIGATION TO UPDATE ANY FORWARD LOOKING STATEMENTS.

                                     PART I
ITEM 1.    BUSINESS
-------------------

     Spire Corporation ("Spire" or the "Company") is a Massachusetts corporation
incorporated  in 1969.  Our principal  offices are located at One Patriots Park,
Bedford, Massachusetts,  and our phone number is (781) 275-6000. Our SEC filings
are available through our website, www.spirecorp.com. Our common stock trades on
the Nasdaq Global Market under the symbol "SPIR".

PRINCIPAL PRODUCTS AND SERVICES

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.  The company 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  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

                                       3
<PAGE>

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 and 50 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 our  manufacturing
equipment.  In 2007, we nearly doubled 2006 annual revenues and we believe it is
possible to grow revenues  significantly again in 2008 based upon current orders
as of  December  31,  2007.  We have  equipment  deployed  in  approximately  50
countries  and have enjoyed the  patronage of some of the world's  leading solar
manufacturers   including  First  Solar,  BP  Solar,  Kyocera,  Sharp,  Hitachi,
Evergreen and Solaria Energia.

INDUSTRY OVERVIEW

     Over the last few years,  solar power has become one of the fastest growing
sources of renewable energy.  Key factors which have driven the demand for solar
power include rising fossil fuel prices,  security  concerns over the dependence
of fossil fuel imports from areas of volatility, environmental concerns over the
hazards  associated with fossil fuel use,  government  incentive programs making
solar power more cost competitive,  and overall changes in consumer  preference.
As  a  result,  businesses,   governments,   and  consumers  alike  have  become
increasingly  supportive of the  development of  alternative  sources of energy,
such as solar power.  The largest markets for PV systems are in Europe and Japan
with manufacturing located primarily in Europe and Asia.

     According  to  Solarbuzz,   an  international  solar  energy  research  and
consulting  company,  the global solar power  market,  measured by  photovoltaic
installations,  increased from 427 megawatts  ("MW") in 2002, to 1,744MW in 2006
representing  a compound  annual  growth rate  ("CAGR")  of 42.2%;  photovoltaic
installations  are estimated to grow to 7,630MW in 2011,  representing a CAGR of
134.3%.  Meanwhile,  solar industry  revenues grew to $10.6 billion in 2006, and
are expected to grow to $31.5 billion in 2011  representing a CAGR of 124.6%, as
projected by Solarbuzz.

[Mountain Charts]

Global Annual Solar Power Installed Capacities (MW)

2006A   1,744
2007E   2,308
2008E   3,071
2009E   4,029
2010E   5,587
2011E   7,630

Global Solar Industry Revenues ($MM)

2006A   10,580
2007E   13,832
2008E   16,333
2009E   18,068
2010E   24,223
2011E   31,463

* Source: Solarbuzz, 2007.

PHOTOVOLTAIC MODULE MANUFACTURING OVERVIEW

     Several  technologies have been developed to harness the sun's energy. Most
prolific is the direct  conversion of photons of light into electricity  through
the use of photovoltaic cells.  Though various thin film photovoltaic  materials
are growing in  popularity  due the low  production  costs,  the vast  majority,
roughly 93%, of the photovoltaic market is composed

                                       4
<PAGE>

of  crystalline  silicon.  The  popularity  of silicon  is largely  based on its
technology  legacy,  abundant  raw  material  (silicate),  and  high  conversion
efficiency.

     Crystalline solar cells and modules are produced in five basic stages:  (i)
polysilicon  production;  (ii) ingot  growth;  (iii) ingot  wafering;  (iv) cell
production;  and (v) module assembly. The value chain begins with the processing
of quartz sand to produce  silicon.  The resulting  silicon is purified to solar
grade  polysilicon,  which is then processed into ingots.  The ingots are sliced
into wafers which are manufactured  into solar cells through an etching,  doping
and coating  process.  The solar cells are combined into modules through another
series  of steps  which  include  testing,  sorting  and  stringing  the  cells,
transferring the strings onto glass, laminating and framing the module for final
assembly. Not all solar cell and module manufacturers  participate in each stage
of the production  process.  Some  manufacturers  are integrated across multiple
stages while others specialize in one stage of the process.

     The  rapid  growth  of the  photovoltaic  industry  has  led  to  increased
investments   across  the  entire  value  chain,   including  turnkey  equipment
manufacturing.  The solar industry has raised several  billion in new equity and
debt to fund expansion of the industry.  According to Solarbuzz,  in 2005,  2006
and 2007, the industry raised a total of $2 billion, $4 billion and $10 billion,
respectively.  In 2006, Solarbuzz reports that the total capital expenditures of
manufacturing  equipment for crystalline silicon  photovoltaic  products reached
$2.4 billion.

     Currently,  the bottleneck in the industry lies in polysilicon  supply. The
large growth in the solar space has resulted in greater  demand for  polysilicon
than available,  resulting in considerable increases in price for both long-term
contract prices and spot market prices.  Polysilicon  consumption increased from
5,100 metric tons ("MT") to 20,700MT  from 2001 to 2006  respectively,  with the
top seven  polysilicon  producers  accounting  for nearly 96% of the  industry's
total production capacity, according to Solarbuzz. While the dominant players in
the  industry  have enjoyed  increasingly  higher  margins,  the huge demand for
polysilicon has attracted numerous new entrants into the market to capitalize on
the opportunity.  In addition,  the dominant players have  significantly  scaled
their  production  to also meet this  demand.  As a  result,  a large  influx of
polysilicon  is  forecasted  to enter the market in 2009-2010  with  incremental
capacity  being added in 2007 and 2008.  With demand met by this time,  the next
bottleneck in the industry will occur with the turnkey  equipment  manufacturing
needed in the latter stages of the value chain.

 [PIE CHART]

Crystalline Silicon    93%
Thin Film               7%

------------------------------------ -----------------------
            Technology                    MW Produced
------------------------------------ -----------------------
A-Si                                          100
------------------------------------ -----------------------
Cd-Te                                          70
------------------------------------ -----------------------
CIS/CIGS                                        5
------------------------------------ -----------------------
Monocrystalline Flat Plate                    955
------------------------------------ -----------------------
Multicrystalline Flat Plate                 1,170
------------------------------------ -----------------------
Ribbon (Silicon)                               70
------------------------------------ -----------------------
Other Crystalline                             150
------------------------------------ -----------------------
Total                                       2,520
------------------------------------ -----------------------

*Source: Prometheus Institute, November 2007

PRODUCTS AND SERVICES

     Applying our expertise in ion implantation has allowed us to develop solar,
semiconductor and biomedical  products,  all of which have evolved from a single
technology. Our core business is in solar, though profitable applications in the
biomedical and semiconductor  industries have enabled us to continue  developing
these  operations.  Currently we operate our business in three  segments:  Spire
Solar, Spire Semiconductor and Spire Biomedical.

Spire Solar

     We  believe  that  we  are  one  of  the  world's   leading   suppliers  of
manufacturing  equipment and technology needed to manufacture solar photovoltaic
power systems. Our individual items of manufacturing  equipment products and our
SPI-LINETM module production lines span the full photovoltaic module fabrication
process, which currently include:

       o Sorting solar cells into performance groups;
       o Assembling and soldering strings of cells interconnected with metal
         ribbons or "tabs";
       o Completing the module circuit by soldering bus ribbons to connect the
         strings together;

                                       5
<PAGE>

       o Cutting polymer, fiberglass and back cover to length and assembling
         them with the glass and module circuit in preparation for
         encapsulation;
       o Laminating the module assembly and curing the encapsulating polymer;
       o Final assembly, including edge trimming, installing an edge gasket and
         frame, and attaching a junction box;
       o Performing a high voltage isolation test to guarantee safe voltage
         isolation between the cell circuit and the module frame; and
       o Electrically testing the module performance by measuring a
         current-voltage curve under simulated sunlight.

     The  fabrication  of  photovoltaic  modules  uses  solar  cells and  module
materials as input and produces functional  photovoltaic modules, ready for use.
We provide the necessary  equipment and training for implementing  these process
steps as individual equipment items and as fully integrated production lines.

     Our primary  customers  have been new entrants that wish to enter the solar
PV market.  These entrants are primarily local manufacturers that are encouraged
to produce PV modules by  governmental  incentive  programs.  We offer a turnkey
solution with enabling  technology to allow these entrants to quickly enter into
the market,  or to expand  existing  capacity,  within one year of their initial
investment  decision.  We also sell  individual  equipment  to existing  silicon
module  manufacturers as well as certain pieces of our module equipment to "thin
film"  manufacturers  specifically  lamination  and testing  equipment.  We also
provide  full  turnkey  solar cell and wafer lines to  customers  to  vertically
integrate their  manufacturing  lines (for these production  lines). We purchase
rather than  manufacture  equipment  while offering  proprietary  technology and
integration services to enable customers.  We currently have two customers under
contract to deliver 50MW of cell line production.

     On July 31, 2007,  we entered into a contractual  relationship  with Gloria
Solar Co., Ltd.  ("Gloria  Solar"),  a leading cell and module  manufacturer  in
Taiwan  organized  under the laws of the Republic of China  (Taiwan).  Under the
agreement, we agreed to sell Gloria Solar certain assets pertaining to our solar
systems business for $4 million. In addition,  we agreed to form a joint venture
for the purpose of pursuing the solar  photovoltaic  systems  market  within the
United States. The joint venture will design,  sell and manage the installations
of solar systems for the  generation of electrical  power by solar  photovoltaic
means in  primarily  commercial/industrial  and utility  segments of such market
(the "JV Systems  Business").  Gloria Solar owns 55% of the joint venture and we
own 45% of the joint  venture.  In  connection  with the  formation of the joint
venture,  we contributed our solar photovoltaic  system assets related to the JV
Systems Business,  including certain intellectual property and know-how,  access
to information  technology assets and relationships,  relationships with current
and previous customers,  contract backlog and project leads,  certain registered
trademarks,  and  employment  relationships  with staff  members;  Gloria  Solar
contributed $5 million in cash.

Spire Semiconductor
-------------------

     Spire Semiconductor  operates a state-of-the-art  semiconductor foundry and
fabrication  facility  in Hudson,  New  Hampshire  equipped  with  advanced  and
sophisticated  metal-organic  chemical vapor deposition  ("MOCVD")  reactors and
fabrication  equipment.  Our fabrication  facility has been designed to have the
flexibility  to engage in quick-turn  research and  prototyping,  as well as for
economical  full-rate volume  production  services in three primary areas:  GaAs
concentrator  solar  cells,  high  performance  LEDs and  other  device  foundry
services.  Bandwidth  Semiconductor LLC ("Bandwidth")  changed its name to Spire
Semiconductor in 2007.

     Our MOCVD  reactors  have the  capacity to include a wide range of compound
semiconductor  (chiefly  GaAs and indium  phosphide-based  compounds)  epitaxial
structures  fabricated  to our  customers'  designs  or in some cases to our own
designs. GaAs concentrator cells represent a significant market opportunity and,
as one of the first  pioneers  in GaAs  fabrication,  we have the  expertise  to
provide   customers   with   turnkey   cell   products.   We  offer  double  and
triple-junction  cells and have recently filed a patent  application  for a 40%+
conversion efficiency solar cell design. We currently have capacity for 25 MW of
high efficiency solar cell production with opportunities to expand.

     Our foundry services can take compound  semiconductor wafers up to 4 inches
in diameter through  processing,  on-wafer test, and die separation.  We can use
customer-supplied photomasks or develop a new set of masks for an entire process
sequence.  We design the process steps and conditions to meet the desired device
characteristics  and implement the process in our fabrication  facility,  saving
our customers  development  time and providing a source of  proprietary  devices
without the expense of a dedicated internal fabrication.  Typical OEM devices we
have fabricated include

                                       6
<PAGE>

thermo-photovoltaic  ("TPV") cells and communications-quality  LEDs as well as a
host  of  other   optoelectronics   including   single-element   photodetectors,
photodetector  arrays,  vertical cavity surface emitting lasers ("VCSELs"),  and
edge-emitting lasers.

Spire Biomedical
----------------

     We also provide advanced medical device surface treatment processes for the
performance  improvement of orthopedic  and  cardiovascular  devices,  enhancing
properties such as wear resistance,  infection resistance and thromboresistance.
Additionally,  we  offer  a wide  range  of  high  performance  vascular  access
catheters for hemodialysis treatment in patients with chronic kidney disease.

     Our  line  of  long-term   hemodialysis   catheters   combines  high  level
performance with increased catheter placement options.  Our proprietary catheter
products  provide higher flow at lower  pressures and superior  kink-resistance.
Our patented separated distal tip design minimizes  recirculation and provides a
wider margin of functionality compared to conventional staggered tip designs. We
recently  introduced a line of heparin coated  catheters that have shown reduced
clotting in laboratory  and animal  studies.  We believe that these key features
present the renal care  community  with  attractive  value and  performance  for
patient care.

     We also offer our medical customers a family of process services  utilizing
ion beam  technologies  to  enhance  both the  surface  characteristics  and the
performance of medical  devices.  Our advanced surface  modification  technology
services employ  proprietary Ion Implantation  and Ion Beam Assisted  Deposition
("IBAD")  techniques  to improve  the  performance  of medical  components.  Our
customized  surface  treatments  meet a  variety  of  needs,  including  reduced
friction,  wear and abrasion,  infection  resistance,  enhanced  tissue and bone
growth, increased thromboresistance,  conductivity, improved radiopacity and the
improvement  of  other  performance   characteristics.   Spire-treated  products
currently  include  orthopedic  prostheses  (such as  replacement  hips,  knees,
elbows),  catheters,  guidewires,  ear-nose-throat devices, vascular grafts, and
other specialty medical devices.

PRINCIPAL DISTRIBUTION METHODS

     Our products and services are sold primarily by our direct,  internal sales
staff with four notable  exceptions:  in certain  offshore  markets,  we utilize
independent  sales  representatives  to aid our sales  efforts to sell our solar
equipment,   our  hemodialysis   catheter  products  are  sold  via  independent
distributors, proposals for sponsored research and development work are prepared
by our scientists and researchers,  and, in certain  locations,  we have granted
licenses to third parties to sell their product base upon our technology.

PHYSICIAN RELATIONSHIPS

     We have engaged  certain  physicians to serve as  consultants  to us. These
physicians enter into written  contracts that specify their duties and fix their
compensation  for  periods  of one or more  years.  The  compensation  for these
consultants  is the result of arm's length  negotiations  and generally  depends
upon  competitive  factors in the local  market,  the  physician's  professional
qualifications and the specific duties and responsibilities of the physician.

COMPETITIVE CONDITIONS

     The markets in which we operate are highly competitive and characterized by
changes due to technological improvements and developments. We compete with many
other  manufacturers  and service  providers  in each of our product and service
areas; many of these competitors have greater resources and sales. Additionally,
our  products  and  services  compete  with  products  and  services   utilizing
alternative  technologies.  For example,  our solar photovoltaic systems compete
with  other  forms  of  renewable   energy  such  as  wind,  solar  thermal  and
geo-thermal.  Price, service and product performance are significant elements of
competition  in the sale of each of our  products.  We  believe  that  there are
considerable  barriers  to  entry  into  the  markets  we  serve,   including  a
significant  investment in specialized  capital equipment and product design and
development,  and  the  need  for a  staff  with  sophisticated  scientific  and
technological knowledge.

SOURCES AND AVAILABILITY OF RAW MATERIALS

     Principal raw materials purchased by us include polymer extrusions,  molded
plastic  parts,  silicon  photovoltaic  cells,   compound   semiconductor  wafer
substrates,  high purity  industrial  gases,  custom  metal  welded  structures,
fasteners,  position

                                       7
<PAGE>

sensors,   electrical  motors,  electrical  power  conditioning  inverters,  and
electrical controls. All of these items are available from several suppliers and
we  generally  rely on more than one  supplier  for each item.  There has been a
multi-year  shortage in  semiconductor  grade silicon  leading to dramatic price
increases over the past two years. The shortage in  semiconductor  grade silicon
did have an  adverse  effect on the  ordering  patterns  of our solar  equipment
customers  in the early part of 2006 and could  have an adverse  effect on solar
ordering patterns in the future.

SOURCES AND AVAILABILITY OF MANUFACTURING SERVICES

     We employ an  outsourcing-model  supply  chain in our  biomedical  products
business by which certain  manufacturing  services,  such as polymer  extrusion,
assembly,   packaging   and   sterilization,   are  obtained  from  third  party
contractors.  We have identified  multiple potential sources for the services it
requires;  however,  certain elements of the supply chain currently involve only
one  qualified  contractor.  As sales  volume  expands,  we plan to reassess our
supply chain to  eliminate  potential  "bottlenecks"  and reduce  dependence  on
sole-source, single site contract services.

DEPENDENCE ON MAJOR CUSTOMERS

     One customer  accounted for more than 10% of our consolidated net sales and
revenues  during the year ended December 31, 2007  (approximately  15%), and one
customer  accounted for more than 10% of our consolidated net sales and revenues
in 2006 (approximately 12%).

KEY LICENSES AND PATENTS, GOVERNMENT RIGHTS TO INTELLECTUAL PROPERTY

     On May 26,  2005,  we  entered  into a  global  consortium  agreement  (the
"Agreement") with Nisshinbo Industries,  Inc. ("Nisshinbo") for the development,
manufacturing,  and sales of solar photovoltaic module manufacturing  equipment.
Nisshinbo's  prior  relationship  with Spire was as a  sub-licensee  of Marubeni
Corporation with whom we had a license arrangement that was originally signed in
1997,  extended  in  2003,  and  terminated  in May  2005.  Nisshinbo's  role as
sub-licensee  was to manufacture  equipment for Marubeni to sell to the Japanese
market based upon our proprietary technology.  Under the terms of the Agreement,
Nisshinbo  purchased a license to manufacture and sell our module  manufacturing
equipment on a semi-exclusive basis for an upfront fee plus additional royalties
based on ongoing  equipment sales over a ten-year  period.  In addition,  we and
Nisshinbo  agreed,  but  are  not  obligated,   to  pursue  joint  research  and
development, product improvement activities and sales and marketing efforts. The
companies  may share  market  costs  such as product  collateral  and trade show
expenses.  Each company may also  collaborate  on sales leads and have the other
company  manufacture and service its equipment in the field. Both companies have
reciprocal  rights  to  participate  in the other  company's  R&D  efforts  on a
going-forward  basis.  Nisshinbo can request us to further  develop a technology
but Nisshinbo must (a) share in the costs of these  development  efforts equally
with us  (and  thereafter  have  joint  ownership)  otherwise  we  will  own the
technology  under a partial  contribute or no participation by Nisshinbo with us
receiving a royalty from Nisshinbo if it utilizes the technology.  At the end of
the license all non-jointly owned technology  developed under the Agreement will
revert back to the owner,  with the other party being required to purchase a new
license based upon the fair market value of that technology in order to continue
to utilize the technology.

     On June  27,  2005,  we  received  JPY  400,000,000  from  the sale of this
permanent license.  We determined that the Nisshinbo Agreement contains multiple
elements  consisting of (1) the granting of a license to utilize our  technology
and (2) the  semi-exclusive  right to utilize the  technology for a period of 10
years.  We believe the  granting of the license  meets the  criteria of Emerging
Issues Task Force ("EITF")  00-21,  "Accounting  for Revenue  Arrangements  with
Multiple Elements", paragraph 9(a), as the license to utilize the technology has
value to Nisshinbo on a stand-alone basis. Further, Question 1 to Securities and
Exchange   Commission   ("SEC")   Staff   Accounting   Bulletin   Topic   13A-3f
"Nonrefundable   Up-Front  Fees",  was  directly   considered  as  guidance  for
determining  if  the  upfront  fee  under  the  Nisshinbo  Agreement  should  be
recognized  upon the  signing of  contract  or  recognized  over the term of the
license.  It is our belief  that a separate  earnings  process  was  complete as
Nisshinbo  was  purchasing  access to utilize  technology  it already had in its
possession;  therefore,  recognition of the gain on the sale was appropriate. We
have determined the fair value of the license and royalty based on an appraisal.
As a result,  a $3,319,600  gain was  recognized as a gain on sale of license in
the consolidated  statements of operations for the year ended December 31, 2005.
The balance of $350,000 was determined to represent an advanced  royalty payment
and was recorded as an advance on  contracts  in progress.  This amount is being
credited as royalty income over the ten-year  license period on a  straight-line
basis.

     Through  over 30 years of research  and  development,  we have  accumulated
extensive scientific and technological  expertise.  We protect our technological
advances as trade  secrets,  in part  through  confidentiality  agreements  with

                                       8
<PAGE>

employees,  consultants  and third parties.  We also seek and enforce patents as
appropriate.  We currently has 35 issued United States patents,  one of which is
jointly owned, 33 patents pending in the United States, and five foreign patents
pending,   all  of  which  cover   elements  of  our  materials  and  processing
technologies.

     The United  States  government  retains the right to obtain a patent on any
invention  developed under  government  contracts as to which we do not seek and
obtain a patent,  and may  require  us to grant a third  party  license  of such
invention if steps to achieving practical  application of the invention have not
been  taken.  The  United  States   government  also  retains  a  non-exclusive,
royalty-free,   non-transferable  license  to  all  technology  developed  under
government contracts, whether or not patented, for government use, including use
by other parties to United States government contracts.  Furthermore, our United
States government contracts prohibit us from granting exclusive rights to use or
sell any  inventions  unless  the  grantee  agrees  that any  product  using the
invention will be manufactured substantially in the United States.

GOVERNMENT REGULATION OF MEDICAL PRODUCTS

     Our hemodialysis  catheters and accessory  products require the approval of
the United  States Food & Drug  Administration  ("FDA") prior to sale within the
United  States.  Sales  within the  European  Union  ("EU")  require the CE Mark
certification and sales within Canada require a medical device license issued by
Health Canada.

     Within  the  United  States,   the  process   requires  that  a  pre-market
notification  (the "510(k)  Submission") be made to the FDA to demonstrate  that
the  device  is as safe and  effective,  substantially  equivalent  to a legally
marketed  device  that is not  subject  to  pre-market  approval.  FDA  guidance
documents  are used to prepare the 510(k)  Submission.  Applicants  must compare
this device to one or more similar devices commercially  available in the United
States,  known  as  the  "predicate"  device(s),  and  make  and  support  their
substantial  equivalency  claims.  Applicants must submit  descriptive  data and
performance data to establish that the device is  substantially  equivalent to a
predicate device.  In some instances,  data from human clinical trials must also
be  submitted  in  support  of a 510(k)  Submission.  If so,  the  data  must be
collected in a manner that conforms to specific  requirements in accordance with
federal  regulations.   The  FDA  must  issue  a  510(k)  letter  order  finding
substantial  equivalence before commercial  distribution can occur. Upon receipt
of the 510(k)  application by the FDA, up to a 90-day response period is allowed
before the FDA must respond.

     We currently hold all required  approvals and  certifications to market our
Heparin coated and uncoated hemodialysis catheters and accessory products in the
USA, and our uncoated  catheters in the EU, Canada,  Australia and Hong Kong. We
are committed to maintaining these critical approvals and certifications and the
stringent  quality   requirements   applicable  to  the  development,   testing,
manufacturing, labeling, marketing and distribution of these products.

     Recent  actions by the FDA to improve the  quality of the supply  chains of
medical  device  manufacturers  has had an  indirect  effect  on our  biomedical
processing services. However, our current quality control systems have been more
than adequate to meet the increased demands of our customers.

GOVERNMENT REGULATION OF CONTRACTS

     Our United  States  government  contracts  are subject to a large number of
federal  regulations  and oversight  requirements.  Compliance with the array of
government  regulations requires extensive record keeping and the maintenance of
complex policies and procedures relating to all aspects of our business, as well
as to work performed for us by any  subcontractors.  We believe that we have put
in place  systems  and  personnel  to ensure  compliance  with all such  federal
regulations  and  oversight  requirements.  All  contracts  with  United  States
government  agencies have been audited by the government  through December 2005.
We have not  incurred  substantial  losses  as a result of these  incurred  cost
audits.

RESEARCH AND DEVELOPMENT

     Our  policy  is to  support  as much of our  research  and  development  as
possible through  government  contract  funding,  which we recognize as revenue.
Revenues  from our  research and  development  contracts  and Natural  Renewable
Energy  Laboratory  ("NREL") funded by the United States  government,  and their
percent of  consolidated  net sales and  revenues  were  $1,303,000,  or 4%, and
$2,261,000,   or  11%,  for  the  years  ended   December  31,  2007  and  2006,
respectively.

     Our contracts  with the United States  government  grant to us  proprietary
rights in any technology  developed  pursuant to such contracts and grant to the
United States  government a non-exclusive  license to utilize the technology for
its benefit.  The United  States  government  retains the right to pursue patent
protection  on any  inventions  made under these  contracts

                                       9
<PAGE>

as to which patent  protection  is not sought and  obtained by us. To date,  the
Government  has not  exercised  its rights to patent nor  indicated it has or it
will do so. We still have the  ability to sell our rights to develop  technology
and has  successfully  sold the  rights in the past.  Our  rights to  technology
developed under contracts with private companies vary, depending upon negotiated
terms.

     Our internally  funded research and development  expenditures were $313,000
and $734,000 for the years ended December 31, 2007 and 2006, respectively.

