THIS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS SECTION AND OTHER PARTS OF THIS REPORT CONTAIN FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED (THE "EXCHANGE ACT"), WHICH STATEMENTS INVOLVE RISKS AND UNCERTAINTIES. THESE STATEMENTS RELATE TO OUR FUTURE PLANS, OBJECTIVES, EXPECTATIONS AND INTENTIONS. THESE STATEMENTS MAY BE IDENTIFIED BY THE USE OF WORDS SUCH AS "MAY", "COULD", "WOULD", "SHOULD", "WILL", "EXPECTS", "ANTICIPATES", "INTENDS", "PLANS", "BELIEVES", "ESTIMATES", AND SIMILAR EXPRESSIONS. OUR ACTUAL RESULTS AND THE TIMING OF CERTAIN EVENTS MAY DIFFER SIGNIFICANTLY FROM THE RESULTS AND TIMING DESCRIBED IN THE FORWARD-LOOKING STATEMENTS. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THOSE FACTORS DISCUSSED OR REFERRED TO IN THE ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2008 AND IN SUBSEQUENT PERIOD REPORTS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, INCLUDING THIS REPORT. THE FOLLOWING DISCUSSION AND ANALYSIS OF OUR FINANCIAL CONDITION AND RESULTS OF OPERATIONS SHOULD BE READ IN LIGHT OF THOSE FACTORS AND IN CONJUNCTION WITH OUR ACCOMPANYING CONSOLIDATED FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO.

OVERVIEW

We have been in the solar business for over 30 years, initially pioneering developments in solar cell technology. Currently, we develop, manufacture, and market customized turnkey solutions for the solar industry, including individual pieces of manufacturing equipment and full turnkey lines for cell and module production and testing. We have been continually active in research and development in the space, with over $100 million of research and development conducted and 35 issued patents. This expertise has provided the platform for development of our manufacturing equipment and turnkey lines. We have equipment deployed in approximately 50 countries and have among our customers some of the world's leading solar manufacturers including First Solar, BP Solar, Canadian Solar, Trina Solar Energy, Evergreen Solar and Solaria Energia.

As the solar market continues to expand, and photovoltaic cell and module manufacturers ramp production to meet increasing demand, they require more turnkey equipment to produce additional 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 customer base ranging from manufacturers relying on mostly manual processes, to some of the largest photovoltaic manufacturing companies in the world. With nearly 40 years since our incorporation and over 30 years in the solar market, we have been in a good position to capitalize on the market's growth.

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.

In addition to our cell and module manufacturing solutions, our Spire Semiconductor subsidiary provides semiconductor foundry services and is currently developing triple-junction gallium arsenide ("GaAs") concentrator solar cells. This state-of-the-art semiconductor fabrication facility is the foundation of our solar cell process technology for silicon, polysilicon, thin-film, and GaAs concentrator cells. We also operate a small business line associated with advanced biomedical applications. The foundation for all of our business units is our industry-leading expertise in manufacturing, materials technologies and surface treatments; this proprietary knowledge enables us to further develop our offerings in each market we serve.

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 40% of net sales and revenues for the three months ended March 31, 2009, continue to constitute a significant portion of our net sales and revenues.

Results of Operations
---------------------

     The following table sets forth certain items as a percentage of net sales
and revenues for the periods presented:

                                                          Three Months Ended
                                                               March 31,
                                                         --------------------
                                                           2009        2008
                                                         --------    --------

     Net sales and revenues                                 100%        100%
     Cost of sales and revenues                              88          75
                                                         --