CUSTOMERS AND MARKETS

     One customer  accounted for more than 10% of our consolidated net sales and
revenues  during the year ended December 31, 2007  (approximately  15%), and one
customer  accounted for more than 10% of our consolidated net sales and revenues
in 2006 (approximately 12%).

     Our export sales,  which  amounted to 47% and 33% of net sales and revenues
for 2007 and 2006, respectively, continue to constitute a significant portion of
our net sales and  revenues.  Over 90% of export  sales in 2007 and 2006 were to
solar  equipment  customers with the remainder to biomedical and  optoelectronic
related customers.

     The following  table shows net sales and revenues by geographic area (based
on customer location) for the years ended December 31:

                                  2007           %          2006           %
                                   As Restated
                              ----------------------    ------------    ------
          United States       $ 19,714,000        53%   $ 13,454,000        67%
          Europe/Africa          9,129,000        25%      3,389,000        17%
          Asia                   7,643,000        21%      2,771,000        13%
          Rest of the world        582,000         1%        511,000         3%
                              ------------    ------    ------------    ------
                              $ 37,068,000       100%   $ 20,125,000       100%
                              ============    ======    ============    ======

ENVIRONMENTAL QUALITY

     Compliance  with  federal,   state  and  local  provisions  regulating  the
discharge of materials  into the  environment  has not  materially  affected our
capital expenditures,  earnings or its competitive position. Currently there are
no lawsuits  related to the environment or material  administrative  proceedings
pending against us.

EMPLOYEES

     At December 31,  2007,  we had  approximately  188  employees,  of whom 179
worked  full  time.   Our  year  end  head  count   included  134  employees  in
manufacturing  operations,  10  employees in research  and  development,  and 44
employees  in  sales,  general  and  administrative.  We also  employ  part-time
employees and hire independent contractors. Our employees are not represented by
any  collective  bargaining  agreement,  and we have  never  experienced  a work
stoppage. We believe that our employee relations are good.

ITEM 1A.   RISK FACTORS
-----------------------

     In addition to the other  information in this Form 10-K, the following risk
factors  inherent  in and  affecting  our  business  should be  considered.  The
descriptions in this Form 10-K contain  forward-looking  statements that involve
risks and uncertainties. Our actual results and the timing of certain events may
differ  materially from the results and timing described in the  forward-looking
statements.  Factors that could cause or contribute to such differences include,
but are not limited to, those  described below and in  "Management's  Discussion
and  Analysis of Financial  Condition  and Results of  Operations"  and above in
"Business."

                         RISKS RELATING TO OUR BUSINESS
                         ------------------------------

OUR SUCCESS WILL DEPEND UPON OUR ABILITY TO  EFFECTIVELY  IMPLEMENT OUR BUSINESS
MODEL OF CREATING OR ACQUIRING  SCIENTIFICALLY  ADVANCED TECHNOLOGY,  DEVELOPING
AND  MANUFACTURING   COMMERCIALLY  VIABLE  PRODUCTS  FROM  SUCH  TECHNOLOGY  AND
SUCCESSFULLY
                                       10
<PAGE>

MARKETING AND DISTRIBUTING  SUCH PRODUCTS.  THE FAILURE TO SUCCESSFULLY  EXECUTE
ANY  STAGE OF THIS  PROCESS  COULD  HAVE A  MATERIALLY  NEGATIVE  IMPACT  ON OUR
BUSINESS AND RESULTS OF OPERATIONS.

     We believe  that our  continued  success  will  depend  upon our ability to
create or  acquire  scientifically  advanced  technology,  apply our  technology
cost-effectively   across   product  lines  and  markets,   develop  or  acquire
proprietary products,  attract and retain skilled development personnel,  obtain
patent  or  other  protection  for  our  products,  obtain  required  regulatory
approvals,  manufacture and successfully  market our products either directly or
through outside  distributors and sales  representatives  and supply  sufficient
inventory  to meet  customer  demand.  There  can be no  assurance  that we will
realize  financial  benefit  from our  technology  development  and  application
efforts,  that we will continue to be successful in identifying,  developing and
marketing new products or enhancing our existing  products,  or that products or
technologies  developed by others will not render our  products or  technologies
non-competitive or obsolete.

WE  HAVE  EXPERIENCED  LOSSES  FROM  OPERATIONS,  BEFORE  THE  SALE  OF  CERTAIN
TECHNOLOGY LICENSES,  AND WE EXPECT THAT OUR OPERATING RESULTS WILL FLUCTUATE IN
THE FUTURE.

     We have  experienced  losses from operations in each of the past two fiscal
years. These losses have contributed to an accumulated  deficit of approximately
$11.7 million as of December 31, 2007. Our revenues have not been  sufficient to
cover our  operating  expenses,  and we  anticipate  that we may sustain  future
losses from  operations  if revenues do not  increase.  Future  fluctuations  in
operating  results may also be caused by a number of factors,  many of which are
outside our control.  Additional  factors that could affect our future operating
results include the following:

     o Availability   of  raw  materials   processed  by  the  capital
       equipment   we  provide  to  our   buyers,   particularly   the
       polysilicon  used in the  manufacture of the silicon wafers and
       solar cells;
     o Delays,  postponements or cancellations of orders and shipments
       of our products,  particularly in our solar equipment and solar
       systems  businesses  where  individual order sizes may be large
       and thus may represent a significant portion of annual revenue;
     o Changes in our receipt of license fees,  milestone payments and
       royalty payments relating to our intellectual property;
     o Loss of major customers,  particularly as a result of customers
       changing  their own  product  designs in such ways as reduce or
       eliminate the need for the manufacturing services we provide;
     o Reductions  in the selling  prices of our products and services
       as a result of competitive pressures;
     o Variation in capacity,  capacity  utilization and manufacturing
       yields  within the third party medical  contract  manufacturing
       service  providers  that  constitute  the supply  chain for our
       biomedical  products  that,  in turn,  cause  variation  in our
       ability to timely ship our products;
     o Increased  competition  from  current  and future  competitors,
       including  competition  resulting  from  services  and products
       utilizing competing technologies;
     o Variation in the timing of customer orders and inventory levels
       at  our   customers,   particularly   within   our   biomedical
       manufacturing services business;
     o Termination  of  existing  grants with  government  agencies or
       delays in funding of grants awarded;
     o Delays in introducing and gaining physician  acceptance for new
       products  and  product   improvements,   particularly   in  our
       biomedical products business; and
     o Disruption in the distributor  sales channels by which we bring
       our biomedical products to market.

     If we are unable to reach and sustain profitability from our operations, we
risk depleting our working capital balances and our business may not continue as
a going concern.  Even if we are profitable,  we may require  additional working
capital to meet expected  growth.  Although future sales of technology  licenses
may be pursued,  such sales cannot be assured. In addition, we may need to raise
additional  capital,  or arrange other sources of funds, in order to sustain our
operations.  There can be no assurance  that we will be able to raise such funds
if they are required.  Even if new financing  were  available,  it may not be on
commercially reasonable terms or terms that are acceptable to us.

OUR ABILITY TO EXPAND REVENUE AND SUSTAIN PROFITABILITY DEPENDS SUBSTANTIALLY ON
THE STABILITY  AND GROWTH OF THE VARIOUS  MARKETS FOR OUR PRODUCTS AND SERVICES.
SHOULD WE BE UNABLE TO EXPAND OUR  REVENUE,  OUR  ABILITY  TO REACH AND  SUSTAIN
PROFITABILITY WOULD BE IMPAIRED.

     o The  world  demand  for  photovoltaic  manufacturing  equipment
       depends on sustained  expansion in the demand for decentralized
       power  sources,  especially  in  developing  countries,  and on
       domestic  and  foreign  government  funding of  initiatives  to
       invest in solar  energy as an  alternative  to the  burning  of
       fossil fuels and other energy production methods.  There can be
       no assurance that government  funding for such initiatives

                                  11
<PAGE>

       will be  available,  or that  solar  energy  will prove to be a
       cost-effective  alternative  to other  energy  sources and thus
       gain acceptance where traditional energy sources continue to be
       available.  Should demand for solar  photovoltaic power sources
       not  increase,   demand  for  new  photovoltaic   manufacturing
       equipment  would  not  materialize  and our  business  would be
       adversely affected.

     o Most of our research and development  revenues are generated by
       contracts  with the United States  government.  There can be no
       assurance  that the  United  States  government  will  fund our
       research and  development  projects at the same level as it has
       in the past. Should federal research funding priorities change,
       and should we be unable to adjust our research focus to reflect
       the shift, our business could be adversely affected.

     o The  growth of our  biomedical  products  business  depends  on
       increased  physician  acceptance of our  hemodialysis  catheter
       products,  our ability to manage the  production of higher unit
       volumes of catheter  products  and our  ability to  effectively
       distribute those products.  Should our  hemodialysis  catheters
       not gain  market  acceptance  or  should we not be able to meet
       demand for our products, our biomedical products business could
       be adversely affected.

     o The growth of our biomedical services business depends upon our
       customers'  ability to serve demand for the end-use items, such
       as orthopedic  prostheses,  on which our services are performed
       and thus is substantially beyond our control.

     o Our ability to expand our biomedical  business depends upon our
       ability to introduce new products and  services.  The marketing
       of new biomedical products requires  pre-approval of government
       regulatory authorities,  the completion of which can be lengthy
       and more costly than originally planned.

     o The growth of our optoelectronics  business depends upon growth
       in demand for compound  semiconductor wafers from manufacturers
       of microwave and  optoelectronic  circuits and sensors that, in
       turn, are used in diverse  biomedical,  telecommunications  and
       aerospace products. Should these end-use markets not experience
       anticipated   levels   of   growth   and,   in  the   case   of
       telecommunications  uses,  experience a recovery from currently
       depressed business levels, our  optoelectronics  business could
       be adversely affected.

     o We have made a  substantial  investment  in  equipment at Spire
       Semiconductor  in  anticipation  of future  revenues  under its
       agreement  with  Principia  Lightworks.  If  these  anticipated
       revenues are not achieved, we will have significant  unutilized
       capacity and may not recover our investment in the equipment.

WE HAVE NOT CONSISTENTLY  COMPLIED WITH NASDAQ'S MARKETPLACE RULES FOR CONTINUED
LISTING,  WHICH  EXPOSES  US TO THE RISK OF  DELISTING  FROM THE  NASDAQ  GLOBAL
MARKET.

     Our stock is currently listed on the Nasdaq Global Market.  In August 2003,
we received  notice from Nasdaq  that we were not in  compliance  with  Nasdaq's
Marketplace  Rules as a result of filing our second quarter Form 10-QSB prior to
the completion of the review by our independent auditors and, accordingly,  were
subject to possible  delisting.  We subsequently filed all reports and were able
to maintain its continued listing on the Nasdaq Global Market.

     In  April  2005,  we  received  notice  from  Nasdaq  that we  were  not in
compliance with the minimum  stockholders'  equity level of $10,000,000 required
for continued listing on the Nasdaq Global Market. Following the submission of a
plan of compliance  and making later filings  showing this  deficiency no longer
existed,  Nasdaq  subsequently  notified us that we had achieved compliance with
the $10,000,000  stockholders'  equity  threshold during 2005 and the matter was
closed.  However,  as of December 31, 2007, we were not in  compliance  with the
minimum stockholders' equity threshold. As a result, we do not meet Standard No.
1 for continued listing on the Nasdaq Global Market. However, we believe that we
do meet Standard No. 2 for continued  listing on the Nasdaq Global Market as the
market value of our listed securities currently exceeds $50,000,000 and we meets
all of the  other  requirements  of  Standard  No.  2. In  order  to  remain  in
compliance  with  Standard No. 2, our market value of listed  securities  cannot
fall below $50,000,000 for ten consecutive trading days at any point. If we fail
to maintain  compliance  with these rules and our common stock is delisted  from
the Nasdaq  Global  Market,  there could be a number of  negative  implications,
including  reduced  liquidity  in the  common  stock as a result  of the loss of
market  efficiencies  associated  with the  Nasdaq  Global  Market,  the loss of
federal preemption of state securities laws, the potential loss of confidence by
suppliers,  customers and employees, as well as the loss of analyst coverage and
institutional  investor interest,  fewer business development  opportunities and
greater difficulty in obtaining financing.

                                       12
<PAGE>

OUR BUSINESS  RELIES IN PART ON A LIMITED NUMBER OF CUSTOMERS,  AND  UNFAVORABLE
DEVELOPMENTS IN RELATION TO A MAJOR CUSTOMER MAY ADVERSELY  AFFECT OUR REVENUES,
OPERATING RESULTS AND CASH FLOWS.

     We had one customer that  accounted for more than 10% of  consolidated  net
sales and revenues during the year ended December 31, 2007 (approximately  15%),
and one customer  that  accounted for more than 10%  consolidated  net sales and
revenues in 2006 (approximately 12%). In addition, we have had such customers in
other years and may have them again in the future. If an unfavorable development
were to occur with  respect to any  significant  customer it would likely have a
material adverse affect on our business, financial condition, operating results,
cash flows and future prospects.

WE SELL OUR PRODUCTS AND SERVICES AGAINST ESTABLISHED COMPETITORS,  AND ENTITIES
NOW OPERATING IN RELATED MARKETS MAY ENTER OUR MARKETS.  SOME OF OUR CURRENT AND
POTENTIAL COMPETITORS HAVE GREATER FINANCIAL AND TECHNICAL RESOURCES THAN WE DO.
SHOULD WE BE UNABLE TO OFFER OUR CUSTOMERS  PRODUCTS AND SERVICES THAT REPRESENT
ATTRACTIVE PRICE VERSUS VALUE, OUR BUSINESS WOULD SUFFER.

     Although we believe that there are considerable  barriers to entry into the
markets we serve,  including a  significant  investment in  specialized  capital
equipment,  product  design  and  development,  and the  need  for a staff  with
sophisticated scientific and technological knowledge,  there can be no assurance
that new or  existing  entities  would not seek to enter our  markets or that we
would be able to compete effectively against such entities.

     o In our biomedical products business,  our hemodialysis catheter
       products  directly  compete  against  the  already  established
       product  offerings of larger  competitors.  Although we believe
       that  our  catheter  products  offer  significant   advantages,
       widespread physician acceptance of these products in preference
       to the more  established  products  of  competitors  cannot  be
       assured.

     o In our optoelectronics business, our manufacturing services may
       compete against the internal manufacturing  capabilities of our
       customers.  Although  we  believe  that  we  offer  significant
       advantages in terms of timely response,  reduced total cost and
       reduced  capital   investment  over  the  captive   fabrication
       facilities  of our  customers,  customers may elect to maintain
       their  internal  capabilities  despite  economic  incentives to
       outsource these services from us.

     IF WE ARE UNABLE TO DEVELOP AND INTRODUCE NEW PRODUCTS  SUCCESSFULLY  OR TO
     ACHIEVE MARKET ACCEPTANCE OF OUR NEW PRODUCTS,  OUR OPERATING RESULTS WOULD
     BE ADVERSELY AFFECTED.

     We  compete  in  markets   characterized  by  technological   advances  and
improvements in manufacturing  efficiencies.  Our ability to operate  profitably
depends in large part on our timely access to, or development of,  technological
advances, and on our ability to use those advances to improve existing products,
develop new products and manufacture those products efficiently. There can be no
assurance that we will realize financial benefit from our development  programs,
will  continue to be  successful in  identifying,  developing  and marketing new
products or enhancing our existing  products,  or that products or  technologies
developed by others will not render our products or technologies non-competitive
or obsolete.  The failure to introduce new or enhanced  products on a timely and
cost competitive basis, or to attain market acceptance for commercial  products,
could have a material  adverse effect on our business,  results of operations or
financial condition.

IF WE ARE NOT SUCCESSFUL IN PROTECTING OUR  INTELLECTUAL  PROPERTY  RIGHTS,  OUR
ABILITY TO COMPETE MAY BE HARMED.

     We rely on a combination of patent,  copyright,  trademark and trade secret
protections as well as confidentiality  agreements and other methods, to protect
our  proprietary   technologies  and  processes.  For  example,  we  enter  into
confidentiality   agreements  with  our  employees,   consultants  and  business
partners, and control access to and distribution of our proprietary information.
We have been issued 35 United States patents, one of which is jointly owned, and
have a number of pending patent  applications.  However,  despite our efforts to
protect our intellectual property, we cannot assure that:

     o The steps we take to prevent  misappropriation  or infringement
       of our intellectual property will be successful;
     o Any  existing  or  future   patents  will  not  be  challenged,
       invalidated or circumvented;
     o Any pending patent  applications or future applications will be
       approved;
     o Others  will not  independently  develop  similar  products  or
       processes to ours or design around our patents; or

                                       13
<PAGE>

     o Any of the measures  described  above would provide  meaningful
       protection.

     A failure by us to  meaningfully  protect our  intellectual  property could
have a material adverse effect on our business,  financial condition,  operating
results  and ability to  compete.  In  addition,  effective  patent,  copyright,
trademark and trade secret  protection  may be unavailable or limited in certain
countries.

     From time to time we may be subject to lawsuits by other parties seeking to
enforce their intellectual property rights.

WE DEPEND ON OTHERS,  PARTICULARLY ON AGENCIES OF THE UNITED STATES  GOVERNMENT,
FOR FUNDING OUR RESEARCH AND DEVELOPMENT EFFORT.

     Substantially  most of our  research  and  development  work is  funded  by
agencies  of  the  United  States   government  either  directly  or  via  their
contractors. Loss of outside funding may materially adversely affect our ability
to further develop our proprietary  technologies and to apply these technologies
to our current  products and  products  under  development.  If we are unable to
maintain  our current  level of such  funding  for any reason,  we would need to
generate  funds for such  research from other  sources,  reduce our research and
development   effort  or  increase  our   internal   funding  for  research  and
development.  An increase in internally  funded research and  development  would
have a negative impact on our profitability.

     Additionally,   the  process  of  bidding  for,  obtaining,  retaining  and
performing  United States  government  contracts is subject to a large number of
United States government regulations and oversight requirements. Compliance with
these  government   regulations   requires  extensive  record  keeping  and  the
maintenance of complex  policies and  procedures  relating to all aspects of our
business, as well as to work performed for us by any subcontractors. Any failure
to comply with applicable  regulations,  or to require our  subcontractors so to
comply, could result in a variety of adverse consequences, ranging from remedial
requirements to termination of contracts,  reimbursement  of fees,  reduction of
fees on a going  forward  basis and  prohibition  from  obtaining  future United
States government contracts.  While we believe that we have in place systems and
personnel to ensure  compliance  with all United States  government  regulations
relating  to  contracting,  we  cannot  assure  that we will at all  times be in
compliance or that any failure to comply will not have a material adverse effect
on our business, results of operations or financial condition.

THE U.S. GOVERNMENT HAS CERTAIN RIGHTS RELATING TO OUR INTELLECTUAL PROPERTY.

     The United  States  government  retains the right to obtain a patent on any
invention  developed under  government  contracts as to which we do not seek and
obtain a patent,  and may  require  us to grant a third  party  license  of such
invention if steps to achieving practical  application of the invention have not
been  taken.  The  United  States   government  also  retains  a  non-exclusive,
royalty-free,   non-transferable  license  to  all  technology  developed  under
government contracts, whether or not patented, for government use, including use
by other parties to United States government contracts.  Furthermore, our United
States government contracts prohibit us from granting exclusive rights to use or
sell any  inventions  unless  the  grantee  agrees  that any  product  using the
invention will be manufactured substantially in the United States.

WE DEPEND ON THIRD-PARTY  CONTRACTORS TO  MANUFACTURE  SUBSTANTIALLY  ALL OF OUR
CURRENT BIOMEDICAL PRODUCTS.

     We depend on third-party  subcontractors in the U.S. for the manufacturing,
assembly and packaging of our biomedical  products.  Any difficulty in obtaining
parts or services  from these  subcontractors  could  affect our ability to meet
scheduled product  deliveries to customers,  which could in turn have a material
adverse effect on our customer  relationships,  business and financial  results.
Several   significant   risks  are  associated   with  reliance  on  third-party
subcontractors, including:

     o The  lack of  assured  product  supply  and the  potential  for
       product shortages;
     o Reduced   control  over  inventory   located  at   contractors'
       premises;
     o Limited control over delivery schedules,  manufacturing  yields
       and production costs;
     o Direct control over product quality;
     o The  temporary  or  permanent  unavailability  of, or delays in
       obtaining, access to key process technologies; and
     o Dependence on single  source  contractors  to provide  critical
       services.

OUR  SUCCESS  DEPENDS  ON OUR  ABILITY TO HIRE AND  RETAIN  QUALIFIED  TECHNICAL
PERSONNEL,  AND IF WE ARE UNABLE TO DO SO, OUR PRODUCT  DEVELOPMENT  EFFORTS AND
CUSTOMER RELATIONS WILL SUFFER.

                                       14
<PAGE>

     Our products require sophisticated manufacturing, research and development,
marketing and sales, and technical  support.  Our success depends on our ability
to attract,  train and retain  qualified  technical  personnel  in each of these
areas. Competition for personnel in all of these areas is intense and we may not
be able to hire or retain  sufficient  personnel to achieve our goals or support
the  anticipated  growth in our  business.  The market  for the  highly  trained
personnel we require is very  competitive,  due to the limited  number of people
available with the necessary  technical skills and understanding of our products
and technology.  If we fail to hire and retain qualified personnel,  our product
development efforts and customer relations will suffer.

WE ARE SUBJECT TO ENVIRONMENTAL  LAWS AND OTHER LEGAL REQUIREMENTS THAT HAVE THE
POTENTIAL TO SUBJECT US TO SUBSTANTIAL LIABILITY AND INCREASE OUR COSTS OF DOING
BUSINESS.

     Our  properties  and business  operations  are subject to a wide variety of
federal, state, and local environmental,  health and safety laws and other legal
requirements,  including  those  relating to the  storage,  use,  discharge  and
disposal  of toxic,  volatile  or  otherwise  hazardous  substances  used in our
manufacturing processes. We cannot assure that these legal requirements will not
impose on us the need for additional capital expenditures or other requirements.
If we fail to obtain required  permits or otherwise fail to operate within these
or future legal requirements,  we may be required to pay substantial  penalties,
suspend our operations or make costly changes to our manufacturing  processes or
facilities. Although we believe that we are in compliance and have complied with
all applicable legal  requirements,  we may also be required to incur additional
costs to comply with current or future legal requirements.

OUR  INTERNATIONAL  SALES  SUBJECT US TO RISKS THAT COULD  ADVERSELY  AFFECT OUR
REVENUE AND OPERATING RESULTS.

     Sales to customers located outside the U.S. have historically accounted for
a  significant  percentage  of our  revenue  (approximately  47% in 2007) and we
anticipate  that such sales will continue to be a significant  percentage of our
revenue.  International  sales  involve  a variety  of risks and  uncertainties,
including risks related to:

     o Reliance on strategic alliance partners such as representatives
       and licensees;
     o Compliance with changing  foreign  regulatory  requirements and
       tax laws;
     o Reduced  protection for  intellectual  property  rights in some
       countries;
     o Longer  payment cycles to collect  accounts  receivable in some
       countries;
     o Increased costs or reduced revenues as a result of movements in
       foreign currency exchange rates;
     o Political instability;
     o Economic downturns in international markets; and
     o Changing restrictions imposed by United States export laws.

     Failure  to  successfully  address  these  risks  and  uncertainties  could
adversely affect our  international  sales,  which could in turn have a material
and adverse effect on our results of operations and financial condition.

THE USE OF OUR CATHETER AND OTHER  MEDICAL  RELATED  PRODUCTS  ENTAILS A RISK OF
PHYSICAL  INJURY;  THE DEFENSE OF CLAIMS  ARISING  FROM SUCH RISK MAY EXCEED OUR
INSURANCE COVERAGE AND DISTRACT OUR MANAGEMENT.

     The use of  orthopedic  and  other  medical  devices  may  entail a risk of
physical  injury to patients.  To the extent we have been involved in the design
and  manufacturing  of these  products,  we may be exposed to potential  product
liability  and other damage  claims.  Furthermore,  the use of our  photovoltaic
module  manufacturing  equipment  could result in operator  injury.  We have had
cases  brought  against us in which it was alleged  that we have been a party to
the  manufacture and sale of defective  heart valves with other  defendants.  We
recently  settled a case alleging that our catheter  contributed  to a patient's
death in Ohio.  No other claims of product  liability or other damages have been
initiated  against us. We maintain  product  liability  and  umbrella  insurance
coverage;  however,  there can be no assurance that any product  liability claim
assessed against us would not exceed our insurance  coverage,  or that insurance
coverage would continue to be available. While we typically obtain agreements of
indemnity  from  manufacturers  of  biomedical  products  for  which we  provide
manufacturing  services,  there  can be no  assurance  that any  such  indemnity
agreements  will be  enforceable or that such  manufacturers  will have adequate
funds to meet their obligations  under such agreements.  The cost of defending a
product liability,  negligence or other action,  and/or assessment of damages in
excess of  insurance  coverage,  could  have a  material  adverse  effect on our
business, results of operations, or financial condition.

                                       15
<PAGE>

                          RISKS RELATED TO OUR COMPANY
                          ----------------------------

OUR COMPANY IS SUBJECT TO CONTROL BY PRINCIPAL STOCKHOLDER.

     Roger G.  Little,  our  founder,  Chairman  of the Board,  Chief  Executive
Officer and President,  controls  approximately  26% of our  outstanding  common
stock. As a result,  Mr. Little is in a position to exert significant  influence
over actions  which  require  stockholder  approval and  generally to direct our
affairs,  including the election of directors,  potential acquisitions and sales
or otherwise  preventing or delaying  changes in control of our Company that may
be otherwise viewed as beneficial by shareholders other than Mr. Little.

WE DO NOT PAY DIVIDENDS AND WE MAY NOT PAY DIVIDENDS IN THE FUTURE.

     We have paid no cash dividends since our inception. We anticipate retaining
any future  earnings for  reinvestment  in operations and do not anticipate that
dividends will be paid in the  foreseeable  future.  Accordingly,  the return on
investment  should be expected  to depend on changes in the market  price of our
common stock.

THE MARKET  PRICE FOR OUR COMMON STOCK HAS BEEN  VOLATILE AND FUTURE  VOLATILITY
COULD CAUSE THE VALUE OF INVESTMENTS IN OUR COMPANY TO FLUCTUATE.

     Our stock price has experienced significant volatility.  While our revenues
have increased since 2000, we expect that  uncertainty  regarding demand for our
products will cause our stock price to continue to be volatile. In addition, the
value of your investment could decline due to the impact of any of the following
factors, among others, upon the market price of our common stock:

     o Additional  changes in  investment  analysts'  estimates of our
       revenues and operating results;
     o Our   failure   to  meet   investment   analysts'   performance
       expectations; and
     o Changes  in  market   valuations  of  other  companies  in  the
       biomedical, alternative energy or semiconductor industries.

     In addition,  many of the risks  described  elsewhere in this section could
materially  and  adversely  affect our stock  price,  as discussed in those risk
factors. U.S. financial markets have recently experienced  substantial price and
volume  volatility.  Fluctuations  such as these have affected and are likely to
continue to affect the market price of our common stock.

OUR JOINT  VENTURE  TRANSACTION  WITH  GLORIA  SOLAR MAY NOT  REALIZE ALL OF ITS
INTENDED BENEFITS

     On  September 4, 2007,  we closed a  contractual  relationship  with Gloria
Solar.  Pursuant  to this  transaction,  among other  things,  we formed a joint
venture,  owned 55% by Gloria  Solar and 45% by us, for the  purpose of pursuing
the solar  photovoltaic  systems  market  within  the United  States.  The joint
venture will design, market, sell and manage the installation of systems for the
generation  of  electrical  power  by  solar  photovoltaic  means  in  primarily
commercial/industrial  and  utility  segments  of such  market  (the "JV Systems
Business").  In  connection  with the  formation  of the joint  venture,  (i) we
contributed to the joint venture our assets primarily relating to the JV Systems
Business,  including  certain  intellectual  property  and  know-how,  access to
information technology assets and relationships,  relationships with current and
previous  customers,   contract  backlog  and  project  opportunities,   certain
registered trademarks,  and employment relationships with staff members and (ii)
Gloria  Solar   contributed   $5,000,000  in  cash.   In  connection   with  the
establishment of the joint venture, we may experience:

     o Difficulties in integrating  our and Gloria Solar's  respective
       corporate  cultures and business  objectives into the new joint
       venture;
     o Diversion of our  management's  time and  attention  from other
       business concerns;
     o Higher  than  anticipated  costs of  integration  at the  joint
       venture;
     o Difficulties  in retaining  key  employees who are necessary to
       manage the joint venture; or
     o Difficulties in working with an entity based in Taiwan and thus
       remote   or   inconvenient   to  our   Bedford,   Massachusetts
       headquarters.

     For any of these  reasons  or as a  result  of  other  factors,  we may not
realize the anticipated  benefits of the joint venture, and cash flow or profits
derived from our  ownership  interest in the joint  venture may be less than the
cash  flow  or  profits  that  could  have  been  derived  had we  retained  the
transferred  assets and continued to operate the JV Systems Business  ourselves.
Either party has the right,  at any time upon certain  material  breaches by the
other party of obligations under the joint venture documents,  to acquire all of
the breaching party's interest in the joint venture at 90% fair market value. In

                                       16
<PAGE>

addition,  in the event of a "change in control" of a member,  the other members
may purchase such  member's  interest in the joint venture at fair market value.
Furthermore,  our further  participation in the business of the joint venture is
restricted; for a period of three (3) years, we may not mass manufacture, market
or sell  solar  cell  modules  with less than 575 watt  capacity,  and may do so
thereafter only outside the United States.

SOME  OF  THE  REQUIREMENTS  OF  SARBANES-OXLEY  AFFECT  US AS A  SMALL  COMPANY
DISPROPORTIONATELY,  AND WE MAY NOT BE ABLE TO COMPLY IN A TIMELY MANNER DESPITE
SUBSTANTIAL EFFORT AND EXPENSE.

     The  Sarbanes-Oxley  Act of 2002  imposed many new  requirements  on public
companies, the most significant of which involves the documentation, testing and
reporting of the effectiveness of our internal control over financial reporting.

     We are required to report on our  assessment  of the  effectiveness  of our
internal  control over financial  reporting to be in compliance with Section 404
of Sarbanes-Oxley, in our annual report for the year ended December 31, 2007. We
have  documented  and  tested  our  internal  controls  in 2007 and this  effort
involved  substantial time and expense. We have identified material  weaknesses,
as  discussed  below,  from  our  internal  review  and  our  registered  public
accounting firm has also  identified  items in its annual audit of our financial
statements.

     Based on this evaluation,  management concluded that the following material
weaknesses in internal control over financial  reporting  existed as of December
31, 2007:  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.  Additionally,  our internal  policies and procedures
related to internal  control over financial  reporting were not effective.  As a
result of this material  weakness,  issues  related to accounting for inventory,
accruals,   reserves,   income  taxes  and  revenues  existed  in  our  internal
preliminary 2007 fiscal year consolidated financial statements and resulted in a
restatement of 2007 and 2008 results.  For more detailed  information  see "Item
9A(T). Controls and Procedures."

     We are working to address the issues raised by this material weakness,  but
we may not be successful in remediating them in a timely manner.

OUR  CREDIT   AGREEMENTS  WITH  SILICON  VALLEY  BANK  SUBJECTS  US  TO  VARIOUS
RESTRICTIONS, WHICH MAY LIMIT OUR ABILITY TO PURSUE BUSINESS OPPORTUNITIES.

     Our credit  agreements  with  Silicon  Valley  Bank  subjects us to various
restrictions  on our ability to engage in certain  activities  without the prior
written consent of the bank, including, among other things, our ability to:

     o Dispose  of or  encumber  assets,  other  than in the  ordinary
       course of business,
     o Incur additional indebtedness,
     o Merge or  consolidate  with other  entities,  or acquire  other
       businesses, and
     o Make investments.

     The  agreements  also subject us to various  financial and other  covenants
with which we must comply on an ongoing or periodic basis. For example under our
equipment  line,  as  long  as any  commitment  remains  outstanding  under  the
facility, we must comply with an adjusted quick ratio covenant and a rolling six
month  average  minimum net income  covenant.  If we violate  these or any other
covenant,  any outstanding debt under these agreements could become  immediately
due and  payable,  the  bank  could  proceed  against  any  collateral  securing
indebtedness  and our ability to borrow funds in the future may be restricted or
eliminated.  These  restrictions  may also limit our ability to pursue  business
opportunities  or strategies that we would otherwise  consider to be in the best
interests of the company.


ITEM 1B.   UNRESOLVED STAFF COMMENTS
------------------------------------

None.


ITEM 2.    PROPERTIES
---------------------

     Our  corporate  headquarters  are located at One  Patriots  Park,  Bedford,
Massachusetts.  This  144,230  square foot  facility is leased and  contains our
administrative  offices,  sales and marketing offices,  research and development
facilities  and  the  manufacturing  facilities  of  our  biomedical  and  solar
equipment and systems  businesses.  The lease expires in November 2012. We lease
an  approximately  90,000 square foot facility located at 25 Sagamore Park Road,
Hudson, New

                                       17
<PAGE>

Hampshire that contains a semiconductor  wafer growth and  fabrication  facility
and administrative  offices used primarily by our optoelectronics  business unit
including  Spire  Semiconductor.  The lease expires in May 2008. We believe that
our facilities are suitable for their present intended purposes and adequate for
our current level of operations.


ITEM 3.    LEGAL PROCEEDINGS
----------------------------

     From time to time, we are subject to legal  proceedings  and claims arising
from the  conduct of our  business  operations.  We do not expect the outcome of
these proceedings,  either individually or in the aggregate,  to have a material
adverse effect on our financial position, results of operations, or cash flows.

     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. Subsequent to
the end of fiscal 2007,  the case was settled  between the parties.  Our product
liability  insurance  covered the  settlement and all legal  expenses,  less our
deductible, which has been partially accrued.

     In a  complaint  filed  July 11,  2007 in the U.S.  District  Court for the
Eastern District of Pennsylvania,  Medical  Components,  Inc. (the  "Plaintiff")
alleges that we and our wholly-owned subsidiary, Spire Biomedical, Inc., through
the manufacture and sale of its multilumen  catheter products infringes upon one
of Plaintiff's  patents.  The Plaintiff  seeks  unspecified  damages,  including
enhanced damages and attorneys fees and costs, and an injunction against certain
manufacturing  techniques.  We have  negotiated a settlement  with the Plaintiff
which allows us to sell our remaining  multilumen catheter inventory in exchange
for a lump sum  payment  which has been fully  accrued  in the  recent  quarter.
Further,  we have  altered  our  manufacturing  methods  such  that  there is no
question of potential infringement of plantiff's patent.


ITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
--------------------------------------------------------------

     No matters were  submitted to a vote of our security  holders in the fourth
quarter of 2007.


                                       18
<PAGE>
                                     PART II

ITEM 5.    MARKET  FOR REGISTRANT'S  COMMON EQUITY,  RELATED STOCKHOLDER MATTERS
--------------------------------------------------------------------------------
AND ISSUER PURCHASES OF EQUITY SECURITIES
-----------------------------------------

MARKET INFORMATION

     Our common  stock is traded on the Nasdaq  Global  Market  under the symbol
"SPIR."  The  following  chart  sets  forth the high and low bid  prices for the
common stock for the periods shown:

                                               High Bid        Low Bid
                                               --------        -------
                   2007
                   ----
                   First Quarter                $11.84         $ 7.63
                   Second Quarter                11.19           8.61
                   Third Quarter                 14.95           8.39
                   Fourth Quarter                26.78          11.33

                   2006
                   ----
                   First Quarter                $10.61         $ 7.49
                   Second Quarter                10.25           6.98
                   Third Quarter                  7.45           6.67
                   Fourth Quarter                 8.69           6.50

     These prices do not reflect retail  mark-ups,  markdowns or commissions and
may not reflect  actual  transactions.  The closing price of the common stock on
March 28,  2008 was $16.04,  and on that date,  there were 179  stockholders  of
record.  The number of holders  does not include  individuals  or  entities  who
beneficially  own  shares  but  whose  shares  are held of record by a broker or
clearing  agency,  but does include  each such broker or clearing  agency as one
record holder.

DIVIDENDS

     We did not pay any cash dividends  during 2007 or 2006 and currently do not
intend to pay  dividends in the  foreseeable  future so that we may reinvest our
earnings in the  development  of our  business.  The payment of dividends in the
future will be at the discretion of the Board of Directors.  In addition,  under
our credit  agreements with Silicon Valley Bank, we may not pay dividends on our
common stock without the consent of the bank.


ITEM 6.    SELECTED FINANCIAL DATA
----------------------------------

     Not required as we are a smaller reporting company.


ITEM 7.    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  DESCRIBED BELOW AND ABOVE UNDER "ITEM 1A.
RISK FACTORS" AND "ITEM 1. BUSINESS." READERS ARE ENCOURAGED TO CAREFULLY REVIEW
THOSE RISK  FACTORS.  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.

                                       19
<PAGE>

OVERVIEW

     We develop,  manufacture and market highly-engineered products and services
in three  principal  business  areas:  (i)  capital  equipment  for the PV solar
industry, (ii) biomedical and (iii) optoelectronics,  generally bringing to bear
expertise in materials  technologies,  surface science and thin films across all
three business areas, discussed below.

     In the PV solar  area,  we  develop,  manufacture  and  market  specialized
equipment for the  production  of  terrestrial  photovoltaic  modules from solar
cells.  Our equipment has been  installed in  approximately  190 factories in 50
countries.

     In the  biomedical  area,  we 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 the  optoelectronics  area,  we provide  custom  compound  semiconductor
foundry and  fabrication  services on a merchant basis to customers  involved in
biomedical/biophotonic instruments, telecommunications and defense applications.
Services include compound  semiconductor wafer growth, other thin film processes
and  related  device  processing  and  fabrication  services.  We  also  provide
materials testing services and perform services in support of sponsored research
into practical applications of optoelectronic technologies.

     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 and delivery of solar systems.  Export sales,  which amounted to 47% of net
sales and revenues for 2007, 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 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.
To correct this error, we reversed this revenue and the associated cost of goods
sold. See Note 2 to the 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:

                                                        Year Ended December 31,
                                                         ---------------------
                                                           2007         2006
                                                            As
                                                         Restated
                                                         --------     --------

          Net sales and revenues                              100%         100%
          Cost of sales and revenues                          (81)         (89)
                                                         --------     --------
             Gross profit                                      19           11
          Selling, general and administrative expenses        (36)         (48)
          Internal research and development expenses           (1)          (4)
          Gain on sales of trademark                            7         --
                                                         --------     --------
             Loss from operations                             (11)         (41)
          Other expense, net                                    0         --
                                                         --------     --------
             Loss before income taxes
                                                              (11)         (41)
          Income tax benefit                                    2         --
                                                         --------     --------
             Loss before extraordinary gain                    (9)         (41)
          Extraordinary gain, net of taxes
                                                                4         --
                                                         --------     --------
             Net loss                                          (5)%        (41)%
                                                         ========     ========

                                       20
<PAGE>

OVERALL

     Our total net sales and  revenues  for the year  ended  December  31,  2007
("2007")  increased 84% to $37,068,000  as compared to $20,125,000  for the year
ended  December 31, 2006  ("2006").  The increase came  primarily from our solar
business  unit,  while  our  optoelectronics  business  unit  achieved  a  small
increase.

SOLAR BUSINESS UNIT

     Sales in our solar  business unit  increased 211% to $21,748,000 in 2007 as
compared  to  $6,992,000  in 2006,  primarily  due to a 345%  increase  in solar
equipment  sales  resulting from higher volume offset by a 41% decrease in solar
systems sales.

BIOMEDICAL BUSINESS UNIT

     Revenues of our  biomedical  business unit  increased 6% to  $11,106,000 in
2007 as  compared  to  $10,517,000  in 2006,  as a result of a 20%  increase  in
revenue from our line of  hemodialysis  catheters and 12% increase in biomedical
services  offset by a 30% decrease in revenue from our research and  development
activities.

OPTOELECTRONICS BUSINESS UNIT

     Sales  in our  optoelectronics  business  unit  increased  61% in  2007  to
$4,214,000 as compared to $2,616,000 in 2006.

Year Ended December 31, 2007 Compared to Year Ended December 31, 2006
---------------------------------------------------------------------

Net Sales and Revenues
----------------------

     The following table  categorizes our net sales and revenues for the periods
presented:

<TABLE><CAPTION>
                                             Year Ended December 31,            Increase
                                           ---------------------------   -----------------------
                                               2007           2006            $              %
                                           As Restated                        As Restated
                                           ------------   ------------   -----------------------
<S>                                        <C>            <C>            <C>                 <C>
          Sales of goods                   $ 24,723,000   $  9,562,000   $ 15,161,000        159%
          Contract research, service and
              license revenues               12,345,000     10,563,000      1,782,000         17%
                                           ------------   ------------   ------------
             Net sales and revenues        $ 37,068,000   $ 20,125,000   $ 16,943,000         84%
                                           ============   ============   ============
</TABLE>

     The 159% increase in sales of goods for the year ended December 31, 2007 as
compared  to the  year  ended  December  31,  2006 was  primarily  due to a 247%
increase in solar equipment and solar systems revenues, with higher volume being
the primary contributor to the increase.  Biomedical product sales increased 20%
in 2007 as compared  to 2006 as a result of  increased  demand for our  expanded
line of hemodialysis catheters. We introduced a new heparin coated catheter late
in the fourth quarter of 2006.

     The 17% increase in contract research, service and license revenues in 2007
is primarily  attributable to an increase in our optoelectronics  business unit.
Revenues from optoelectronic  services increased 61% in 2007 as compared to 2006
primarily due to an increase in semiconductor  foundry and fabrication services.
The increase was partially offset by a decrease in R&D and NREL service revenue.

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:

                                       21
<PAGE>

<TABLE><CAPTION>
                                                Years Ended December 31,                    Increase
                                    ----------------------------------------------    ---------------------
                                        2007           %         2006           %            $           %
                                         As Restated                                       As Restated
                                    ---------------------    ------------    -----    ---------------------
<S>                                 <C>                <C>   <C>                <C>   <C>               <C>
Cost of goods sold                  $ 20,826,000       84%   $  9,029,000       94%   $ 11,797,000      131%
Cost of contract research,
   service and license revenues        9,360,000       76%      8,819,000       83%        541,000        6%
                                    ------------             ------------             ------------
   Net cost of sales and revenues   $ 30,186,000       81%   $ 17,848,000       89%   $ 12,338,000       69%
                                    ============             ============             ============
</TABLE>

     Cost of goods sold increased 131% in 2007 as compared to 2006, primarily as
a result of the 84% increase in related revenues. As a percentage of sales, cost
of goods sold was 84% of sales of goods in 2007 as  compared  to 94% of sales in
2006.  This  change is due to  increased  costs in 2007  associated  with higher
levels of revenue along with better utilization of solar manufacturing overhead.

     The overall cost of contract research,  services and licenses in 2007 is up
slightly   as   increased   costs  at  our   optoelectronics   facility   (Spire
Semiconductor)  were  somewhat  offset by a  decrease  in costs of our  contract
research activities due to lower volumes.  Spire Semiconductor's costs increased
primarily due to fixed costs  associated  with new capital  equipment  that were
brought into service in 2007. Cost of contract  research,  services and licenses
as a  percentage  of revenue  increased  to 76% of  revenues in 2007 from 83% in
2006, primarily due to the increase in Spire Semiconductor costs.

     Cost of sales and revenues also includes  approximately $93,000 and $47,000
of stock-based compensation in 2007 and 2006, respectively,  due to the adoption
of SFAS 123(R) in 2006.

OPERATING EXPENSES

     The following  table  categorizes  our  operating  expenses for the periods
presented, stated in dollars and as a percentage of net sales and revenues:

<TABLE><CAPTION>
                                                 Years Ended December 31,                Increase/(Decrease)
                                      ----------------------------------------------    ----------------------
                                          2007          %          2006          %            $            %
                                                       As
                                                    Restated
                                      ------------   ------    ------------   ------    ------------    ------
<S>                                   <C>                <C>   <C>                <C>   <C>                 <C>
Selling, general and administrative   $ 13,226,000       36%   $  9,794,000       48%   $  3,432,000        35%
Internal research and development          313,000        1%        734,000        4%       (421,000)      (57%)
                                      ------------             ------------             ------------
   Operating expenses                 $ 13,539,000       37%   $ 10,528,000       52%   $  3,011,000        29%
                                      ============             ============             ============
</TABLE>

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

     The 35%  increase  in  selling,  general and  administrative  expenses  was
primarily due to increased costs associated with sales and marketing  efforts in
our solar business unit, ongoing litigation matters,  increased facility related
costs, sales commissions and stock-based  compensation costs.  Selling,  general
and  administrative  expense  includes  approximately  $486,000  of  stock-based
compensation in 2007 versus $209,000 in 2006.

INTERNAL RESEARCH AND DEVELOPMENT EXPENSES

     The 57%  decrease  in internal  research  and  development  expense in 2007
versus 2006 was primarily due to decreased  development efforts within the solar
equipment and biomedical  services  group and an allocation of certain  internal
research and development costs at Spire  Semiconductor to cost of sales in 2006.
In 2006,  we completed  most of our three year contract with NREL to develop new
solar  module  equipment.  The  decrease in internal  research  and  development
expenses as a percentage of sales and revenues was due to the decrease in costs.

GAIN ON SALE OF TRADEMARK

     We sold  Gloria  Solar a PV module line  operated  by the our solar  system
business  along with the transfer of  technology  and rights to mark the modules
with our trademark to build,  design and sell specialty BIPV and PV modules,  in
exchange for $4,000,000 in cash. This  transaction  closed on September 4, 2007.
As of December 31, 2007 we still had  outstanding  obligations  to refurbish the
module line and provide some  additional  PV module  design work. We believe the
sale of the  trademark  and the other goods and  services  meets the criteria of
Emerging Issues Task Force ("EITF") 00-21,

                                       22
<PAGE>

"ACCOUNTING FOR REVENUE ARRANGEMENTS WITH MULTIPLE ELEMENTS," paragraph 9(a), as
each  element has utility on a  stand-alone  basis.  Further,  Question 1 to SAB
Topic 13A-3f was  considered  as guidance for  determining  if the trademark fee
under the agreement  should be recognized as a sale. As the trademark  agreement
has no term and is  permanent  in nature,  the  earnings  process was  complete;
accordingly, we recognized a gain on the sale. We have determined the fair value
of the trademark  sale,  the PV module line and services  based on a third party
appraisal.  As a result,  a $2,735,000  gain was  recognized  on the sale of the
trademark for the year ended December 31, 2007. We also  recognized  $715,000 in
service  revenue  reflecting  the delivery of PV technology  designs to build PV
modules.  We have  sold and  will  continue  to sell  this  technology  to other
customers as part of our equipment  business.  As of December 31, 2007, the fair
value of the undelivered  goods and services was $550,000,  which is in advances
on  contracts  in  progress.  Gloria  Solar has  further  contracted  with us to
purchase  additional PV module equipment lines at market prices. We also provide
Gloria  Solar  general and  administrative  services  and  provide  space in our
facility on a pass through basis.

OTHER INCOME (EXPENSE), NET

     We earned  $74,000  and  $268,000  of  interest  income for the years ended
December  31,  2007 and 2006,  respectively.  We  incurred  interest  expense of
$225,000  and  $154,000  for  the  years  ended  December  31,  2007  and  2006,
respectively.  The decreased  interest income is due to lower cash balances held
by us during 2007 compared with 2006.  The increase  interest  expense is due to
higher interest payments  associated with the $3.5 million term loan outstanding
with  Silicon  Valley  Bank  compared  with  2006  interest  expenses  primarily
associated  with  interest  incurred  on  capital  leases  associated  with  the
semiconductor foundry.

     We  recorded a $24,000  loss on equity  investment  in joint  venture  with
Gloria Solar for the year ended December 31, 2007.

     We recorded $14,000 currency  transaction loss related to the conversion of
a Japanese  Yen account into U.S.  dollars for each of the years ended  December
31, 2007 and 2006.

INCOME TAXES

     We recorded a benefit for income  taxes of $877,000  related to income from
continuing  operations  for year ended December 31, 2007,  representing  the tax
benefit of the  continuing  operation  loss that is offset by the  extraordinary
gain.  We did not record an income tax benefit for the year ended  December  31,
2006. A full  valuation  allowance  has been  provided  against the deferred tax
assets due to uncertainty regarding the realization of the net operating loss in
the future.  A valuation  allowance was provided against the deferred tax assets
generated in 2007 and 2006 due to uncertainty  regarding the  realization of the
net operating  loss in the future.  At December 31, 2007, we had gross  deferred
tax assets of $6,831,000,  against which a valuation allowance of $6,831,000 had
been applied.

NET EARNINGS (LOSS)

     We reported a net losses of $1,933,000  and  $8,151,000 for the years ended
December  31,  2007 and  2006,  respectively.  In 2007,  we  recorded  a gain of
$2,735,000 from the sale of trademark and an extraordinary gain, net of taxes of
$1,301,000 compared to no gains from trademarks and extraordinary gains in 2006.
We are likely to continue to report  losses  unless we can increase  revenues or
sell additional  technology  licenses.  If additional sources of revenue are not
identified we can take  measures to reduce costs but it is unclear  whether cost
reductions alone can eliminate all of the potential future losses.

EQUITY INVESTMENT IN JOINT VENTURE

     On July 31, 2007,  we entered  into  contractual  relationship  with Gloria
Solar Co.,  Ltd.  ("Gloria  Solar")  pursuant to which (i) we sold Gloria  Solar
certain assets  belonging to our solar systems  business for $4,000,000 and (ii)
we and Gloria Solar formed a joint  venture  named Gloria Spire Solar,  LLC, for
the purpose of pursuing the solar photovoltaic  systems market within the United
States. The joint venture will design,  market, sell and manage the installation
of systems for the generation of electrical power by solar photovoltaic means in
primarily  commercial/industrial  and  utility  segments of such market (the "JV
Systems Business"). Gloria Solar owns 55% of the joint venture and we own 45% of
the joint venture. In connection with the formation of the joint venture, (i) we
contributed  to the joint venture  assets  primarily  relating to the JV Systems
Business,  including  certain  intellectual  property  and  know-how,  access to
information technology assets and relationships,  relationships with current and
previous  customers,   contract  backlog  and  project  opportunities,   certain

                                       23
<PAGE>

registered trademarks,  and employment relationships with staff members and (ii)
Gloria  Solar  contributed  $5,000,000  in  cash.  This  transaction  closed  on
September 4, 2007. Our initial  investment  was recorded at  $2,288,000.  We are
accounting for our  investment in the joint venture under the equity method,  as
we have significant  influence over the investee;  however,  we lack significant
control. We will be reporting the ongoing financial results of the joint venture
one quarter in arrears. We recorded a $24,000 loss on equity investment in joint
venture  for the year ended  December  31,  2007.  As a result of  applying  the
provisions of  Accounting  Principles  Board ("APB")  Opinion No. 18 "THE EQUITY
METHOD OF ACCOUNTING FOR INVESTMENTS IN COMMON STOCK" to the differences between
the fair value of the  assets  contributed  and the cost basis on our books,  we
recorded an extraordinary gain of $1,301,000,  net of tax provision of $877,000.
Additional  recognition of the deferential  will be recorded over time to offset
our ownership  percentage of the  amortization  of the  contributed  intangibles
assets as recorded on the joint  venture's  books.  If the managing board of the
joint  venture  determines  that  additional  capital is required to support the
operations  of the  joint  venture,  the  joint  venture  shall  make a call for
additional  funds.  Within ten (10) days after the members have received written
notice of the call, the members shall make additional  capital  contributions to
the joint venture in proportion to each member's  interest in the joint venture.
If a member  fails  to fund  its pro  rata  portion  of any  capital  call,  the
non-defaulting  member may purchase the defaulting member's shortfall;  however,
in no event may  either  member's  interest  in the joint  venture be reduced to
below 10%.















                                       24
<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

<TABLE><CAPTION>
                                                                     Increase (Decrease)
                                      December 31,    December 31,  ----------------------
                                          2007           2006            $              %
                                      As Restated                        As Restated
                                      ------------   ------------   ----------------------
<S>                                   <C>            <C>            <C>                 <C>
          Cash and cash equivalents   $  2,372,000   $  1,536,000   $    836,000        54%
          Working capital             $  2,587,000   $  3,938,000   $ (1,351,000)      (34%)
</TABLE>

     Included  in working  capital at  December  31,  2006,  was  $5,000,000  of
certificates  of  deposit  with a  bank,  classified  on the  balance  sheet  as
short-term investments.  $1,969,000 of this short-term investment was restricted
as security for a letter of credit.

     On April 26,  2006,  we entered  into Stock  Purchase  Agreements  with two
accredited  institutional  investors in connection with the private placement of
941,176  shares of our common stock at a purchase  price of $8.50 per share.  On
April 28, 2006, we completed the private placement. The net proceeds of the sale
were approximately $7.7 million after deducting placement fees and other closing
costs. The proceeds were used to fund additions to property plant and equipment,
short-term investments and operating losses.

     Under the terms of the Stock Purchase Agreements, we were obligated to file
a registration statement on Form S-3 with the Securities and Exchange Commission
(the "SEC")  registering the resale of the shares of common stock sold. We filed
the Form S-3 on May 3, 2006 and the SEC  declared it  effective on May 12, 2006.
In the event  that  this  registration  statement  ceases  to be  effective  and
available to the  investors  for an aggregate  period of 30 days in any 12 month
period,  we  must  pay  liquidated  damages  starting  on the  61st  day (in the
aggregate)  of any  suspensions  in any 12  month  period,  and  each  30th  day
thereafter  until the  suspension  is  terminated  an amount  equal to 1% of the
aggregate purchase price paid by the investors. However, we are not obligated to
pay liquidation  damages on shares not owned by the investors at the time of the
suspension or shares that are tradable  without  restriction  under Rule 144. We
reviewed  Emerging Issues Task Force ("EITF")  00-19:  ACCOUNTING FOR DERIVATIVE
FINANCIAL  INSTRUMENTS  INDEXED TO, AND POTENTIALLY  SETTLED IN, A COMPANY'S OWN
STOCK,  and  EITF  05-04:  THE  EFFECT  OF  A  LIQUIDATED  DAMAGES  CLAUSE  ON A
FREESTANDING  FINANCIAL INSTRUMENT SUBJECT TO EITF ISSUE NO. 00-19, to determine
if these liquidation  damages  provisions require a portion of the equity raised
needs to be accounted  under  Financial  Accounting  Standards  ("FAS") No. 133:
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. We determined that
the liquidated  damages  provisions did not require  treatment under FAS No. 133
and  therefore  will treat all of the funds  raised  under these  agreements  as
additions to permanent equity.

     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%  (7.25%  at  December  31,  2007)  and  payable  in  thirty-six  (36)
consecutive  monthly  payments  following the funding date of that  advance.  At
December 31, 2007, our outstanding  borrowings from the equipment line of credit
amounted to $2,917,000.

     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 Revolving 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%).  In  addition,  we  agreed to pay to the Bank a
collateral  monitoring  fee of $750 per month in the event the 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

                                       25
<PAGE>

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  (1.0%) or seven  percent
(7%).

     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.

     We maintain allowances for doubtful accounts for estimated losses resulting
from the  inability  of our  customers  to pay amounts  due. We actively  pursue
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 deemed  necessary.  A
specific  reserve is  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.

     At December 31, 2007, our accumulated deficit was approximately $11,689,000
compared to accumulated  deficit of approximately  $9,756,000 as of December 31,
2006.

     We have incurred  significant  operating losses in 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.  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.  We have funded these cash losses
from cash  receipts of $4 million  from the sale of a solar PV module line along
with  the  transfer  of  technology  and  rights  to mark the  modules  with our
trademark  in 2007 and $7.7  million  from the  sale of  equity  in 2006.  As of
December 31, 2007, we had unrestricted cash and cash equivalents of $2.4 million
compared  to  unrestricted  cash  and  cash  equivalents  of  $1.5  million  and
unrestricted short-term investments of $3 million as of December 31, 2006. While
we believe we have inherent  assets and technology that we could sell or license
in the near term, there is no guarantee that we would be able to sell or license
those assets on a timely basis and at appropriate  values that would allow us to
continue  to fund our  operating  losses.  We have  developed  several  plans to
mitigate  cash losses  primarily  from  increased  revenues  and,  if  required,
potential cost reduction efforts and outside financing.  As a result, we believe
we have  sufficient  resources to continue as a going  concern at least  through
December 31, 2008. The table below details our cash loss from  operations  which
excludes changes in working capital during the respective periods.

<TABLE><CAPTION>
                                                                                   Years Ended December 31,
                                                                                 ----------------------------
                                                                                     2007            2006
                                                                                 As Restated
                                                                                 ------------    ------------
<S>                                                                              <C>             <C>
          Loss from operations                                                   $ (3,922,000)   $ (8,251,000)
          Gain on sale of trademark                                                (2,735,000)           --
                                                                                 ------------    ------------
          Adjusted loss from operations                                            (6,657,000)     (8,251,000)
          Depreciation and amortization                                             2,213,000       2,027,000
          Loss on impairment of capital equipment                                      78,000            --
          Loss on buyout of capital lease                                                --           105,000
          Loss on equity investment in joint venture                                   24,000            --
          Deferred tax benefit                                                       (877,000)           --
          Deferred compensation                                                         2,000          35,000
          Deferred rent                                                                18,000            --
          Extraordinary gain in equity investment in joint venture, net of tax     (1,301,000)           --
          Stock-based compensation                                                    579,000         256,000
          Increase (decrease) to reserves                                            (223,000)        467,000
                                                                                 ------------    ------------
          Cash loss from operations                                              $ (6,144,000)   $ (5,361,000)
                                                                                 ============    ============
</TABLE>

                                       26
<PAGE>

CONTRACTUAL   OBLIGATIONS,   COMMERCIAL   COMMITMENTS  AND   OFF-BALANCE   SHEET
ARRANGEMENTS.

     The  following  table  summarizes  our  gross  contractual  obligations  at
December 31, 2007 and the maturity  periods and the effect that such obligations
are expected to have on its liquidity and cash flows in future periods:

<TABLE><CAPTION>
                                                              Payments Due by Period
                                     ------------------------------------------------------------------------
                                                     Less than        2 - 3          4 - 5        More Than
      Contractual Obligations           Total          1 Year         Years          Years         5 Years
---------------------------------    ------------   ------------   ------------   ------------   ------------
<S>                                  <C>            <C>            <C>            <C>            <C>
PURCHASE OBLIGATIONS                 $  2,669,000   $  2,620,000   $     49,000           --             --

CAPITAL LEASES:
  Related party capital lease        $    495,000   $    495,000           --             --             --

OPERATING LEASES:
  Unrelated party operating leases   $    338,000   $    124,000   $    200,000   $     14,000           --
  Related party operating lease      $  9,946,000   $  1,812,000   $  3,948,000   $  4,186,000           --
</TABLE>

     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  obligations  outlined  above include both the principal and
interest components of these contractual obligations.

     On May 26,  2005,  we  entered  into a  global  consortium  agreement  (the
"Agreement") with Nisshinbo Industries,  Inc. ("Nisshinbo") for the development,
manufacturing,  and sales of solar photovoltaic module manufacturing  equipment.
Nisshinbo's  prior  relationship  with Spire was as a  sub-licensee  of Marubeni
Corporation with whom we had a license arrangement that was originally signed in
1997,  extended  in  2003,  and  terminated  in May  2005.  Nisshinbo's  role as
sub-licensee  was to manufacture  equipment for Marubeni to sell to the Japanese
market based upon our proprietary technology.  Under the terms of the Agreement,
Nisshinbo  purchased a license to manufacture and sell our module  manufacturing
equipment on a semi-exclusive basis for an upfront fee plus additional royalties
based on ongoing  equipment sales over a ten-year  period.  In addition,  we and
Nisshinbo  agreed,  but  are  not  obligated,   to  pursue  joint  research  and
development, product improvement activities and sales and marketing efforts. The
companies  may share  market  costs  such as product  collateral  and trade show
expenses.  Each company may also  collaborate  on sales leads and have the other
company  manufacture and service its equipment in the field. Both companies have
reciprocal  rights  to  participate  in the other  company's  R&D  efforts  on a
going-forward  basis.  Nisshinbo can request us to further  develop a technology
but Nisshinbo must (a) share in the costs of these  development  efforts equally
with us  (and  thereafter  have  joint  ownership)  otherwise  we  will  own the
technology  under a partial  contribute or no participation by Nisshinbo with us
receiving a royalty from Nisshinbo if it utilizes the technology.  At the end of
the license all non-jointly owned technology  developed under the Agreement will
revert back to the owner,  with the other party being required to purchase a new
license based upon the fair market value of that technology in order to continue
to utilize the technology.

     On June  27,  2005,  we  received  JPY  400,000,000  from  the sale of this
permanent license.  We determined that the Nisshinbo Agreement contains multiple
elements  consisting of (1) the granting of a license to utilize our  technology
and (2) the  semi-exclusive  right to utilize the  technology for a period of 10
years.  We believe the  granting of the license  meets the  criteria of Emerging
Issues Task Force ("EITF")  00-21,  "Accounting  for Revenue  Arrangements  with
Multiple Elements", paragraph 9(a), as the license to utilize the technology has
value to Nisshinbo on a stand-alone basis. Further, Question 1 to Securities and
Exchange   Commission   ("SEC")   Staff   Accounting   Bulletin   Topic   13A-3f
"Nonrefundable   Up-Front  Fees",  was  directly   considered  as  guidance  for
determining  if  the  upfront  fee  under  the  Nisshinbo  Agreement  should  be
recognized  upon the  signing of  contract  or  recognized  over the term of the
license.  It is our belief  that a separate  earnings  process  was  complete as
Nisshinbo  was  purchasing  access to utilize  technology  it already had in its
possession;  therefore,  recognition of the gain on the sale was appropriate. We
have determined the fair value of the license and royalty based on an appraisal.
As a result,  a $3,319,600  gain was  recognized as a gain on sale of license in
the consolidated  statements of operations for the year ended December 31, 2005.
The balance of $350,000 was determined to represent an advanced  royalty payment
and was recorded as an advance on  contracts  in progress.  This amount is being
credited as

                                       27
<PAGE>

royalty income over the ten-year license period on a straight-line basis.

     We maintain a Japanese yen account (approximately JPY 90,000 as of December
31, 2007). As of December 31, 2007,  approximately  $1,000 has been reflected in
cash  and  cash  equivalents  in the  accompanying  consolidated  balance  sheet
utilizing the closing  yen/dollar  exchange rate as of December 31, 2007.  Total
currency  translation  loss of $14,000 for each of the years ended  December 31,
2007  and  2006,  is  reflected  in  other  expense,  net  in  the  accompanying
consolidated statement of operations.

     Outstanding  letters of credit  totaled  $261,000 at December 31, 2007. The
letters of credit secure performance  obligations and purchase commitments,  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 and short term-investments.

RECENT ACCOUNTING PRONOUNCEMENTS

     In September 2006, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 157, Fair Value  Measurements  ("FAS 157"). This Statement is effective
for financial  statements  issued for fiscal years  beginning after November 15,
2007.  On  February  6,  2008,  the FASB  announced  it will  issue a FASB Staff
Position  ("FSP")  to  allow a  one-year  deferral  of  adoption  of FAS 157 for
nonfinancial  assets and  nonfinancial  liabilities  that are recognized at fair
value on a nonrecurrng basis. FAS 157 provides a common fair value hierarchy for
companies to follow in determining fair value measurements in the preparation of
financial  statements and expands disclosure  requirements  relating to how such
fair value  measurements  were  developed.  FAS 157 clarifies the principle that
fair value should be based on the  assumptions  that the  marketplace  would use
when pricing an asset or liability,  rather than company  specific  data. We are
currently assessing the impact that FAS 157 will have on our financial position,
results of operations and cash flow.

     In February 2007, the FASB issued SFAS No. 159 ("FAS 159"),  The Fair Value
Option for Financial  Assets and Financial  Liabilities - Including an Amendment
of FASB Statement No. 115. FAS 159 allows companies to report selected financial
assets and  liabilities at fair value.  The changes in fair value are recognized
in earnings and the assets and liabilities  measured under this  methodology are
required to be displayed separately in the balance sheet. The main intent of the
Statement is to mitigate the  difficulty in  determining  the reported  earnings
caused by a  "mixed-attribute"  model" (or reporting  some assets are fair value
and others using a different  valuation  attribute such as amortized  cost). The
project is separated into two phases. This first phase addressed the creation of
a fair value option for financial  assets and  liabilities.  A second phase will
address creating a fair value option for selected  non-financial  items. FAS 159
is effective  for all  financial  statements  issued for fiscal years  beginning
after  November 15, 2007. We are  evaluating  the impact that this issuance will
have on our financial position, results of operation and cash flow.

     In December  2007,  the FASB issued  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. We are
evaluating  the impact that this issuance  will have on our financial  position,
results of operation and cash flow.

     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

                                       28
<PAGE>

retains   controlling   interest,   the  transaction  is  considered  an  equity
transaction.  FAS 160 is effective for annual periods  beginning  after December
15,  2008.  We are  evaluating  the impact that this  issuance  will have on our
financial position, results of operation and cash flow.

IMPACT OF INFLATION AND CHANGING PRICES

     Historically,  our business has not been materially  impacted by inflation.
Manufacturing equipment and solar systems are generally quoted, manufactured and
shipped  within a cycle of  approximately  nine  months,  allowing  for  orderly
pricing  adjustments  to the  cost of labor  and  purchased  parts.  We have not
experienced  any  negative  effects  from the impact of  inflation  on long-term
contracts.  Our service  business is not  expected to be  seriously  affected by
inflation  because its  procurement-production  cycle typically  ranges from two
weeks to several  months,  and prices  generally are not fixed for more than one
year.  Research  and  development  contracts  usually  include  cost  escalation
provisions.

FOREIGN CURRENCY FLUCTUATION

     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 will be 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 for
a period of ten years,  was extended for a five-year period expiring on November
30, 2000 and was further  extended for a five-year  period  expiring on November
30, 2005.  The sublease  agreement  provided for minimum  rental  payments  plus
annual increases linked to the consumer price index. Effective December 1, 2005,
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 have  allocated a portion of these  expenses to  SPI-Trust
based on  pre-established  formulas  utilizing  square  footage and actual usage
where  applicable.  These allocated  expenses were 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 New 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 exercise 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 and the Lease Extension,  as amended,  for
the year  ended  December  31,  2007 and 2006  was  $1,415,000  and  $1,262,000,
respectively.  In  connection  with the Lease  Extension,  as  amended,  we were
invoiced

                                       29
<PAGE>

and paid certain SPI-Trust related expenses,  including building maintenance and
insurance.  We invoiced SPI-Trust on a monthly basis and SPI-Trust reimbursed us
for all such costs.  Approximately $14,000 was due from SPI-Trust as of December
31, 2006 for building related costs and no amounts due as of December 31, 2007.

     In  conjunction  with our  acquisition  of  Bandwidth  (now  known as 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 our option 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 December 31,  2007).  The lease
agreement  does not provide for a transfer of ownership  at any point.  Interest
costs  were  assumed at 7%.  Interest  expense  was  approximately  $76,000  and
$136,000  for the years ended  December  31, 2007 and 2006,  respectively.  This
lease has been  classified  as a related  party  capital  lease and a summary of
payments (including interest) follows:
<TABLE><CAPTION>
                                               Rate Per                         Monthly        Security
                     Year                    Square Foot      Annual Rent         Rent          Deposit
           ---------------------------       -----------      -----------       --------        --------
<S>        <C>                                 <C>            <C>               <C>             <C>
           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
                                                              ==========
</TABLE>

     At December 31, 2007,  $486,000  reflected  the current  portion of capital
lease obligation - related party, with no long-term portion, in the consolidated
balance sheet.

CRITICAL ACCOUNTING POLICIES

     The  preparation  of financial  statements  in accordance  with  accounting
principles generally accepted in the United States requires us to make estimates
and assumptions  that affect the reported  amounts of assets and liabilities and
disclosure of  contingent  assets and  liabilities  at the date of the financial
statements  and the  reported  amounts  of  revenues  and  expenses  during  the
reporting  period.  Among the significant  estimates  affecting our consolidated
financial  statements  are those relating to revenue  recognition,  reserves for
doubtful  accounts  and sales  returns  and  allowances,  reserve for excess and
obsolete inventory,  impairment of long-lived assets, income taxes, and warranty
reserves.  We  regularly  evaluate  our  estimates  and  assumptions  based upon
historical experience and various other factors that we believe to be reasonable
under  the  circumstances,  the  results  of which  form the  basis  for  making
judgments  about the  carrying  values of assets  and  liabilities  that are not
readily  apparent from other  sources.  To the extent actual results differ from
those  estimates,  our future results of operations may be affected.  We believe
the following critical accounting policies affect our more significant judgments
and estimates used in the preparation of our consolidated  financial statements.
Refer to  Footnote 2 of our notes to  consolidated  financial  statements  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  recognize  product revenue upon shipment of products provided
there are no uncertainties regarding customer acceptance, persuasive evidence of
an  arrangement   exists,  the  sales  price  is  fixed  or  determinable,   and
collectibility  is reasonably  assured.  These criteria are generally met at the
time of  shipment  when the risk of loss and  title  passes to the  customer  or
distributor,  unless a consignment  arrangement exists. Revenue from consignment
arrangements is recognized based on product usage indicating sales are complete.

     We  utilize  a  distributor  network  to market  and sell its  hemodialysis
catheters  domestically.  We generally  recognize 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

                                       30
<PAGE>

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 years ended December 31, 2007 and 2006, is as follows:

<TABLE><CAPTION>
                                          Rebates          Returns          Total
                                        ------------    ------------    ------------

<S>                                     <C>             <C>             <C>
          Balance - December 31, 2005   $     92,000    $     19,000    $    111,000

            Provision                        387,000          60,000         447,000
            Utilization                     (341,000)        (62,000)       (403,000)
                                        ------------    ------------    ------------
          Balance - December 31, 2006        138,000          17,000         155,000
            Provision                        224,000          32,000         256,000
            Utilization                     (285,000)        (39,000)       (324,000)
                                        ------------    ------------    ------------
          Balance - December 31, 2007   $     77,000    $     10,000    $     87,000
                                        ============    ============    ============
</TABLE>

     o Credits for rebates are recorded in the month of the actual sale.
     o Credits for returns are processed when the actual merchandise is received
       by us.
     o Substantially  all rebates and returns are  processed no later than three
       months after original shipment by us.

     The reserve  percentage of inventory held by distributors over the last two
years has decreased to  approximately  8% in 2007, when compared to 13% in 2006.
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 $1,039,000 at December 31, 2007.

     If sufficient  history to make reasonable and reliable estimates of returns
or rebates does not exist,  revenue  associated  with such practices is deferred
until the  return  period  lapses or a  reasonable  estimate  can be made.  This
deferred  revenue will be recognized as revenue when the distributor  reports to
us that it has either  shipped or  disposed  of the units  (indicating  that the
possibility of return is remote).

     Our OEM capital  equipment solar energy business builds complex  customized
machines to order for specific customers.  Substantially all of these orders are
sold on a FOB Bedford,  Massachusetts  (or EX-Works  Factory)  basis.  It is 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.  Our  solar  energy  systems  business
installs  solar energy  systems on  customer-owned  properties  on a contractual
basis. Generally, revenue is recognized once the systems have been installed and
the title is passed to the customer. For arrangements with multiple elements, 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 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,

                                       31
<PAGE>

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  its
consolidated  financial  statements  for prior  periods.  Under this  transition
method,   stock-based   compensation   expense  for  2006  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  will be based  on the  grant-date  fair  value  estimated  in
accordance  with the  provisions  of Statement  123(R).  The impact of Statement
123(R) on our results of  operations  resulted  in  recognition  of  stock-based
compensation expense of approximately  $579,000 and $256,000 for the years ended
December 31, 2007 and 2006, respectively.

ITEM 7A.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
---------------------------------------------------------------------

Not required as we are a smaller reporting company.










                                       32
<PAGE>
ITEM 8.  FINANCIAL STATEMENTS
-----------------------------

                        CONSOLIDATED FINANCIAL STATEMENTS

                                TABLE OF CONTENTS



<TABLE><CAPTION>
<S>                                                                                            <C>
Report of Independent Registered Public Accounting Firm  .....................................  34


Consolidated Financial Statements:

     Consolidated Balance Sheets as of December 31, 2007 (as restated) and 2006...............  35

     Consolidated Statements of Operations for the Years Ended December 31, 2007
      (as restated) and 2006  ................................................................  36

     Consolidated Statements of Stockholders' Equity and Comprehensive Loss for
        the Years Ended December 31, 2007 (as restated) and 2006  ............................  37

     Consolidated Statements of Cash Flows for the Years Ended December 31, 2007
      (as restated) and 2006  ................................................................  38

     Notes to Consolidated Financial Statements (as restated) ................................  39
</TABLE>

















                                       33
<PAGE>
             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



To the Board of Directors and Stockholders
of Spire Corporation:

We have audited the consolidated balance sheets of Spire Corporation and
subsidiaries as of December 31, 2007 and 2006 and the related consolidated
statements of operations, stockholders' equity and comprehensive loss, and cash
flows for the years then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States of America). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. The Company is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. An audit includes consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe our audits provide a
reasonable basis for our opinion.

As discussed in Note 2 to the accompanying consolidated financial statements,
the Company has restated its financial statements for the year ended December
31, 2007.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Spire Corporation
and subsidiaries as of December 31, 2007 and 2006, and the results of their
operations and their cash flows for the years then ended, in conformity with
accounting principles generally accepted in the United States of America.




VITALE, CATURANO & COMPANY, LTD.


March 31, 2008, except for
Note 2, as to which the date is
November 24, 2008

Boston, Massachusetts




                                       34
<PAGE>
                       SPIRE CORPORATION AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS


<TABLE><CAPTION>
                                                                          December 31,      December 31,
                                                                              2007              2006
                                                                         As Restated (1)
                                                                          ------------      ------------
<S>                                                                       <C>               <C>
                                         ASSETS
Current assets
--------------
   Cash and cash equivalents                                              $  2,372,000      $  1,536,000
   Restricted cash - current portion                                           391,000           269,000
                                                                          ------------      ------------
                                                                             2,763,000         1,805,000

   Short-term investments                                                           --         3,031,000
    Restricted short-term investments                                               --         1,969,000
   Accounts receivable - trade, net                                         11,865,000         4,010,000
   Inventories, net                                                         11,570,000         4,217,000
   Deferred cost of goods sold                                               8,044,000                --
    Deposits on equipment for inventory                                      2,475,000         2,580,000
   Prepaid expenses and other current assets                                   542,000           737,000
                                                                          ------------      ------------
     Total current assets                                                   37,259,000        18,349,000

Property and equipment, net                                                  6,209,000         6,673,000

Intangible and other assets, net                                               851,000           844,000
Available-for-sale investments, at quoted market value (cost of
    $1,696,000 and $1,361,000 at 12/31/07 and 12/31/06, respectively)        1,800,000         1,461,000
Equity investment in joint venture                                           2,264,000                --
Restricted cash - long-term                                                         --           121,000
Deposit - related party                                                        304,000           236,000
                                                                          ------------      ------------
     Total other assets                                                      5,219,000         2,662,000
                                                                          ------------      ------------
     Total assets                                                         $ 48,687,000      $ 27,684,000
                                                                          ============      ============



                          LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities
-------------------
   Current portion of capital lease obligation - related party            $    486,000      $  1,027,000
   Current portion of equipment line of credit                               1,167,000                --
   Accounts payable                                                          2,909,000         1,982,000
   Accrued liabilities                                                       6,057,000         5,006,000
   Current portion of advances on contracts in progress                     24,053,000         6,396,000
                                                                          ------------      ------------
     Total current liabilities                                              34,672,000        14,411,000

Long-term portion of capital lease obligation - related party                       --           486,000
Long-term portion of equipment line of credit                                1,750,000                --
Long-term portion of advances on contracts in progress                       1,950,000         1,823,000
Deferred compensation                                                        1,800,000         1,461,000
Other long-term liabilities                                                     60,000            40,000
                                                                          ------------      ------------
   Total long-term liabilities                                               5,560,000         3,810,000
                                                                          ------------      ------------
     Total liabilities                                                      40,232,000        18,221,000
                                                                          ------------      ------------

Stockholders' equity
--------------------
   Common stock, $0.01 par value; 20,000,000 shares authorized;
     8,321,188 shares issued and outstanding on December 31, 2007 and
     8,236,663 shares issued and outstanding on December 31, 2006               83,000            82,000
   Additional paid-in capital                                               19,999,000        19,077,000
   Accumulated deficit                                                     (11,689,000)       (9,756,000)
   Accumulated other comprehensive income, net                                  62,000            60,000
                                                                          ------------      ------------
     Total stockholders' equity                                              8,455,000         9,463,000
                                                                          ------------      ------------
     Total liabilities and stockholders' equity                           $ 48,687,000      $ 27,684,000
                                                                          ============      ============
</TABLE>
------------------
(1) See Note 2.


                   The accompanying notes are an integral part
                   of these consolidated financial statements.

                                       35
<PAGE>
                       SPIRE CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS


<TABLE><CAPTION>
                                                                             Years Ended December 31,
                                                                          ------------------------------
                                                                              2007              2006
                                                                         As Restated (1)
                                                                          ------------      ------------
<S>                                                                       <C>               <C>
Net sales and revenues
----------------------
    Sales of goods                                                        $ 24,723,000      $  9,562,000
    Contract research, service and license revenues                         12,345,000        10,563,000
                                                                          ------------      ------------
        Total net sales and revenues                                        37,068,000        20,125,000

Cost of sales and revenues
--------------------------
    Cost of goods sold                                                      20,826,000         9,029,000
    Cost of contract research, services and licenses                         9,360,000         8,819,000
                                                                          ------------      ------------
        Total cost of sales and revenues                                    30,186,000        17,848,000

                                                                          ------------      ------------
Gross margin                                                                 6,882,000         2,277,000

Operating expenses
------------------
    Selling, general and administrative expenses                            13,226,000         9,794,000
    Internal research and development expenses                                 313,000           734,000
                                                                          ------------      ------------
        Total operating expenses                                            13,539,000        10,528,000
                                                                          ------------      ------------

Gain on sale of trademark                                                    2,735,000                --
                                                                          ------------      ------------

Loss from operations                                                        (3,922,000)       (8,251,000)
--------------------

Interest income (expense), net                                                (151,000)          114,000
Loss on equity investment in joint venture                                     (24,000)               --
Other expense                                                                  (14,000)          (14,000)
                                                                          ------------      ------------
Total other income (expense), net                                             (189,000)          100,000
                                                                          ------------      ------------

Loss before income taxes and extraordinary gain                             (4,111,000)       (8,151,000)

Income tax benefit                                                             877,000                --
                                                                          ------------      ------------

Net loss before extraordinary gain                                          (3,234,000)       (8,151,000)
----------------------------------

Extraordinary gain, net of taxes                                             1,301,000                --
                                                                          ------------      ------------

Net loss                                                                  $ (1,933,000)     $ (8,151,000)
--------                                                                  ============      ============

Basic and diluted income (loss) per share:
    From continuing operations after income taxes                         $      (0.39)     $      (1.03)
    From extraordinary gain, net of tax                                           0.16                --
                                                                          ------------      ------------
    Basic and diluted income (loss) per share                             $      (0.23)     $      (1.03)
    -----------------------------------------                             ============      ============

Weighted average number of common and common equivalent
    shares outstanding - basic and diluted                                   8,272,123         7,898,320
                                                                          ============      ============
</TABLE>
------------------
(1) See Note 2.


                   The accompanying notes are an integral part
                   of these consolidated financial statements.

                                       36
<PAGE>
                       SPIRE CORPORATION AND SUBSIDIARIES
     CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE LOSS

<TABLE><CAPTION>
                                                                                                      Accumulated
                                          Common Stock               Additional                          Other
                                  -----------------------------       Paid-in       (Accumulated     Comprehensive
                                     Shares           Amount          Capital          Deficit)          Income            Total
                                  ------------     ------------     ------------     ------------     ------------     ------------
<S>                               <C>              <C>              <C>              <C>              <C>              <C>
Balance, December 31, 2005           7,222,987     $     72,000     $ 10,763,000     $ (1,605,000)    $     25,000     $  9,255,000

  Exercise of stock options             72,500            1,000          337,000               --               --          338,000
  Proceeds from issuance of
    common stock, net of
    offering costs                     941,176            9,000        7,721,000               --               --        7,730,000
  Stock-based compensation                  --               --          256,000               --               --          256,000
  Net unrealized gain on
    available for sale marketable
    securities, net of tax                  --               --               --               --           35,000           35,000
  Net loss                                  --               --               --       (8,151,000)              --       (8,151,000)
                                  ------------     ------------     ------------     ------------     ------------     ------------

Balance, December 31, 2006           8,236,663           82,000       19,077,000       (9,756,000)          60,000        9,463,000
  Exercise of stock options             84,525            1,000          343,000               --               --          344,000
  Stock-based compensation                  --               --          579,000               --               --          579,000
  Net unrealized gain on
    available for sale marketable
    securities, net of tax                  --               --               --               --            2,000            2,000
  Net loss - (as restated (1))              --               --               --       (1,933,000)              --       (1,933,000)
                                  ------------     ------------     ------------     ------------     ------------     ------------

Balance, December 31, 2007 -         8,321,188     $     83,000     $ 19,999,000     $(11,689,000)    $     62,000     $  8,455,000
(as restated (1))                 ============     ============     ============     ============     ============     ============


                                                                                                         Years Ended December 31,
                                                                                                      -----------------------------
                                                                                                          2007             2006
                                                                                                     As Restated(1)
                                                                                                      ------------     ------------
Comprehensive income/(loss) is calculated as follows:
  Net loss                                                                                            $ (1,933,000)    $ (8,151,000)

  Other comprehensive gain on available for sale marketable securities                                       2,000           35,000
                                                                                                      ------------     ------------
  Comprehensive loss                                                                                  $ (1,931,000)    $ (8,116,000)
                                                                                                      ============     ============
</TABLE>
------------------
(1) See Note 2.


                   The accompanying notes are an integral part
                   of these consolidated financial statements.

                                       37
<PAGE>
                       SPIRE CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE><CAPTION>
                                                                                   Years Ended December 31,
                                                                                ------------------------------
                                                                                    2007              2006
                                                                               As Restated (1)
                                                                                ------------      ------------
<S>                                                                             <C>               <C>
Cash flows from operating activities:
-------------------------------------
   Net loss                                                                     $ (1,933,000)     $ (8,151,000)
   Adjustments to reconcile net loss to net cash provided by
      (used in) operating activities:
       Depreciation and amortization                                               2,213,000         2,027,000
       Loss on impairment of capital equipment                                        78,000                --
       Loss on buy-out of capital lease                                                   --           105,000
       Gain on sale of trademark                                                  (2,735,000)               --
       Loss on equity investment in joint venture                                     24,000                --
       Deferred tax benefit                                                         (877,000)               --
       Deferred compensation                                                           2,000            35,000
       Extraordinary gain in equity investment in joint venture, net of tax       (1,301,000)               --
       Stock-based compensation                                                      579,000           256,000
       Increase (decrease) in accounts receivable reserves                           (43,000)           86,000
       Increase (decrease) in inventory reserves                                    (180,000)          381,000
       Changes in assets and liabilities:
         Restricted cash                                                              (1,000)          536,000
         Accounts receivable                                                      (7,812,000)         (400,000)
         Interest receivable                                                              --          (158,000)
         Inventories                                                              (7,308,000)       (1,938,000)
         Deferred cost of goods sold                                              (8,044,000)               --
         Deposits, prepaid expenses and other current assets                         299,000        (2,552,000)
         Accounts payable, accrued liabilities and other liabilities               1,998,000         3,839,000
         Deposit - related party                                                     (68,000)          (45,000)
         Advances on contracts in progress                                        17,836,000         6,461,000
                                                                                ------------      ------------
           Net cash provided by (used in) operating activities                    (7,273,000)          482,000
                                                                                ------------      ------------

Cash flows from investing activities:
-------------------------------------
   Purchase of short-term investments                                                     --        (7,500,000)
   Proceeds from maturity of short-term investments                                5,000,000         2,500,000
   Proceeds from sale of trademark                                                 2,735,000                --
   Purchase of property and equipment                                             (1,730,000)       (4,085,000)
   Increase in intangible and other assets                                          (130,000)         (268,000)
                                                                                ------------      ------------
           Net cash provided by (used in) investing activities                     5,875,000        (9,353,000)
                                                                                ------------      ------------

Cash flows from financing activities:
-------------------------------------
   Proceeds from issuance of common stock, net of offering costs                          --         7,730,000
   Principal payments on capital lease obligations - related parties              (1,027,000)         (734,000)
   Borrowings from equipment line of credit, net                                   2,917,000                --
   Principal payments and buy-out of capital lease obligations                            --          (557,000)
   Proceeds from exercise of stock options                                           344,000           338,000
                                                                                ------------      ------------
           Net cash provided by financing activities                               2,234,000         6,777,000
                                                                                ------------      ------------

Net increase (decrease) in cash and cash equivalents                                 836,000        (2,094,000)

Cash and cash equivalents, beginning of year                                       1,536,000         3,630,000
                                                                                ------------      ------------
Cash and cash equivalents, end of year                                          $  2,372,000      $  1,536,000
                                                                                ============      ============

Supplemental disclosures of cash flow information:
--------------------------------------------------

   Interest paid                                                                $    149,000      $     18,000
                                                                                ============      ============
   Interest received                                                            $     74,000      $    110,000
                                                                                ============      ============
   Interest paid - related party                                                $     76,000      $    136,000
                                                                                ============      ============
   Income taxes paid (refunded)                                                 $     18,000      $   (155,000)
                                                                                ============      ============
</TABLE>
------------------
(1) See Note 2.


                   The accompanying notes are an integral part
                   of these consolidated financial statements.

                                       38
<PAGE>
                       SPIRE CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           DECEMBER 31, 2007 AND 2006


1.     DESCRIPTION OF THE BUSINESS

       Spire Corporation ("Spire" or the "Company")  develops,  manufactures and
markets  highly-engineered  products  and services in three  principal  business
areas:  (i) capital  equipment for the PV solar  industry,  (ii)  biomedical and
(iii)  optoelectronics,  generally  bringing  to  bear  expertise  in  materials
technologies,  surface  science and thin films across all three business  areas,
discussed below.

       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  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  the  optoelectronics  area,  the  Company  provides  custom  compound
semiconductor  foundry and fabrication services on a merchant basis to customers
involved in biomedical/biophotonic  instruments,  telecommunications and defense
applications.  Services include compound  semiconductor wafer growth, other thin
film  processes and related  device  processing and  fabrication  services.  The
Company also  provides  materials  testing  services  and  performs  services in
support of sponsored  research into  practical  applications  of  optoelectronic
technologies.

       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 and delivery of solar systems. Export sales, which amounted
to 47% of net sales and revenues for 2007,  continue to constitute a significant
portion of the Company's net sales and revenues.

       The Company has incurred  significant  operating losses in 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.  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.  As of December  31,  2007,  the Company  had  unrestricted  cash and cash
equivalents of $2.4 million  compared to unrestricted  cash and cash equivalents
of $1.5 million and  unrestricted  short-term  investments of $3.0 million as of
December  31,  2006.  While the  Company  believes  it has  inherent  assets and
technology that it could sell or license in the near term, there is no guarantee
that the Company would be able to sell or license those assets on a timely basis
and at  appropriate  values that would allow the Company to continue to fund its
operating  losses.  The Company has  developed  several  plans to mitigate  cash
losses  primarily  from  increased  revenues  and, if required,  potential  cost
reduction efforts and outside  financing.  As a result,  the Company believes it
has  sufficient  resources  to  continue  as a going  concern  at least  through
December 31, 2008.

2.     RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS

BACKGROUND OF THE RESTATEMENT OF 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.

                                       39
<PAGE>
       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
                                                 ============      ============


                                       40
<PAGE>
       The tables below set forth the effect of the  adjustments  as of December
31, 2007 and for the year ended December 31, 2007, as applicable:


                       SPIRE CORPORATION AND SUBSIDIARIES
                      RESTATED CONSOLIDATED BALANCE SHEETS


<TABLE><CAPTION>
                                                                             December 31, 2007
                                                                      ------------------------------
                                                                       As Reported       As Restated
                                                                      ------------      ------------
<S>                                                                   <C>               <C>
                                         ASSETS
Current assets
--------------
   Cash and cash equivalents                                          $  2,372,000      $  2,372,000
   Restricted cash - current portion                                       391,000           391,000
                                                                      ------------      ------------
                                                                         2,763,000         2,763,000

   Accounts receivable - trade, net                                     12,766,000        11,865,000
   Inventories, net                                                     18,506,000        11,570,000
   Deferred cost of goods sold                                                  --         8,044,000
   Deposits on equipment for inventory                                   2,475,000         2,475,000
   Prepaid expenses and other current assets                               542,000           542,000
                                                                      ------------      ------------
       Total current assets                                             37,052,000        37,259,000

Property and equipment, net                                              6,209,000         6,209,000

Intangible and other assets, net                                           851,000           851,000
Available-for-sale investments, at quoted market value (cost of
  $1,696,000 at 12/31/07)                                                1,800,000         1,800,000
Equity investment in joint venture                                       2,264,000         2,264,000
Deposit - related party                                                    304,000           304,000
                                                                      ------------      ------------
       Total other assets                                                5,219,000         5,219,000
                                                                      ------------      ------------
       Total assets                                                   $ 48,480,000      $ 48,687,000
                                                                      ============      ============



                          LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities
-------------------
   Current portion of capital lease obligation - related party        $    486,000      $    486,000
   Current portion of equipment line of credit                           1,167,000         1,167,000
   Accounts payable                                                      2,909,000         2,909,000
   Accrued liabilities                                                   6,057,000         6,057,000
   Current portion of advances on contracts in progress                 23,599,000        24,053,000
                                                                      ------------      ------------
       Total current liabilities                                        34,218,000        34,672,000

Long-term portion of equipment line of credit                            1,750,000         1,750,000
Long-term portion of advances on contracts in progress                   1,950,000         1,950,000
Deferred compensation                                                    1,800,000         1,800,000
Other long-term liabilities                                                 60,000            60,000
                                                                      ------------      ------------
   Total long-term liabilities                                           5,560,000         5,560,000
                                                                      ------------      ------------
       Total liabilities                                                39,778,000        40,232,000
                                                                      ------------      ------------

Stockholders' equity
--------------------
   Common stock, $0.01 par value; 20,000,000 shares authorized;
     8,321,188 shares issued and outstanding on December 31, 2007           83,000            83,000
   Additional paid-in capital                                           19,999,000        19,999,000
   Accumulated deficit                                                 (11,442,000)      (11,689,000)
   Accumulated other comprehensive income, net                              62,000            62,000
                                                                      ------------      ------------
       Total stockholders' equity                                        8,702,000         8,455,000
                                                                      ------------      ------------
       Total liabilities and stockholders' equity                     $ 48,480,000      $ 48,687,000
                                                                      ============      ============
</TABLE>

                                       41
<PAGE>
                       SPIRE CORPORATION AND SUBSIDIARIES
                 RESTATED CONSOLIDATED STATEMENTS OF OPERATIONS


<TABLE><CAPTION>
                                                                       Years Ended December 31, 2007
                                                                      ------------------------------
                                                                       As Reported       As Restated
                                                                      ------------      ------------
<S>                                                                   <C>               <C>
Net sales and revenues
----------------------
    Sales of goods                                                    $ 26,078,000      $ 24,723,000
    Contract research, service and license revenues                     12,345,000        12,345,000
                                                                      ------------      ------------
        Total net sales and revenues                                    38,423,000        37,068,000

Cost of sales and revenues
--------------------------
    Cost of goods sold                                                  21,934,000        20,826,000
    Cost of contract research, services and licenses                     9,360,000         9,360,000
                                                                      ------------      ------------
        Total cost of sales and revenues                                31,294,000        30,186,000

                                                                      ------------      ------------
Gross margin                                                             7,129,000         6,882,000

Operating expenses
------------------
    Selling, general and administrative expenses                        13,226,000        13,226,000
    Internal research and development expenses                             313,000           313,000
                                                                      ------------      ------------
        Total operating expenses                                        13,539,000        13,539,000
                                                                      ------------      ------------

Gain on sale of trademark                                                2,735,000         2,735,000
                                                                      ------------      ------------

Loss from operations                                                    (3,675,000)       (3,922,000)
--------------------

Interest income (expense), net                                            (151,000)         (151,000)
Loss on equity investment in joint venture                                 (24,000)          (24,000)
Other expense                                                              (14,000)          (14,000)
                                                                      ------------      ------------
Total other income (expense), net                                         (189,000)         (189,000)
                                                                      ------------      ------------

Loss before income taxes and extraordinary gain                         (3,864,000)       (4,111,000)

Income tax benefit                                                         877,000           877,000
                                                                      ------------      ------------

Net loss before extraordinary gain                                      (2,987,000)       (3,234,000)
----------------------------------

Extraordinary gain, net of taxes                                         1,301,000         1,301,000
                                                                      ------------      ------------

Net loss                                                              $ (1,686,000)     $ (1,933,000)
--------                                                              ============      ============

Basic and diluted income (loss) per share:
    From continuing operations after income taxes                     $      (0.36)     $      (0.39)
    From extraordinary gain, net of tax                                       0.16              0.16
                                                                      ------------      ------------
    Basic and diluted income (loss) per share                         $      (0.20)     $      (0.23)
    -----------------------------------------                         ============      ============

Weighted average number of common and common equivalent
    shares outstanding - basic and diluted                               8,272,123         8,272,123
                                                                      ============      ============
</TABLE>


                                       42
<PAGE>
                       SPIRE CORPORATION AND SUBSIDIARIES
                 RESTATED CONSOLIDATED STATEMENTS OF CASH FLOWS


<TABLE><CAPTION>
                                                                       Year ended December 31, 2007
                                                                      ------------------------------
                                                                       As Reported       As Restated
                                                                      ------------      ------------
<S>                                                                   <C>               <C>
Cash flows from operating activities:
-------------------------------------
   Net loss                                                           $ (1,686,000)     $ (1,933,000)
   Adjustments to reconcile net loss to net cash provided by
   (used in) operating activities:
       Depreciation and amortization                                     2,213,000         2,213,000
       Loss on impairment of capital equipment                              78,000            78,000
       Gain on sale of trademark                                        (2,735,000)       (2,735,000)
       Loss on equity investment in joint venture                           24,000            24,000
       Deferred tax benefit                                               (877,000)         (877,000)
       Deferred compensation                                                 2,000             2,000
       Extraordinary gain in equity investment in joint venture,
         net of tax                                                     (1,301,000)       (1,301,000)
       Stock-based compensation                                            579,000           579,000
       Increase (decrease) in accounts receivable reserves                 (43,000)          (43,000)
       Increase (decrease) in inventory reserves                          (180,000)         (180,000)
       Changes in assets and liabilities:
         Restricted cash                                                    (1,000)           (1,000)
         Accounts receivable                                            (8,713,000)       (7,812,000)
         Inventories                                                   (14,244,000)       (7,308,000)
         Deferred cost of goods sold                                            --        (8,044,000)
         Deposits, prepaid expenses and other current assets               299,000           299,000
         Accounts payable, accrued liabilities and other liabilities     1,998,000         1,998,000
         Deposit - related party                                           (68,000)          (68,000)
         Advances on contracts in progress                              17,382,000        17,836,000
                                                                      ------------      ------------
           Net cash provided by (used in) operating activities          (7,273,000)       (7,273,000)
                                                                      ------------      ------------

Cash flows from investing activities:
-------------------------------------
   Proceeds from maturity of short-term investments                      5,000,000         5,000,000
   Proceeds from sale of trademark                                       2,735,000         2,735,000
   Purchase of property and equipment                                   (1,730,000)       (1,730,000)
   Increase in intangible and other assets                                (130,000)         (130,000)
                                                                      ------------      ------------
           Net cash provided by (used in) investing activities           5,875,000         5,875,000
                                                                      ------------      ------------

Cash flows from financing activities:
-------------------------------------
   Principal payments on capital lease obligations - related parties    (1,027,000)       (1,027,000)
   Borrowings from equipment line of credit, net                         2,917,000         2,917,000
   Proceeds from exercise of stock options                                 344,000           344,000
                                                                      ------------      ------------
           Net cash provided by financing activities                     2,234,000         2,234,000
                                                                      ------------      ------------

Net increase (decrease) in cash and cash equivalents                       836,000           836,000

Cash and cash equivalents, beginning of year                             1,536,000         1,536,000
                                                                      ------------      ------------
Cash and cash equivalents, end of year                                $  2,372,000      $  2,372,000
                                                                      ============      ============

Supplemental disclosures of cash flow information:
--------------------------------------------------

   Interest paid                                                      $    149,000      $    149,000
                                                                      ============      ============
   Interest received                                                  $     74,000      $     74,000
                                                                      ============      ============
   Interest paid - related party                                      $     76,000      $     76,000
                                                                      ============      ============
   Income taxes paid (refunded)                                       $     18,000      $     18,000
                                                                      ============      ============
</TABLE>


                                       43
<PAGE>
3.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

       (a)  PRINCIPLES OF CONSOLIDATION

       The consolidated financial statements include the accounts of the Company
and its wholly-owned  subsidiaries.  All significant  intercompany  balances and
transactions have been eliminated in consolidation.  The Company's joint venture
with Gloria Solar is not  consolidated but recognized using the equity method of
accounting.  We report results one quarter in arrears. There were no significant
balances or transactions during the current reporting period.

       (b)  REVENUE RECOGNITION

       The  Company  derives  its  revenues  from  three  primary  sources:  (1)
commercial  products including,  but not limited to, solar energy  manufacturing
equipment,  solar energy systems and hemodialysis catheters;  (2) biomedical and
semiconductor  processing  services;  and (3) United  States  government  funded
research and development contracts

       The  Company  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.

       The  Company  utilizes  a  distributor  network  to  market  and sell its
hemodialysis  catheters  domestically.  The Company generally recognizes revenue
when  the  catheters  are  shipped  to its  distributors.  Gross  sales  reflect
reductions  attributable  to customer  returns and  various  customer  incentive
programs including pricing discounts and rebates.  Product returns are permitted
in certain sales contracts and an allowance is recorded for returns based on the
Company's history of actual returns. Certain customer incentive programs require
management  to estimate  the cost of those  programs.  The  allowance  for these
programs is  determined  through an analysis  of  programs  offered,  historical
trends,  expectations regarding customer and consumer  participation,  sales and
payment  trends,  and experience with payment  patterns  associated with similar
programs that had been previously  offered.  An analysis of the sales return and
rebate activity for the years ended December 31, 2007 and 2006, is as follows:

                                        Rebates        Returns         Total
                                       ---------      ---------      ---------
       Balance - December 31, 2005     $  92,000      $  19,000      $ 111,000
         Provision                       387,000         60,000        447,000
         Utilization                    (341,000)       (62,000)      (403,000)
                                       ---------      ---------      ---------
       Balance - December 31, 2006       138,000         17,000        155,000
         Provision                       224,000         32,000        256,000
         Utilization                    (285,000)       (39,000)      (324,000)
                                       ---------      ---------      ---------
       Balance - December 31, 2007     $  77,000      $  10,000      $  87,000
                                       =========      =========      =========

       o    Credits for rebates are recorded in the month of the actual sale.
       o    Credits for returns are processed when the actual merchandise is
            received by the Company.
       o    Substantially all rebates and returns are processed no later than
            three months after original shipment by the Company.

       The reserve  percentage of inventory held by  distributors  over the last
two years has  decreased to  approximately  8% in 2007,  when compared to 13% in
2006.  The  Company  performs  various  sensitivity  analyses to  determine  the
appropriate  reserve  percentage  to use.  To  date,  actual  quarterly  reserve
utilization has approximated  the amount  provided.  The total inventory held by
distributors was approximately $1,039,000 at December 31, 2007 and $1,210,000 at
December 31, 2006.

       If  sufficient  history to make  reasonable  and  reliable  estimates  of
returns or rebates does not exist,  revenue  associated  with such  practices is
deferred  until the return period  lapses or a reasonable  estimate can be made.
This deferred revenue will be recognized as revenue when the distributor reports
to the Company that it has either  shipped or disposed of the units  (indicating
that the possibility of return is remote).

                                       44
<PAGE>
       The Company's OEM capital  equipment solar energy business builds complex
customized machines to order for specific customers.  Substantially all of these
orders are sold on a FOB Bedford,  Massachusetts (or EX-Works Factory) basis. It
is the Company's policy to recognize  revenues for this equipment as the product
is shipped to the customer, as customer acceptance is obtained prior to shipment
and the equipment is expected to operate the same in the customer's  environment
as it does in the Company's  environment.  When an arrangement with the customer
includes future obligations or customer  acceptance,  revenue is recognized when
those  obligations  are  met or  customer  acceptance  has  been  achieved.  For
arrangements  with multiple  elements,  the Company  allocates  total fees under
contract to each  element  using the  relative  fair value method and revenue is
recognized  upon  delivery  of  each  element.  If the  Company  is not  able to
establish fair value of undelivered elements, all revenue is deferred.

       The  Company  recognizes  revenues  and  estimated  profits on  long-term
government  contracts on the accrual basis where the circumstances are such that
total profit can be estimated with reasonable accuracy and ultimate  realization
is reasonably  assured.  The Company  accrues  revenue and profit  utilizing the
percentage of completion method using a cost-to-cost  methodology.  A percentage
of the contract revenues and estimated profits is determined utilizing the ratio
of costs  incurred to date to total  estimated cost to complete on a contract by
contract basis. Profit estimates are revised periodically based upon changes and
facts,  and any losses on  contracts  are  recognized  immediately.  Some of the
contracts  include  provisions  to withhold a portion of the  contract  value as
retainage until such time as the United States  government  performs an audit of
the cost  incurred  under the  contract.  The  Company's  policy is to take into
revenue the full value of the contract,  including any retainage, as it performs
against  the  contract  since the Company has not  experienced  any  substantial
losses as a result of audits performed by the United States government.

       (c)  CASH AND CASH EQUIVALENTS

       Cash and cash  equivalents  include  cash,  time  deposits and all highly
liquid debt instruments with original  maturities of three months or less. These
investments are carried at cost, which approximates  market value. Cash and cash
equivalents  are  deposited  at  various  area  banks,  and at times may  exceed
federally insured limits.

       (d)  SHORT TERM INVESTMENTS

       Short term  investments  at December 31, 2006 include  highly liquid debt
instruments with original maturities of more than three months and less than one
year. These investments are carried at cost, which approximates market value.

       (e)  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 for the
years ended December 31,:

                                          2007           2006
                                       ----------     ----------
       Equity investments              $1,411,000     $1,160,000
       Government bonds                   303,000        262,000
       Cash and money market funds         86,000         39,000
                                       ----------     ----------
                                       $1,800,000     $1,461,000
                                       ==========     ==========


       These  investments  have been classified as long-term  available-for-sale
and are reported at fair value,  with  unrealized  gains and losses  included in
accumulated  other  comprehensive  income,  net of  related  tax  effect.  As of
December 31, 2007, the pre-tax  unrealized gain on these  marketable  securities
was approximately $104,000.

       (f)  INVENTORIES

       Inventories  are  stated  at the  lower  of cost or  market,  cost  being
determined on a first-in,  first-out  (FIFO) basis.  Judgments and estimates are
used in determining  the likelihood that goods on hand can be sold to customers.
The  Company  expensed  approximately  $77,000  and  $208,000  in 2007 and 2006,
respectively,  to cost of goods  sold,  for work in process  inventory  that was
determined to be valued in excess of market value.  Historical  inventory  usage
and current revenue trends are considered in estimating both excess and obsolete
inventory.  If actual  product  demand and market  conditions are less favorable
than those  projected by management,  additional  inventory  write-downs  may be
required.

                                       45
<PAGE>
       (g)  PROPERTY AND EQUIPMENT

       Property and equipment is stated at cost.  Depreciation  and amortization
are provided using the  straight-line  method over the estimated useful lives of
the respective assets, as follows:

       Building and equipment under capital lease   Lesser of 5 years or
                                                    remaining life of lease term
       Machinery and equipment                      5 and 7
       years Furniture and fixtures                 5 years
       Leasehold improvements                       Lesser of 10 years or
                                                    remaining life of facility
                                                    lease term

       Maintenance  and  repairs  are  charged  to expense  as  incurred.  Major
renewals and betterments are added to property and equipment accounts at cost.

       (h)  INTANGIBLE AND OTHER ASSETS

       Patents  amounted  to  $143,000,  net  of  accumulated   amortization  of
$687,000, at December 31, 2007. Licenses amounted to $109,000 net of accumulated
amortization  of  $216,000,  at December  31,  2007.  Patent  cost is  primarily
composed of cost  associated  with  securing  and  registering  patents that the
Company  has been  awarded  or that  have been  submitted  to,  and the  Company
believes  will be approved by, the  government.  License cost is composed of the
cost to acquire rights to the underlying technology or know-how. These costs are
capitalized  and  amortized  over their useful lives or terms,  ordinarily  five
years,  using the  straight-line  method.  There are no expected residual values
related  to  these  patents.  Amortization  expense,  relating  to  patents  and
licenses,  was approximately  $117,000 and $94,000, for the years ended 2007 and
2006, respectively.

       For disclosure  purposes,  the table below includes  future  amortization
expense  for  patents and  licenses  owned by the  Company as well as  estimated
amortization expense related to patents that remain pending at December 31, 2007
of $578,000. This estimated expense for patents pending assumes that the patents
are issued  immediately,  and therefore are being amortized over five years on a
straight-line  basis.  Estimated  amortization  expense for the  periods  ending
December 31, is as follows:

                          Year         Amortization Expense
                       ----------      --------------------
                          2008               $207,000
                          2009                166,000
                          2010                161,000
                          2011                154,000
                          2012                134,000
                       Thereafter               8,000
                                       --------------------
                                             $830,000
                                       ====================

       Also  included in other assets are  approximately  $21,000 of  refundable
deposits made by the Company at December 31, 2007.

       (i)  LONG-LIVED ASSETS

       The  Company  accounts  for  long-lived  assets  in  accordance  with the
provisions  of SFAS No.  144,  "Accounting  for the  Impairment  or  Disposal of
Long-Lived  Assets".  SFAS No. 144 requires that  long-lived  assets and certain
identifiable  intangibles be reviewed for impairment  whenever events or changes
in  circumstances  indicate  that the  carrying  amount  of an asset  may not be
recoverable.  The Company measures  recoverability of assets to be held and used
by a  comparison  of the  carrying  amount of an asset to future  net cash flows
expected  to be  generated  by the asset.  If such assets are  considered  to be
impaired, the impairment to be recognized is measured by the amount by which the
carrying  amount of the assets exceed the fair value of the assets.  The Company
reports  assets to be  disposed of at the lower of the  carrying  amount or fair
value less costs to sell.

       (j)  INCOME TAXES

       In  accordance  with SFAS No. 109,  "Accounting  for Income  Taxes",  the
Company  recognizes  deferred  income  taxes  based on the  expected  future tax
consequences  of differences  between the financial  statement basis and the tax
basis of assets and  liabilities,  calculated  using enacted tax rates in effect
for the year in which the  differences  are  expected to be reflected in the tax
return.  Valuation  allowances are provided if, based on the weight of available
evidence, it is more likely than not that some or all of the deferred tax assets
will not be realized.

                                       46
<PAGE>
       In June 2006, the Financial  Accounting  Standards  Board ("FASB") issued
Interpretation   No.  48,  "Accounting  for  Uncertainty  in  Income  Taxes,  an
interpretation  of FASB Statement 109" ("FIN 48"). This statement  clarifies the
criteria  that an  individual  tax position  must satisfy for some or all of the
benefits of that position to be recognized in a company's financial  statements.
FIN 48  prescribes  a  recognition  threshold  of  more  likely-than-not,  and a
measurement  attribute for all tax positions  taken or expected to be taken on a
tax return,  in order for those tax  positions to be recognized in the financial
statements. Effective January 1, 2007, the Company adopted the provisions of FIN
48. The  Company  has  determined  that no  liability  exists for  interest  and
penalties  related to uncertain tax positions as of January 1, 2007 and December
31, 2007. The Company  accounts for interest and penalties  related to uncertain
tax positions as part of its  provision for federal and state income taxes.  The
Company  does not expect  that the amounts of  unrecognized  tax  benefits  will
change significantly within the next 12 months.

       The Company is currently subject to audit by the Internal Revenue Service
for the calendar years ended 2003,  2004,  2005,  2006 and 2007. The Company and
its subsidiaries  state income tax returns are subject to audit for the calendar
years ended 2003, 2004, 2005, 2006 and 2007.

       (k)  WARRANTY

       The Company provides  warranties on certain of its products and services.
The Company's warranty programs are described below:

       Spire  Solar  Equipment   warrants  solar  energy  module   manufacturing
equipment  sold for a total of 360 days,  the first 90 days of which include the
replacement of defective component parts and the labor to correct the defect and
the next 270 days of which include only the cost of defective component parts.

       Spire Solar Systems  warrants  photovoltaic  electric  power systems sold
against  defective  components  for  360  days to  include  the  replacement  of
defective  component  parts and the labor to correct  the  defect.  Spire  Solar
Systems also warrants that its photovoltaic  electric power systems will achieve
a minimum of 80% of rated electrical power output for 20 years.

       Spire Biomedical  warrants that any of its catheter  products found to be
defective will be replaced.  No warranty is made that the failure of the product
will  not  occur,  and  Spire  disclaims  any  responsibility  for  any  medical
complications.  Spire  Biomedical  warrants that its services only will meet the
agreed upon specifications.

       Spire Semiconductor,  LLC warrants that its products will meet the agreed
upon specifications.

       The  Company  provides  for the  estimated  cost of  product  warranties,
determined primarily from historical information, at the time product revenue is
recognized.  Should actual product failure  warranties differ from the Company's
estimates,  revisions to the estimated warranty liability would be required. The
Company incurred a high level of warranty expense  attributed to one customer in
2006 and does not expect the problem to have a significant impact on earnings in
future  periods.  The  changes in the  product  warranties  for the years  ended
December 31, 2007 and 2006, are as follows:


               Balance at December 31, 2005          $   50,000
                  Provision charged to income           250,000
                  Usage                                (185,000)
                                                     ----------
               Balance at December 31, 2006             115,000
                  Provision charged to income           207,000
                  Usage                                (187,000)
                                                     ----------
               Balance at December 31, 2007          $  135,000
                                                     ==========


       (l)  INTERNAL RESEARCH AND DEVELOPMENT COSTS

       Internal  research and  development  costs are charged to  operations  as
incurred.  During the years ended  December  31, 2007 and 2006,  Company  funded
research  and  development  costs  were  approximately  $313,000  and  $734,000,
respectively.

                                       47
<PAGE>
       (m)  EARNINGS (LOSS) PER SHARE

       Basic earnings (loss) per share is computed by dividing income  available
to  common  stockholders  by  the  weighted  average  number  of  common  shares
outstanding during the period. Diluted earnings (loss) per share gives effect to
all  potential  dilutive  common  shares  outstanding  during  the  period.  The
computation  of diluted  earnings  (loss) per share does not assume  conversion,
exercise or contingent  exercise of securities that would have an  anti-dilutive
effect on earnings  (loss) per share.  The Company did not pay any  dividends in
2007 and 2006.

       (n)  COMPREHENSIVE INCOME (LOSS)

       Comprehensive  income  (loss) is comprised of net income (loss) and other
comprehensive  income.  Other  comprehensive  income includes certain changes in
equity  that  are  excluded  from net  income  (loss).  At  December  31,  2007,
accumulated  other  comprehensive  income was  comprised of  unrealized  gain of
available-for-sale investments of approximately $62,000, net of tax.

       (o)  STOCK-BASED COMPENSATION

       On  January 1,  2006,  the  Company  adopted  the fair value  recognition
provisions of SFAS No. 123(R) Share-Based Payment ("Statement 123(R)") using the
modified prospective method. In accordance with the modified prospective method,
the Company has not restated its  consolidated  financial  statements  for prior
periods. Under this transition method,  stock-based compensation expense for the
year ended December 31, 2006 includes  stock-based  compensation expense for all
of the Company's  stock-based  compensation awards granted prior to, but not yet
vested as of January 1, 2006,  based on the grant-date  fair value  estimated in
accordance  with the  provisions  of FASB  Statement  No. 123,  "Accounting  for
Stock-Based  Compensation"  ("Statement 123").  Stock-based compensation expense
for all stock-based compensation awards granted on or after January 1, 2006 will
be  based  on the  grant-date  fair  value  estimated  in  accordance  with  the
provisions of Statement 123(R).  The impact of Statement 123(R) on the Company's
results of  operations  resulted  in  recognition  of  stock-based  compensation
expense of approximately  $579,000 and $256,000 for the years ended December 31,
2007 and 2006, respectively.

       (p)  USE OF ESTIMATES

       The  preparation of financial  statements in conformity  with  accounting
principles   generally  accepted  in  the  United  States  of  America  requires
management 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 revenue and
expenses  during the reporting  period.  Significant  estimates  include revenue
recognition,  valuation  of income  tax  assets,  warranty  reserves,  inventory
reserves,  and  intangible  assets.  Actual  results  could  differ  from  those
estimates.

       (q)  FINANCIAL INSTRUMENTS

       Financial   instruments   of  the  Company   consist  of  cash  and  cash
equivalents,  short-term  investments,  accounts receivable,  available for sale
marketable  securities,  accounts payable,  equipment line of credit and capital
leases.  The carrying amounts of these financial  instruments  approximate their
fair value.

       (r)  SHIPPING AND HANDLING COSTS

       Shipping and handling costs are included in cost of goods sold.

       (s)  FOREIGN CURRENCY

       The Company sells only in U.S. dollars,  generally against an irrevocable
confirmed letter of credit through a major United States bank. Accordingly,  the
Company is not directly affected by foreign exchange fluctuations on its current
orders.  However,  fluctuations in foreign  exchange rates have an effect on the
Company's  customers'  access to U.S. dollars and on the pricing  competition on
certain  pieces of equipment  that the Company  sells in selected  markets.  The
Company received Japanese yen in exchange for the sale of a license to its solar
technology.  In  addition,  purchases  made and  royalties  received  under  the
Company's  Consortium  Agreement  with its Japanese  partner will be in Japanese
yen. The Company does purchase pieces of equipment from European vendors;  these
commitments  can be  denominated  in Euros.  The  Company  bears the risk of any
currency fluctuations that may be associated with these commitments. The Company
books gains and losses when they are incurred.

                                       48
<PAGE>
       (t)  NEW ACCOUNTING STANDARDS

       In September 2006, the FASB issued SFAS No. 157, Fair Value  Measurements
("FAS 157").  This  Statement is effective for financial  statements  issued for
fiscal years  beginning  after  November 15, 2007. On February 6, 2008, the FASB
announced  it will  issue a FASB  Staff  Position  ("FSP")  to allow a  one-year
deferral  of  adoption  of FAS  157 for  nonfinancial  assets  and  nonfinancial
liabilities  that are recognized at fair value on a nonrecurring  basis. FAS 157
provides a common fair value  hierarchy for  companies to follow in  determining
fair value  measurements in the preparation of financial  statements and expands
disclosure  requirements  relating  to how such  fair  value  measurements  were
developed.  FAS 157 clarifies  the principle  that fair value should be based on
the  assumptions  that  the  marketplace  would  use  when  pricing  an asset or
liability, rather than company specific data. The Company is currently assessing
the  impact  that  FAS 157  will  have on its  financial  position,  results  of
operations and cash flow.

       In February  2007,  the FASB issued  SFAS No. 159 ("FAS  159"),  THE FAIR
VALUE  OPTION FOR  FINANCIAL  ASSETS AND  FINANCIAL  LIABILITIES  - INCLUDING AN
AMENDMENT OF FASB STATEMENT NO. 115. FAS 159 allows companies to report selected
financial  assets and  liabilities at fair value.  The changes in fair value are
recognized  in  earnings  and the assets  and  liabilities  measured  under this
methodology  are required to be displayed  separately in the balance sheet.  The
main intent of the Statement is to mitigate the  difficulty in  determining  the
reported earnings caused by a "mixed-attribute" model" (or reporting some assets
are  fair  value  and  others  using a  different  valuation  attribute  such as
amortized  cost).  The project is  separated  into two phases.  This first phase
addressed  the  creation  of a  fair  value  option  for  financial  assets  and
liabilities.  A second  phase will  address  creating  a fair  value  option for
selected  non-financial items. FAS 159 is effective for all financial statements
issued for fiscal  years  beginning  after  November  15,  2007.  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. 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.



                                       49
<PAGE>
4.     ACCOUNTS RECEIVABLE/ADVANCES ON CONTRACTS IN PROGRESS

       Net accounts receivable, trade consists of the following at December 31:

                                                      2007           2006
                                                  As Restated
                                                 ------------    ------------
       Amounts billed                            $ 11,142,000    $  3,876,000
       Retainage                                        8,000           8,000
       Accrued revenue                                945,000         399,000
                                                 ------------    ------------
                                                   12,095,000       4,283,000
       Less: Allowance for sales returns
             and doubtful accounts                   (230,000)       (273,000)
                                                 ------------    ------------
       Net accounts receivable - trade           $ 11,865,000    $  4,010,000
                                                 ============    ============

       Advances on contracts in progress         $ 26,003,000    $  8,219,000
                                                 ============    ============

       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.

       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 December 31, 2007. The government's most recent
audit was as of December 31, 2005,  with no adverse  impact.  All other accounts
receivable are expected to be 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.     SHORT-TERM INVESTMENTS

       There were no  short-term  investments  at December 31, 2007.  Short-term
investments  at December 31, 2006  consisted of  $5,000,000 of  certificates  of
deposit which matured on March 31, 2007. Interest receivable on these short-term
investments  amounted to  approximately  $158,000 at December 31,  2006,  and is
classified with other current assets. Approximately $1,969,000 of the short-term
investment were restricted to back a letter of credit with a bank.

6.     INVENTORIES AND DEFERRED COST OF GOODS SOLD

       Inventories,  net of $354,000  and  $534,000 of reserves at December  31,
2007 and 2006, respectively, consist of the following at December 31:


                                       50
<PAGE>
                                                     2007             2006
                                                 ------------     ------------
       Raw materials                             $  4,989,000     $  1,519,000
       Work in process                              4,663,000        2,310,000
       Finished goods                               1,918,000          388,000
                                                 ------------     ------------
       Net Inventory                             $ 11,570,000     $  4,217,000
                                                 ------------     ------------
       Deferred cost of goods sold               $  8,044,000               --
                                                 ============     ============

       Deferred  cost 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.


7.     PROPERTY AND EQUIPMENT

       Property and equipment consists of the following at December 31:

                                                     2007             2006
                                                 ------------     ------------
       Building under capital lease              $  3,390,000     $  3,390,000
       Machinery and equipment                     17,508,000       13,448,000
       Furniture fixtures and computer equipment    4,060,000        3,760,000
       Leasehold improvements                       2,167,000        2,078,000
       Construction in progress                       830,000        3,889,000
                                                 ------------     ------------
                                                   27,955,000       26,565,000
       Accumulated depreciation and amortization  (21,746,000)     (19,892,000)
                                                 ------------     ------------
                                                 $  6,209,000     $  6,673,000
                                                 ============     ============

       Depreciation and amortization  expense relating to property and equipment
was  approximately  $2,096,000  and  $1,933,000 for the years ended December 31,
2007 and 2006, respectively.


8.     ACCRUED LIABILITIES

       Accrued liabilities include the following at December 31:

                                                     2007             2006
                                                 ------------     ------------
       Accrued payroll and payroll taxes         $    972,000     $    689,000
       Accrued legal and audit fees                   319,000          214,000
       Accrued liability for equipment purchases           --        2,506,000
       Accrued accounts payable                     3,398,000          812,000
       Accrued other                                1,368,000          785,000
                                                 ------------     ------------
                                                 $  6,057,000     $  5,006,000
                                                 ============     ============


9.     NOTES PAYABLE AND CREDIT ARRANGEMENTS

       The  Company  had a  $2,000,000  Loan  Agreement  with  Citizens  Bank of
Massachusetts  which expired on June 26, 2007. On May 25, 2007,  the Company and
its wholly-owned subsidiary,  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% (7.25% at December 31, 2007) and
payable in thirty-six (36) consecutive  monthly  payments  following the funding
date of that advance. At December 31, 2007, the Company's outstanding borrowings
from the equipment line of credit amounted to $2,917,000. The Company was not in
compliance  with its  covenants  as of  December  31,  2007,  but not in default
because a Bank waiver has been received.

       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.

                                       51
<PAGE>
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%).  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%).

       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.


10.    STOCK-BASED COMPENSATION

       At December 31, 2007, the Company had outstanding options under two stock
option  plans:  the 1996 Equity  Incentive  Plan (the "1996  Plan") and the 2007
Stock Equity Plan (the "2007 Plan").  Both plans were  approved by  stockholders
and  provided  that the Board of  Directors  may grant  options to purchase  the
Company's common stock to key employees and directors of the Company.  Incentive
and  non-qualified  options must be granted at least at the fair market value of
the  common  stock or, in the case of  certain  optionees,  at 110% of such fair
market  value at the time of grant.  The  options may be  exercised,  subject to
certain  vesting  requirements,  for  periods  up to ten years  from the date of
issue.  The 1996 Plan  expired  with respect to the issuance of new grants as of
December 10, 2006.  Accordingly,  future  grants may be made only under the 2007
Plan.

       At December 31, 2007, the Company has outstanding under its 1996 Plan and
2007  Plan,  an  aggregate  91,246  non-qualified  stock  options  held  by  the
unaffiliated  directors  of the Company for the  purchase of common  stock at an
average exercise price of $7.88 per share.

       A summary of the activity of this plan follows:
                                                                    Weighted
                                                    Number of        Average
                                                     Shares      Exercise Price
                                                  ------------    ------------
       Options Outstanding at December 31, 2006        416,002    $       5.21
            Granted                                    175,700    $      10.17
            Exercised                                  (84,525)   $       4.07
            Forfeited                                  (12,000)   $       7.81
                                                  ------------    ------------
       Options Outstanding at December 31, 2007        495,177    $       7.10
                                                  ============    ============

       Options Exercisable at December 31, 2007        217,867    $       5.47
                                                  ============    ============

       Options Available for Future Grant at
       December 31, 2007                               824,300
                                                  ============

                                       52
<PAGE>
       On  January 1,  2006,  the  Company  adopted  the fair value  recognition
provisions  of  Statement  123(R)  using the  modified  prospective  method.  In
accordance with the modified  prospective  method,  the Company has not restated
its consolidated  financial statements for prior periods.  Under this transition
method,  stock-based  compensation  expense for the year ended December 31, 2006
includes stock-based  compensation expense for all of the Company's  stock-based
compensation awards granted prior to, but not yet vested as of, January 1, 2006,
based on the grant-date  fair value  estimated in accordance with the provisions
of  Statement  No. 123.  Stock-based  compensation  expense for all  stock-based
compensation  awards  granted  on or after  January 1, 2006 will be based on the
grant-date  fair value  estimated in accordance with the provisions of Statement
123(R).  The impact of Statement  123(R) on the Company's  results of operations
resulted in  recognition of stock-based  compensation  expense of  approximately
$579,000  and  $256,000  for  the  year  ended   December  31,  2007  and  2006,
respectively.  Approximately  $486,000 and $209,000 of stock-based  compensation
expense was charged to selling,  general  and  administrative  expenses  for the
years ended December 31, 2007 and 2006,  respectively and approximately  $93,000
and $47,000 of stock-based compensation expense was charged to cost of sales for
the years ended December 31, 2007 and 2006, respectively.

       This  expense  represents  an  incremental  charge of $0.07 and $0.03 per
basic  and  diluted  share  for the  years  ended  December  31,  2007 and 2006,
respectively. The adoption had no impact on cash used in operating activities or
cash provided by financing activities.  No stock-based  compensation expense was
capitalized during 2007 and 2006.  Compensation expense related to stock options
to be charged in future periods amount to  approximately  $1,331,000 at December
31, 2007, which the Company expects to recognize as follows:

                 For the years ended                Expected
                    December 31,              Compensation Expense
                --------------------          --------------------
                        2008                      $  500,000
                        2009                         396,000
                        2010                         318,000
                        2011                         117,000
                                              --------------------
                                                  $1,331,000
                                              ====================


       The Company uses the Black-Scholes option pricing model as its method for
determining  fair  value of stock  option  grants,  which  was also  used by the
Company for its pro forma  information  disclosures of stock-based  compensation
expense  prior  to the  adoption  of  Statement  123(R).  The  Company  uses the
straight-line  method  of  attributing  the  value of  stock-based  compensation
expense  for  all  stock  option  grants.  Stock  compensation  expense  for all
stock-based  grants and awards is recognized  over the service or vesting period
of each grant or award.

       Statement  123(R)  requires  forfeitures  to be  estimated at the time of
grant and revised,  if necessary,  in subsequent  periods if actual  forfeitures
differ from those  estimates in order to derive the  Company's  best estimate of
awards  ultimately  expected to vest.  Forfeitures  represent  only the unvested
portion of a surrendered option and are typically  estimated based on historical
experience.  Based on an analysis of the Company's  historical data, the Company
applied 10% and 14%  forfeiture  rates for the years ended December 31, 2007 and
2006, respectively, to stock options granted in determining its Statement 123(R)
stock-based  compensation  expense which it believes is a reasonable  forfeiture
estimate for the periods.

       The options  outstanding and exercisable at December 31, 2007 were in the
following exercise price ranges:
<TABLE><CAPTION>
                                       Options Outstanding                                      Options Exercisable
                   ------------------------------------------------------    ------------------------------------------------------
                                    Weighted                                                  Weighted
                                    Average       Weighted-                                    Average       Weighted
                     Number        Remaining       Average     Aggregate       Number         Remaining       Average     Aggregate
    Range of        of Shares     Contractual      Exercise    Intrinsic      of Shares      Contractual     Exercise     Intrinsic
 Exercise Price    Outstanding    Life (Years)      Price        Value       Exercisable     Life (Years)      Price        Value
---------------    -----------    ------------    ---------    ----------    -----------     ------------    --------    ----------
<C>                <C>            <C>             <C>          <C>           <C>             <C>             <C>         <C>
$1.78 to $ 3.90         97,411        3.86          $3.60      $1,953,000         97,411          3.86         $3.60     $1,953,000
$3.91 to $ 4.90        108,819        6.42          $4.32       2,103,000         58,074          5.77         $4.27      1,125,000
$4.91 to $ 8.40        107,622        8.58          $7.89       1,696,000         29,882          8.39         $7.69        477,000
$8.41 to $ 9.60        151,200        9.48          $9.40       2,154,000         20,000          9.50         $9.38        286,000
$9.61 to $14.88         30,125        9.48         $14.11         287,000         12,500          9.45        $14.05        120,000
                   -----------                                 ----------    -----------                                 ----------
                       495,177        7.51          $7.10      $8,193,000        217,867          5.83         $5.47     $3,961,000
                   ===========                                 ==========    ===========                                 ==========
</TABLE>

                                       53
<PAGE>
       The aggregate  intrinsic  value in the table above  represents  the total
intrinsic  value,  based on the  Company's  closing  stock price of $23.65 as of
December 31, 2007,  which would have been received by the option holders had all
option  holders  exercised  their options as of that date.  The total  intrinsic
value of options  exercised was  approximately  $854,000 and  $289,000,  for the
years ended December 31, 2007 and 2006, respectively.

       The per-share  weighted-average  fair value of stock options  granted was
$6.09 and $5.41 for the years ended December 31, 2007 and 2006, respectively, on
the  date of  grant  using  the  Black-Scholes  option-pricing  model  with  the
following weighted-average assumptions:

                                       Risk-Free                      Expected
                       Expected        Interest        Expected      Volatility
         Year       Dividend Yield       Rate        Option Life       Factor
       --------     --------------     ---------     -----------     ----------
         2006            --              4.71%         4.5 years        83.3%
         2007            --              4.39%         4.5 years        72.3%

       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.

       On November 10,  2005,  the FASB issued FASB Staff  Position  SFAS 123R-3
"Transition  Election  Related to  Accounting  for Tax  Effects  of  Share-Based
Payment  Awards."  The Company has elected to adopt the  alternative  transition
method  provided by the FASB Staff Position for  calculating the tax effects (if
any) of  stock-based  compensation  expense  pursuant to Statement  123(R).  The
alternative  transition  method  includes  simplified  methods to establish  the
beginning  balance of the  additional  paid-in  capital  pool related to the tax
effects of employee  stock-based  compensation,  and to determine the subsequent
impact to the additional paid-in capital pool and the consolidated statements of
operations   and  cash  flows  of  the  tax  effects  of  employee   stock-based
compensation awards that are outstanding upon adoption of Statement 123(R).


11.    NASDAQ LISTING

       At  December  31,  2007,  the  Company's  stockholder's  equity  was $8.5
million.  As a  result,  the  Company  did  not  meet  the $10  million  minimum
stockholder's  equity  requirement under Standard No. 1 for continued listing on
the Nasdaq Global Market.  However,  the Company believes that it meets Standard
No. 2 for  continued  listing on the Nasdaq Global Market as the market value of
its listed  securities  currently  exceeds  $50  million  and it meets all other
requirements  under  Standard  No.  2. In order to  remain  in  compliance  with
Standard  No. 2, the  Company's  market value of listed  securities  cannot fall
below $50 million for ten consecutive trading days at any point.


12.    INCOME TAXES

       There was no income tax provision (benefit) required for 2007 and 2006.

       The  reconciliation  between the amount  computed by applying  the United
States federal  statutory tax rate of 34% to pretax income (loss) and the actual
provision for income taxes follows:

                                                          2007         2006
                                                      As Restated
                                                      -----------   -----------
       Income tax expense (benefit) at statutory rate $  (664,000)  $(2,763,000)
       Increase (decrease) in valuation allowance
         related to income tax expense                    483,000     2,674,000
       Permanent differences                              181,000        89,000
                                                      -----------   -----------
          Total                                       $        --   $        --
                                                      ===========   ===========

       The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and deferred tax liabilities are as follows:


                                       54
<PAGE>
                                                          2007          2006
                                                      As Restated
                                                      -----------   -----------
       Deferred tax assets:
          Accounts receivable                         $    93,000   $   110,000
          Accruals                                      1,028,000     1,159,000
          Inventories                                   1,002,000       752,000
          Net operating loss carryforwards              4,327,000     4,096,000
          General business credit carryforwards            26,000        22,000
          Alternative minimum tax credit carryforwards    268,000       268,000
          Foreign tax credit                               38,000        38,000
                                                      -----------   -----------
            Total gross deferred tax assets             6,782,000   $ 6,445,000
                                                      -----------   -----------

          Depreciation                                     98,000       (45,000)
                                                      -----------   -----------
            Total gross deferred tax liabilities           98,000       (45,000)
                                                      -----------   -----------

          Valuation allowance                           6,684,000     6,400,000
                                                      -----------   -----------

            Net deferred tax assets                   $        --   $        --
                                                      ===========   ===========

       The net change in the total  valuation  allowance  for the  period  ended
December  31,  2007 was an  increase  of  $284,000.  Gross  net  operating  loss
carryforwards were approximately $11.8 million as of December 31, 2007. Included
in this amount was  approximately  $3.4  million  attributable  to equity  based
compensation  transactions.  Approximately $1 million of the valuation allowance
will  be  relieved   through  equity  if  these   deductions  for  equity  based
transactions are realized.


13.    COMMITMENTS

Letters of Credit
-----------------

       Outstanding  letters of credit totaled $261,000 at December 31, 2007. The
letters of credit principally secure performance obligations,  and allow holders
to draw funds up to the face amount of the letter of credit if the Company  does
not perform as  contractually  required.  These letters of credit expire through
2008 and are 100% secured by cash and short-term investments.

Property Under Capital Leases and Lease Commitments
---------------------------------------------------

       At December 31, 2007 and 2006,  the Company had capital  leases in effect
for a building. The Company also had operating leases for office space and other
miscellaneous items.

       The  components of  capitalized  costs and carrying value of the property
under capital leases were as follows at December 31:

                                                          2007          2006
                                                      -----------   -----------
       Related party capital lease:
          Hudson, New Hampshire building              $ 3,390,000   $ 3,390,000
          Less:  Accumulated depreciation              (3,108,000)   (2,430,000)
                                                      -----------   -----------
                                                      $   282,000   $   960,000
                                                      ===========   ===========










                                       55
<PAGE>

       At December 31, 2007, future minimum lease payments for the period ended
are as follows:
<TABLE><CAPTION>
                                                        Related
                                                         Party       Unrelated Party     Related Party
                                                     Capital Lease   Operating Leases   Operating Lease
                                                      -----------       -----------       -----------
       <S>                                            <C>               <C>               <C>
       2008                                           $   495,000       $   124,000       $ 1,812,000
       2009                                                    --           110,000         1,920,000
       2010                                                    --            90,000         2,028,000
       2011                                                                  14,000         2,137,000
       2012                                                                                 2,049,000
                                                      -----------       -----------       -----------
       Total minimum lease payments                       495,000       $   338,000       $ 9,946,000
                                                                        ===========       ===========
       Less amount representing interest                   (9,000)
                                                      -----------
       Present value of minimum lease payments            486,000
       Less current portion                              (486,000)
                                                      -----------
       Long-term portion of capital lease obligation  $        --
                                                      ===========
</TABLE>

Unrelated Party Capital Lease
-----------------------------

       In September 2001, Spire Semiconductor  entered into an agreement with GE
Capital Leasing Corp, for the lease of a reactor for its wafer  production line.
The lease was  originally  accounted  for as a  capital  lease.  Under the lease
agreement,  the Company was making monthly  payments of  approximately  $36,000.
After the initial  three-year period ending in September 2004, the lease allowed
for an additional  two-year  extension.  In September 2004, the Company extended
the lease term for the additional two years to September 2006. In September 2006
the  Company  purchased  the  equipment  from the leasing  company for  $275,000
resulting  in a loss on buyout of  capital  lease of  $105,000.  The  expense is
included in selling,  general and administrative expense for the optoelectronics
business unit.

Related Party Capital Lease
---------------------------

       In conjunction with the acquisition of Spire Semiconductor by the Company
in May 2003, SPI-Trust, a Trust of which Roger G. Little, Chairman of the Board,
Chief  Executive  Officer and  President  of the  Company,  is sole  trustee and
principal   beneficiary,   purchased  from  Stratos   Lightwave,   Inc.   (Spire
Semiconductor's  former owner) the building that Spire Semiconductor occupies in
Hudson, New Hampshire for $3.7 million. Subsequently, the Company entered into a
lease for the building  (90,000 square feet) with SPI-Trust  whereby the Company
agreed to pay $4.1  million  to the  SPI-Trust  over an initial  five-year  term
expiring in 2008 with a Company option to extend for five years.  In addition to
the rent  payments,  the lease  obligates  the  Company to keep on deposit  with
SPI-Trust  the  equivalent  of three  months rent  ($304,000  as of December 31,
2007.) The lease  agreement  does not provide for a transfer of ownership at any
point.  Interest costs were assumed at 7%.  Interest  expense was  approximately
$76,000  and  $136,000  for  the  years  ended   December  31,  2007  and  2006,
respectively.  This lease has been  classified  as a related party capital lease
and a summary of payments (including interest) follows:

                               Rate Per                                 Security
             Year             Square Foot  Annual Rent   Monthly Rent    Deposit
---------------------------   -----------  -----------   ------------   --------
June 1, 2003 - May 31, 2004     $6.00       $  540,000        $45,000   $135,000
June 1, 2004 - May 31, 2005      7.50          675,000         56,250    168,750
June 1, 2005 - May 31, 2006      8.50          765,000         63,750    191,250
June 1, 2006 - May 31, 2007     10.50          945,000         78,750    236,250
June 1, 2007 - May 31, 2008     13.50        1,215,000        101,250    303,750
                                           -----------
                                            $4,140,000
                                           ===========

       At December 31, 2007,  $486,000  reflected the current portion of capital
lease obligation - related party, with no long-term portion, in the consolidated
balance sheet.

Unrelated Party Operating Leases
--------------------------------

       Unrelated party operating leases primarily  consist of leases for copiers
and the telephone system.

                                       56
<PAGE>
Related Party Operating Lease
-----------------------------

       The Company subleased 77,000 square-feet in a building leased by Mykrolis
Corporation,  who in turn leased the building from  SPI-Trust,  a Trust of which
Roger Little,  Chairman of the Board,  Chief Executive  Officer and President of
the Company, is the sole trustee and principal  beneficiary.  The 1985 sublease,
originally  was for a period of ten years,  was extended for a five-year  period
expiring on November 30, 2000 and was further  extended  for a five-year  period
expiring on November  30,  2005.  The  sublease  agreement  provided for minimum
rental  payments  plus annual  increases  linked to the  consumer  price  index.
Effective  December 1, 2005,  the Company  entered into a two-year  Extension of
Lease Agreement (the "Lease Extension") directly with SPI-Trust.

       The Company  assumed  certain  responsibilities  of Mykrolis,  the tenant
under the former lease, as a result of the Lease Extension  including payment of
all  building  and real  estate  related  expenses  associated  with the ongoing
operations  of the  property.  The  Company  will  allocate  a portion  of these
expenses to SPI-Trust based on pre-established formulas utilizing square footage
and actual usage where  applicable.  These  allocated  expenses will be invoiced
monthly and be paid  utilizing a SPI-Trust  escrow  account of which the Company
has sole  withdrawal  authority.  SPI-Trust  is required  to maintain  three (3)
months of its  anticipated  operating  costs  within  this  escrow  account.  On
December 1, 2006,  the  Company and  SPI-Trust  amended the Lease  Extension  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 the  Company's
solar operations.

       On November 30, 2007, the Company 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 the Company has  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. The Company has 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 the Company  exercises  its 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.  The  Company
believes that the terms of the New Lease are commercially reasonable.

       Rent expense under the New Lease and the Lease Extension, as amended, for
the year  ended  December  31,  2007 and 2006  was  $1,415,000  and  $1,262,000,
respectively.  In connection with the Lease Extension,  as amended,  the Company
was invoiced and paid certain  SPI-Trust related  expenses,  including  building
maintenance and insurance. The Company invoiced SPI-Trust on a monthly basis and
SPI-Trust reimbursed the Company for all such costs.  Approximately  $14,000 was
due from  SPI-Trust as of December 31, 2006 for  building  related  costs and no
amounts were due as of December 31, 2007.


14.    EMPLOYEE BENEFIT PLANS

Profit Sharing Plan
-------------------

       In 1985,  the Company  adopted a profit sharing plan under Section 401(k)
of the Internal Revenue Code. This plan allows employees to defer up to 17.5% of
their income up to certain dollar limits on a pretax basis through contributions
to the plan. No matching  contributions have been made to the plan for the years
ended December 31, 2007 and 2006, respectively.

Deferred Compensation Plan
--------------------------

       Effective  January 1, 2002,  the Company  adopted  the Spire  Corporation
Non-Qualified Deferred Compensation Plan (the "Plan") for Roger Little, Chairman
of the  Board,  Chief  Executive  Officer  and  President  of the  Company  (the
"Participant").  Under this Plan, the Company makes equal monthly  contributions
to the Spire Corporation Non-Qualified Deferred Compensation Trust (the "Trust")
up to the  annually  required  amount of  $250,000.  The Company  records  these
contributions  as selling,  general and  administrative  expense when made.  The
Trustee  makes  all  investment  decisions  for  the  Trust  on  behalf  of  the
Participant.  The  Company has not  guaranteed  a return on  investment  for the
Participant,  however,  all  earnings and losses on the Plan assets are borne by
the  Participant.  All  contributions  and  earnings  are  fully  vested  to the
Participant when made but are subject to the Company's creditors in the event of
bankruptcy.  As a result,  the  assets  held in

                                       57
<PAGE>
the  Plan  have  been  recorded  as   available-for-sale   investments   in  the
consolidated  balance sheet with a  corresponding  liability  being  recorded as
deferred  compensation.  Unrealized  gains and losses on the  available-for-sale
investments are recorded as accumulated  other  comprehensive  income within the
equity  section of the  consolidated  balance sheet.  A  corresponding  entry to
deferred  compensation  is made  to  increase  (decrease)  the  amounts  due the
Participant  resulting  from the changes in the asset  value with an  offsetting
charge or credit to selling,  general and administrative  expense.  Compensation
expense was approximately  $250,000 in each of the years ended December 31, 2007
and 2006.


15.    EARNINGS (LOSS) PER SHARE

       The following table provides a reconciliation  of the denominators of the
Company's  reported basic and diluted earnings (loss) per share computations for
the years ended December 31:

                                                            2007        2006
                                                         ----------  ----------
       Weighted average number of common and common
          equivalent shares outstanding - basic           8,272,123   7,898,320
       Add:  Net additional common shares upon assumed
          exercise of common stock options                       --          --
                                                         ----------  ----------
       Weighted average number of common and common
          equivalent shares outstanding -  diluted        8,272,123   7,898,320
                                                         ==========  ==========

       For the years  ended  December  31,  2007 and 2006,  495,177  and 416,002
shares of common stock,  respectively,  issuable  relative to stock options were
excluded from the calculation of diluted shares since their inclusion would have
been anti-dilutive.


16.    LEGAL MATTERS

       From time to time, the Company is subject to legal proceedings and claims
arising from the conduct of its business operations. The Company does not expect
the outcome of these proceedings,  either  individually or in the aggregate,  to
have a material adverse effect on its financial position, results of operations,
or cash flows.

       During   the   second   quarter  of  2005  a  suit  was  filed  by  Arrow
International, Inc. against Spire Biomedical, Inc., a wholly owned subsidiary of
the Company,  alleging patent infringement by the Company.  The complaint claims
one of the Company's  catheter  products induces and contributes to infringement
when medical professionals insert it. The Company has responded to the complaint
denying all  allegations  and has filed  certain  counterclaims.  The  discovery
process in this case has continued and is nearly  complete.  The Company 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 the  Company's  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 the Company in September 2006. The Company has filed its answer
and resumed its defense.  The parties  have been working to conclude  discovery.
Based on information  presently  available to the Company,  the Company believes
that it does not  infringe any valid claim of the  plaintiff's  patent and that,
consequently,  it has 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 the Company 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 the Company contributed to his death.
Subsequent to the end of fiscal 2007, the case was settled  between the parties.
The Company's product  liability  insurance covered the settlement and all legal
expenses, less our deductible.

       In a  complaint  filed July 11, 2007 in the U.S.  District  Court for the
Eastern District of Pennsylvania,  Medical  Components,  Inc. (the  "Plaintiff")
alleges  that the Company and its  wholly-owned  subsidiary,  Spire  Biomedical,
Inc.,  through the  manufacture  and sale of its  multilumen  catheter  products
infringes  upon one of  Plaintiff's  patents.  The Plaintiff  seeks  unspecified
damages,  including  enhanced  damages  and  attorneys  fees and  costs,  and an
injunction against certain manufacturing techniques.  The Company has negotiated
a settlement  with the Plaintiff  which allows the Company to sell its remaining
multilumen  catheter inventory in exchange for a lump sum payment which has been
fully accrued in the recent quarter.  Further, we have altered our manufacturing
methods such that there is no question of potential  infringement  of plantiff's
patent.

                                       58
<PAGE>
17.    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".
<TABLE><CAPTION>
                                        Spire           Spire                                                 Total
                                        Solar         Biomedical      Optoelectronics        Other           Company
December 31, 2007                    As Restated                                                            As Restated
-----------------                   -----------------------------------------------------------------------------------
<S>                                 <C>              <C>               <C>               <C>               <C>
Net sales and revenues              $ 21,748,000     $ 11,106,000      $  4,214,000      $         --      $ 37,068,000
Earnings (loss) from operations          515,000       (1,506,000)       (2,931,000)               --        (3,922,000)
Identifiable assets                   30,983,000        4,932,000         5,630,000         7,142,000        48,687,000
Capital expenditures                     977,000          198,000           265,000           290,000         1,730,000
Depreciation and amortization            107,000          299,000         1,641,000           166,000         2,213,000
Stock-based compensation                 115,000           84,000            87,000           293,000           579,000


                                        Spire           Spire                                                 Total
December 31, 2006                       Solar         Biomedical      Optoelectronics        Other           Company
-----------------                   -----------------------------------------------------------------------------------
Net sales and revenues              $  6,992,000     $ 10,517,000      $  2,616,000      $         --      $ 20,125,000
Loss from operations                  (4,011,000)      (1,241,000)       (2,999,000)               --        (8,251,000)
Identifiable assets                    7,516,000        4,819,000         6,615,000         8,734,000        27,684,000
Capital expenditures                      14,000          309,000         3,618,000           144,000         4,085,000
Depreciation and amortization             88,000          374,000         1,421,000           144,000         2,027,000
Stock-based compensation                  40,000           66,000            34,000           116,000           256,000
</TABLE>


       The  following  table  shows net sales and  revenues by  geographic  area
(based on customer location) for the years ended December 31:

                                2007            %          2006            %
                                   As Restated
                            -----------------------     -----------     -------

       United States        $19,714,000         53%     $13,454,000         67%
       Europe/Africa          9,129,000         25%       3,389,000         17%
       Asia                   7,643,000         21%       2,771,000         13%
       Rest of the world        582,000          1%         511,000          3%
                            -----------     -------     -----------     -------
                            $37,068,000        100%     $20,125,000        100%
                            -----------     -------     -----------     -------

       The Company's  operations  are focused on three primary  business  areas:
Spire Solar  (comprised of solar equipment and solar systems),  Spire Biomedical
(comprised  of  biomedical  and  biophotonics   research)  and   optoelectronics
(comprised primarily of Spire  Semiconductor).  Spire Solar and Spire Biomedical
operate  out  of  the  Company's  facility  in  Bedford,  Massachusetts.   Spire
Semiconductor  operates out of the Company's  facility in Hudson, New Hampshire.
Each business area is independently  managed and has separate  financial results
that are reviewed by the Board of Directors and Chief Executive  Officer and the
chief executive officers of each operating division.

       Earnings (loss) from operations is net sales less cost of sales, selling,
general and  administrative  expenses and gain on sales of licenses,  but is not
affected  either by  non-operating  income or by income  taxes.  In  calculating
earnings  from   operations   for   individual   business   units,   substantial
administrative  expenses incurred at the operating level that are common to more
than one segment are allocated on a net sales basis.  Certain corporate expenses
of an operational  nature are also  allocated to the divisions  based on factors
including  occupancy,   employment,  and  purchasing  volume.  All  intercompany
transactions have been eliminated.

       Revenues from contracts with United States  government  agencies for 2007
and  2006  were  approximately  $1,303,000  and  $2,261,000,  or 4%  and  11% of
consolidated net sales and revenues, respectively.

                                       59
<PAGE>
       One customer  accounted for  approximately  15% of consolidated net sales
and  revenues in 2007,  and one  customer  accounted  for  approximately  12% of
consolidated  net sales and revenues  during  2006.  Two  customers  represented
approximately 34% and 16% of net accounts receivable, trade at December 31, 2007
and  two  customers  represented  approximately  14%  and  10% of  net  accounts
receivable, trade at December 31, 2006.

       Spain and Taiwan were the only foreign  country that  accounted  for more
than 10% of  sales  in 2007  and  Germany  was the  only  foreign  country  that
accounted  for more than 10% of sales in 2006.  Net sales to  customers in Spain
and Taiwan accounted for $7,331,000 and $5,208,000, respectively in 2007 and net
sales to customers in Germany accounted for $2,568,000 in 2006.


18.    SALE OF LICENSES

       On May 26, 2005, the Company entered into a global  consortium  agreement
(the  "Agreement")  with  Nisshinbo  Industries,   Inc.  ("Nisshinbo")  for  the
development, manufacturing, and sales of solar photovoltaic module manufacturing
equipment.  Nisshinbo's  prior  relationship with Spire was as a sub-licensee of
Marubeni  Corporation  with whom the Company had a license  arrangement that was
originally  signed  in 1997,  extended  in 2003,  and  terminated  in May  2005.
Nisshinbo's  role as sub-licensee  was to manufacture  equipment for Marubeni to
sell to the Japanese  market based upon the  Company's  proprietary  technology.
Under the terms of the Agreement,  Nisshinbo  purchased a license to manufacture
and sell the Company's module manufacturing  equipment on a semi-exclusive basis
for an upfront fee plus additional  royalties  based on ongoing  equipment sales
over a ten-year period. In addition,  the Company and Nisshinbo agreed,  but are
not obligated,  to pursue joint research and  development,  product  improvement
activities and sales and marketing efforts. The companies may share market costs
such as  product  collateral  and trade show  expenses.  Each  company  may also
collaborate  on sales leads and have the other company  manufacture  and service
its equipment in the field. Both companies have reciprocal rights to participate
in the other  company's  R&D efforts on a  going-forward  basis.  Nisshinbo  can
request the Company to further develop a technology but Nisshinbo must (a) share
in the  costs  of these  development  efforts  equally  with  the  Company  (and
thereafter have joint ownership);  otherwise the Company will own the technology
under a partial  contribute or no  participation  by Nisshinbo  with the Company
receiving a royalty from Nisshinbo if it utilizes the technology.  At the end of
the license all non-jointly owned technology  developed under the Agreement will
revert back to the owner,  with the other party being required to purchase a new
license based upon the fair market value of that technology in order to continue
to utilize the technology.

       On June 27, 2005, the Company  received JPY 400,000,000  from the sale of
this permanent  license.  The Company  determined  that the Nisshinbo  Agreement
contains  multiple  elements  consisting  of (1) the  granting  of a license  to
utilize the Company's technology and (2) the semi-exclusive right to utilize the
technology  for a period of 10 years.  The Company  believes the granting of the
license  meets the  criteria  of  Emerging  Issues  Task Force  ("EITF")  00-21,
"Accounting for Revenue Arrangements with Multiple Elements", paragraph 9(a), as
the license to utilize the  technology  has value to Nisshinbo on a  stand-alone
basis.  Further,  Question 1 to Securities and Exchange Commission ("SEC") Staff
Accounting  Bulletin Topic 13A-3f  "Nonrefundable  Up-Front Fees",  was directly
considered  as guidance for  determining  if the upfront fee under the Nisshinbo
Agreement  should be recognized  upon the signing of contract or recognized over
the term of the license.  It is the  Company's  belief that a separate  earnings
process was complete as Nisshinbo was purchasing access to utilize technology it
already had in its  possession;  therefore,  recognition of the gain on the sale
was  appropriate.  The Company has  determined the fair value of the license and
royalty based on an appraisal.  As a result, a $3,320,000 gain was recognized as
a gain on sale of license in the  consolidated  statements of operations for the
year ended  December  31,  2005.  The  balance of  $350,000  was  determined  to
represent  an  advanced  royalty  payment  and was  recorded  as an  advance  on
contracts in progress.  This amount is being credited as royalty income over the
ten year license period on a straight-line basis. The Company recognized $35,000
and $35,000 of royalty  income  associated  with this  license in 2007 and 2006,
respectively.


19.    PRIVATE PLACEMENT OF EQUITY

       On April 26, 2006,  the Company  entered into Stock  Purchase  Agreements
with two  accredited  institutional  investors  in  connection  with the private
placement of 941,176 shares of the Company's common stock at a purchase price of
$8.50 per share. On April 28, 2006, the Company completed the private placement.
The net proceeds of the sale were  approximately  $7.7 million  after  deducting
placement fees and other closing costs.

       Under  the  terms of the  Stock  Purchase  Agreements,  the  Company  was
obligated to file a registration statement on

                                       60
<PAGE>
Form S-3 with the SEC,  registering  the  resale of the  shares of common  stock
sold.  The  Company  filed the Form S-3 on May 3, 2006 and the SEC  declared  it
effective on May 12, 2006. In the event that this registration  statement ceases
to be effective and  available to the  investors  for an aggregate  period of 30
days in any 12 month period, the Company must pay liquidated damages starting on
the 61st day (in the aggregate) of any  suspensions in any 12 month period,  and
each 30th day  thereafter  until the suspension is terminated an amount equal to
1% of the aggregate purchase price paid by the investors.  However,  the Company
is not obligated to pay liquidation damages on shares not owned by the investors
at the time of the  suspension or shares that are tradable  without  restriction
under Rule 144. The Company  reviewed  EITF 00-19,  "Accounting  for  Derivative
Financial  Instruments  Indexed to, and Potentially  Settled in, a Company's Own
Stock,"  and EITF  05-04,  "The  Effect  of a  Liquidated  Damages  Clause  on a
Freestanding Financial Instrument Subject to EITF Issue No. 00-19," to determine
if these liquidation  damages  provisions require a portion of the equity raised
needs to be accounted  under FASB Statement No. 133,  "Accounting for Derivative
Instruments and Hedging  Activities"  ("Statement  133"). It determined that the
liquidated damages provisions did not require separate treatment under Statement
133 and therefore  will treat all of the funds raised under these  agreements as
additions to permanent equity.


20.    MANUFACTURING AGREEMENTS

       On  August  29,  2006,  the  Company's  wholly  owned  subsidiary,  Spire
Semiconductor, entered into a five-year manufacturing agreement in which it will
be the  exclusive  supplier to  Principia  Lightworks,  Inc.  ("Principia"),  of
semiconductor wafers,  enabling Principia, a Woodland Hills, California firm, to
begin high volume  production  of its patented  device,  an electron beam pumped
vertical  cavity  surface  emitting  laser  ("eVCSEL")  as a  light  source  for
production display applications, including rear-projection consumer televisions.
Spire  Semiconductor  will  manufacture  epitaxial  wafers which will be further
processed by Principia to produce red, blue, and green colored lasers.

       Under the terms of this agreement,  Spire Semiconductor will be producing
III/V and II/VI wafers for Principia with full  production  expected to start in
mid  2008.  Spire   Semiconductor  will  begin  the  scale-up  of  its  existing
metalorganic   chemical  vapor  deposition   ("MOCVD")  and  related  processing
facilities  to satisfy  Principia's  requirements.  Principia  made an  up-front
payment for nonrecurring engineering and facility access costs and, in addition,
will make monthly  facility  availability  payments  throughout  the term of the
agreement.  The first eighteen months of the facility availability payments have
been  secured by a pledge of  Principia  common  equity  which shall be returned
after eighteen months upon receipt of the monthly payments. The Company reviewed
FASB  Statement  No. 140,  "Accounting  for Transfers and Servicing of Financial
Assets and  Extinguishments  of Debt", and determined that the Company shall not
recognize the pledged shares and only will recognize if Principia defaults under
the terms of the agreement.  Principia has no right of repayment with respect to
these payments.  Spire  Semiconductor  has an obligation to purchase and qualify
MOCVD  equipment to  manufacture  the wafers and make available the facility for
Principia's  manufacturing  needs for a period of 5 years.  Upon  qualification,
Principia  has an  obligation  to purchase a minimum  quantity of wafers for the
first two years of the Agreement.  A fixed price has been  established  for each
wafer produced with some  discounting  contingent  upon Principia  committing to
certain  volume  commitments.  During  the  fourth  quarter,  the two  companies
modified their  agreement such that it was agreed that Spire  Semiconductor  had
qualified  the new  equipment.  The Company  began  revenue  recognition  of the
advance  payments  related to the facility  preparation  and  availability  on a
straight  line basis.  In 2007,  this  amounted  to  $357,000 in revenue.  Spire
Semiconductor  shall have full  ownership of the  equipment  and may utilize any
excess capacity for other customers. In September 2006, the Company entered into
a purchase order with a manufacturer  of MOCVD  equipment.  Although the Company
will be  committing  resources  to complete the  scale-up,  it  anticipates  the
up-front  payment  plus the  monthly  payments  will be  sufficient  to meet its
capital  requirements  under the  agreement.  Providing  the parties  meet their
respective obligations over the term of the agreement,  no net outlay of capital
will be needed.

       On March 16, 2006, the Company entered into a Turn-Key Project  Agreement
to provide a privately owned solar firm located in Europe (the  "Purchaser"),  a
commercially sized multi-megawatt  turn-key Photovoltaic Cell Manufacturing Line
(the  "Cell  Line") for $6.75  million  (to be paid over the course of two years
upon the  achievement  of certain  milestones).  The agreement was  subsequently
amended to include automation equipment bringing the total value of the contract
to $9 million.  The Cell Line has been  shipped to the customer and we expect to
begin  installation  during the second quarter of 2008 The Company is subject to
certain  penalty   provisions  if  the  Cell  Line  does  not  meet  agreed-upon
performance  criteria  within a set period of time.  Under this  agreement,  the
Company also agreed to supply the  Purchaser  up to  1,500,000  mono-crystalline
wafers or  multi-crystalline  wafers (meeting  certain  electrical  capacity and
efficiency  standards)  prior to the starting date of production of cells by the
Cell Line or within 60 days after  shipment of the Cell Line.  The actual amount
of  wafers  ordered  and the  price of such  wafers  is  subject  to the  mutual
agreement  of the  parties,  and the  Purchaser  may cancel  this  non-exclusive
arrangement  at any time.  The price for such wafer supply is in addition to the


                                       61
<PAGE>
purchase price for the Cell Line. At December 31, 2007, the criteria for revenue
recognition  under Staff Accounting  Bulletin No. 104,  "Revenue  Recognition in
Financial  Statements",  have  not  been  met  therefore  no  revenue  has  been
recognized.


21.    SUBSEQUENT EVENTS

       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%).  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 (1.0%) or seven percent (7%).

       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.

       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 the Company contributed to his death.
Subsequent to the end of fiscal 2007, the case was settled  between the parties.
The Company's product  liability  insurance covered the settlement and all legal
expenses,  less our  deductible,  which has been  fully  accrued as of March 31,
2008.



ITEM 9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
--------------------------------------------------------------------------
FINANCIAL DISCLOSURE
--------------------

       None.


ITEM 9A (T). 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

                                       62
<PAGE>
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, December 31, 2007.

       A material  weakness is defined in Public  Company  Accounting  Oversight
Board Auditing Standard No. 5 as a deficiency, or a combination of deficiencies,
in internal  control over  financial  reporting  such that there is a reasonable
possibility  that a material  misstatement  of the  company's  annual or interim
financial  statements  will not be prevented or detected on a timely  basis.  In
connection  with our overall  assessment  of  internal  control  over  financial
reporting,  as discussed  below,  we have  evaluated  the  effectiveness  of our
internal  control  over  financial  reporting  as of December  31, 2007 and have
concluded  that we have  several  material  weaknesses.  Accordingly,  our Chief
Executive Officer and Chief Financial Officer concluded that due to the material
weaknesses in our internal control over financial reporting described below, our
disclosure controls and procedures were not effective as of December 31, 2007.

Management's Annual Report on Internal Control over Financial Reporting
-----------------------------------------------------------------------

       Our management is responsible for establishing  and maintaining  adequate
internal  control over financial  reporting (as defined in Rule 13a-15(f)  under
the Exchange Act) to provide reasonable  assurance  regarding the reliability of
our  financial  reporting  and the  preparation  of our  consolidated  financial
statements  for external  purposes in accordance  with United  States  Generally
Accepted Accounting  Principles ("US GAAP").  Under the supervision of, and with
the  participation of our Chief Executive  Officer and Chief Financial  Officer,
management  assessed the  effectiveness  of our internal  control over financial
reporting as of December 31, 2007.  Management  based its assessment on criteria
established in "Internal Control  Integrated  Framework" issued by the Committee
of Sponsoring Organizations of the Treadway Commission ("COSO").

       This  annual  report  does  not  include  an  attestation  report  of our
registered  public  accounting  firm regarding  internal  control over financial
reporting.  Management's report was not subject to attestation by our registered
public  accounting  firm  pursuant to the  temporary  rules of the  Security and
Exchange  Commission that permit us to provide only management's  report in this
annual report.

       Based  on  this  evaluation,  management  concluded  that  the  following
material  weaknesses in internal control over financial  reporting existed 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

                                       63
<PAGE>
adequate  to support the size,  complexity  or  activities  of our  Company.  In
addition,  certain finance  positions were staffed with  individuals who did not
possess  the level of  accounting  knowledge,  experience  and  training  in the
application of US GAAP commensurate with our financial  reporting  requirements.
During the second quarter,  our recently hired Chief Accounting Officer resigned
to pursue other opportunities.  We had not replaced this position as of December
31, 2007 and during the year have used consultants to fill this role.

       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.

       The material  weaknesses noted above  contributed to the existence of the
following control deficiencies,  each of which resulted in audit adjustments and
is considered to be a material weakness.

       We did not maintain effective controls over our financial closing process
       to ensure the complete, accurate and timely preparation and review of our
       consolidated financial statements.  Accounts were not properly reconciled
       and  account  analysis  was not  performed.  Deposits,  WIP,  accrued  PO
       receipts, were not properly reconciled.  Patents and patents pending were
       not properly  reviewed to reflect  current status of patents.  We did not
       perform a timely  analysis of warranty  reserves  for year end.  Deferred
       compensation accounts were not properly reconciled.

       We did not maintain  effective  controls to ensure  proper  existence and
       valuation of inventory.  We lacked sufficient  formal inventory  policies
       and  procedures,   reconciliations   of  WIP,  physical  inventory  count
       procedures and physical count  omissions.  We also identified areas where
       we did not have timely  posting of sub ledger  activity and  adjustments,
       improper  cut-off/capitalization  and  monitoring  of  standard  costs to
       ensure the company is carrying inventory at lower of cost or market.

       We did not maintain  effective controls to ensure existence and valuation
       of revenue.  Specifically,  we lacked formal  policies and  procedures to
       monitor revenue contracts to identify contracts with negative margins..

       Each one of these control  deficiencies could result in a misstatement to
       our interim or annual consolidated financial statements that would not be
       prevented or detected.  As a result of these material  weaknesses,  audit
       adjustments were noted by our auditors. Additional analysis was performed
       and  correcting   entries  were  recorded  to  ensure  the  accuracy  and
       completeness  of our December 31, 2007  consolidated  financial  results.
       These items were addressed prior to the  finalization of the consolidated
       financial statements.

       As a result of the foregoing,  management has concluded that our internal
control over financial reporting was not effective as of December 31, 2007.

       Our  management  has  undertaken  the following  actions to remediate the
material weakness  identified.  Management has addressed the need for additional
experienced  staff  with the  addition  of a  Director  of  Financial  Reporting
(February 2008).  This position will help us address the identified  weakness in
the  knowledge  and  experience  required for  completeness  and accuracy of our
financial  statements  and also helps  improve our overall  financial  close and
reporting process.  Management is actively  addressing  operational and internal
control remediation  efforts.  New policies and procedures have been created and
existing  policies and procedures have been reviewed and modified as part of our
documentation of internal control over financial  reporting.  Implementation  of
these new controls policies and procedures,  training of key personnel,  testing
of these key controls  and  quarterly  reporting  to our Audit  Committee of the
status of the remediation effort is underway.

       In addition to the material weaknesses previously  discussed,  we did not
maintain  effective  controls to identify  and  monitor  the  existence  of side
agreements. In November 2008, 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.

                                       64
<PAGE>
       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.

Changes in Internal Control Over Financial Reporting
----------------------------------------------------

       There have been no changes  during our fiscal  quarter ended December 31,
2007 in our  internal  control over  financial  reporting  that have  materially
affected,  or are reasonably likely to materially  affect,  our internal control
over financial reporting.


ITEM 9B.   OTHER INFORMATION
----------------------------

       None



                                    PART III

ITEM  10.  DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
-----------------------------------------------------------------

       Information  concerning our directors,  executive  officers and corporate
governance is set forth in the Proxy  Statement for the Special  Meeting in Lieu
of 2008 Annual Meeting of Stockholders  ("Proxy  Statement") and is incorporated
herein by reference. Information concerning compliance with Section 16(a) of the
Exchange Act is set forth under "Compliance with Section 16(a) of the Securities
Exchange  Act of 1934" in the  Proxy  Statement  and is  incorporated  herein by
reference.

       We have  adopted a Code of Business  Conduct and Ethics (the "Code") that
applies to our principal  executive  officer,  principal  financial  officer and
principal  accounting officer or controller,  as well as to directors,  officers
and  employees  generally.  The  Code  sets  forth  written  standards  that are
reasonably  designed to deter  wrongdoing  and to promote (1) honest and ethical
conduct,  (2) full,  fair,  accurate,  timely and  understandable  disclosure in
reports  and  documents   that  we  file  with  the  SEC  and  in  other  public
communications  made by us, (3) compliance  with applicable  governmental  laws,
rules and  regulations,  (4) the prompt internal  reporting of violations of the
Code  to an  appropriate  person  or  persons  identified  in the  Code  and (5)
accountability  for adherence to the Code. We will provide to any person without
charge, upon request, a copy of the Code. Any person wishing a copy should write
to Michael W. O'Dougherty, Clerk, Spire Corporation, One Patriots Park, Bedford,
Massachusetts 01730-2396.

       A copy of the Code is incorporated by reference as Exhibit 21 to our Form
10-KSB for the fiscal year ended December 31, 2003.


ITEM 11.   EXECUTIVE COMPENSATION
---------------------------------

       Information  concerning executive  compensation is set forth in the Proxy
Statement and is incorporated herein by reference.

ITEM 12.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
-----------------------------------------------------------------------------
RELATED STOCKHOLDER MATTERS
---------------------------

       Information  concerning  security  ownership of certain beneficial owners
and  management,  and  related  stockholder  matters,  is set forth in the Proxy
Statement and is incorporated herein by reference.

ITEM 13.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
-----------------------------------------------------------------------
INDEPENDENCE
------------

       Information  concerning certain  relationships and related  transactions,
and  director  independence,  is  set  forth  in  the  Proxy  Statement  and  is
incorporated herein by reference.

ITEM 14.   PRINCIPAL ACCOUNTING FEES AND SERVICES
-------------------------------------------------

       Information  concerning  principal  accounting  fees and  services is set
forth in the Proxy Statement and incorporated herein by reference.

                                       65
<PAGE>
                                     PART IV

ITEM 15.   EXHIBITS
-------------------

       The following Exhibits are either filed herewith or are incorporated by
reference as may be indicated.

       2.1    Asset Purchase Agreement, dated as of July 31, 2007, by and
              between the Company and Gloria Solar Co., Ltd., incorporated by
              reference to Exhibit 2.1 to the Company's Form 8-K filed with the
              Securities and Exchange Commission (the "SEC") on September 10,
              2007 *+

       2.2    Contribution Agreement, dated as of July 31, 2007, by and among
              the Company, Gloria Solar Co., Ltd. and Gloria Solar (Delaware)
              Company, Ltd., incorporated by reference to Exhibit 2.2 to the
              Company's Form 8-K filed with the SEC on September 10, 2007 *+

       3(a)   Articles of Organization as amended, incorporated by reference to
              Exhibit 3(a) to the Company's Form 10-QSB for the quarter ended
              June 30, 1997

       3(b)   By-Laws, as amended, incorporated by reference to Exhibit 3(b) to
              the Company's Form 10-K for the year ended December 31, 1989

       10(a)  Sublease Agreement with Millipore Corporation as landlord for
              facility at Bedford, Massachusetts dated November 25, 1985,
              incorporated by reference to Exhibit 10(a) to the Company's Form
              10-K for the year ended December 31, 1985

       10(b)  Amendment to Sublease Agreement with Millipore Corporation as
              landlord for facility at Bedford, Massachusetts dated December 30,
              1999, incorporated by reference to Exhibit 10(b) to the Company's
              Form 10-KSB for the year ended December 31, 1999 ("1999 10-KSB")

       10(c)  Sublease Agreement with Methode Electronics, Inc. as tenant for a
              portion of the facility at Bedford, Massachusetts dated December
              29, 1999, incorporated by reference to Exhibit 10(c) to the 1999
              10-KSB

       10(d)  Asset Purchase Agreement dated as of November 18, 1999 with
              Methode Electronics, Inc. and Methode Massachusetts, Inc.,
              incorporated by reference to Exhibit 1 to the Company's Form 8-K
              dated December 29, 1999

       10(e)  Employment Agreement with Roger G. Little dated as of January 1,
              2002, incorporated by reference to Exhibit 10(e) to the Company's
              Form 10-KSB for the year ended December 31, 2001 ("2001 10-KSB")

       10(f)  Deferred Compensation Plan with Roger G. Little dated as of
              January 1, 2002, incorporated by reference to Exhibit 10(f) to
              2001 10-KSB

       10(g)  Spire Corporation 1985 Incentive Stock Option Plan, incorporated
              by reference to Exhibit 10(d) to the Company's Form 10-K for the
              year ended December 31, 1984

       10(h)  Spire Corporation 401(k) Profit Sharing Plan, incorporated by
              reference to Exhibit 10(h) to the Company's Form 10-KSB for the
              year ended December 31, 2003 ("2003 10-KSB")

       10(i)  Spire Corporation 1996 Equity Incentive Plan, incorporated by
              reference to Appendix A to the Company's Proxy Statement dated
              April 15, 2004

       10(j)  Purchase Agreement dated May 23, 2003 with Stratos Lightwave and
              Bandwidth Semiconductor, LLC, incorporated by reference to Exhibit
              10(h) to the Company's Form 10-QSB for the quarter ended June 30,
              2003

                                       66
<PAGE>
       10(k)  Lease Agreement dated May 23, 2003 by and between Roger G. Little,
              Trustee of SPI-Trust as Landlord and Spire Corporation as Tenant,
              incorporated by reference to Exhibit 10(i) to the Company's Form
              10-QSB for the quarter ended June 30, 2003

       10(l)  Trust Agreement dated April 1, 2004 between the Company and Riggs
              Bank N.A. as Trustee of the Company's 401(k) Profit Sharing Plan,
              incorporated by reference to Exhibit 10(1) to the Company's Form
              10-KSB for the year ended December 31, 2004 ("2004 10-KSB")

       10(m)  Amendment No. One dated November 18, 2004 to Employment Agreement
              for Roger G. Little, incorporated by reference to Exhibit 10(m) to
              the Company's 2004 10-KSB

       10(n)  Development, Manufacturing, and Sales Consortium Agreement between
              Nisshinbo Industries, Inc. and Spire Corporation, with an
              effective date of 16 May 2005, incorporated by reference to
              Exhibit 10(n) to the Company's For 10-QSB for the quarter ended
              June 30, 2005**

       10(o)  Extension of Lease Agreement dated November 11, 2005 between Roger
              G. Little, Trustee of SPI-Trust and Spire Corporation (lease of
              premises, 77,037 sq. ft.), incorporated by reference to Exhibit
              10(o) to the Company's 2005 10-KSB

       10(p)  Amendment Number Four to the Spire Corporation 401(k) Profit
              Sharing Plan dated November 21, 2005, incorporated by reference to
              Exhibit 10(p) to the Company's 2005 10-KSB

       10(q)  Turn-Key Project Agreement, dated March 16, 2006, incorporated by
              reference to Exhibit 10(s) to the Company's 2006 10-QSB for the
              quarter ended March 31, 2006 **

       10(r)  Wafer Supply Agreement, dated March 16, 2006, incorporated by
              reference to Exhibit 10(r) to the Company's 2006 10-QSB for the
              quarter ended March 31, 2006 **

       10(s)  Manufacturing Agreement, dated August 29, 2006, by and between
              Bandwidth Semiconductor, LLC, a wholly owned subsidiary of Spire
              ("Bandwidth"), and Principia Lightworks, Inc. ("Principia"),
              incorporated by reference to Exhibit 10(s) to the Company's 2006
              10-QSB for the quarter ended September 30, 2006 **

       10(t)  First Amendment to Extension of Lease Agreement dated December 1,
              2006 between Roger G. Little, Trustee of SPI-Trust and Spire
              Corporation (lease of premises, approximately 91,701 sq. ft.),
              incorporated by reference to Exhibit 10(t) to the Company's 2006
              10-KSB

       10(u)  Amendment Number Five to the Spire Corporation 401(k) Profit
              Sharing Plan dated December 22, 2006, incorporated by reference to
              Exhibit 10(u) to the Company's 2006 10-KSB

       10(v)  Spire Corporation 2007 Stock Equity Plan, incorporated by
              reference to Exhibit 4.1 to the Company's Form S-8 filed with the
              Securities and Exchange Commission on June 5, 2007

       10(w)  Loan and Security Agreement, dated May 25, 2007, among Spire
              Corporation, Bandwidth Semiconductor, LLC and Silicon Valley Bank,
              incorporated by reference to Exhibit 10(w) to the Company's 2007
              10-Q for the quarter ended June 30, 2007

       10(x)  Operating Agreement of Gloria Spire Solar, LLC, dated July 31,
              2007, by and among the Company, Gloria Solar (Delaware) Company,
              Ltd. and Gloria Spire Solar, LLC, incorporated by reference to
              Exhibit 10(x) to the Company's Form 8-K filed with the SEC on
              September 10, 2007 *

       10(y)  Lease Agreement, dated November 30, 2007, between Roger G. Little,
              Trustee of SPI-Trust, and Spire Corporation (lease of premises,
              approximately 144,230 sq. ft.), incorporated by reference to
              Exhibit 10(y) to the Company's Form 8-K filed with the SEC on
              December 6, 2007

       14     Code of Business Conduct and Ethics incorporated by reference to
              Exhibit 14 to the 2003 10-KSB

                                       67
<PAGE>
       21     Subsidiaries of the Registrant, incorporated by reference to
              Exhibit 21 to the 2003 10-KSB

       23     Consent of Independent Registered Public Accounting Firm (filed
              herewith)

       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 (filed herewith)

       31.2   Certification of the Chief Financial Officer pursuant to ss.302 of
              the Sarbanes-Oxley Act of 2002 (filed herewith)

       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 (filed
              herewith)

       32.2   Certification of the Chief Financial Officer pursuant to 18 U.S.C.
              ss.1350, as adopted pursuant to ss.906 of the Sarbanes-Oxley Act
              of 2002 (filed herewith)



          *   Portions of this Exhibit have been omitted pursuant to a request
              for confidential treatment.
          +   We agree to furnish supplementally to the SEC a copy of any
              omitted schedule or exhibit to this agreement upon request by the
              SEC.
          **  Portions of this Exhibit have been omitted pursuant to a grant of
              confidential treatment.











                                       68
<PAGE>
                                   SIGNATURES

       In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.

                         SPIRE CORPORATION

                         By: /s/ Roger G. Little               November 24, 2008
                         -----------------------------
                         Roger G. Little
                         Chairman of the Board,
                         Chief Executive Officer,
                         and President


       In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.
<TABLE><CAPTION>

       SIGNATURE                                 TITLE                                     DATE
----------------------------       --------------------------------------            -----------------
<S>                                <C>                                               <C>

/s/ Roger G. Little                Chairman of the Board, Chief Executive            November 24, 2008
----------------------------       Officer and President
Roger G. Little


/s/ Christian Dufresne             Chief Financial Officer and Treasurer             November 24, 2008
----------------------------
Christian Dufresne


/s/ Udo Henseler                   Director                                          November 24, 2008
----------------------------
Udo Henseler


/s/ David R. Lipinski              Director                                          November 24, 2008
----------------------------
David R. Lipinski


/s/ Mark C. Little                 Chief Executive Officer, Spire Biomedical         November 24, 2008
----------------------------       and Director
Mark C. Little


/s/ Michael J. Magliochetti        Director                                          November 24, 2008
----------------------------
Michael J. Magliochetti


/s/ Guy L. Mayer                   Director                                          November 24, 2008
----------------------------
Guy L. Mayer


/s/ Roger W. Redmond               Director                                          November 24, 2008
----------------------------
Roger W. Redmond
</TABLE>




                                       69
<PAGE>
                                  EXHIBIT INDEX




Exhibit                            Description
-------                            -----------

23         Consent of Independent Registered Public Accounting Firm

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 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 pursuant to 18 U.S.C.
           ss.1350, as adopted pursuant to ss.906 of the Sarbanes-Oxley Act of
           2002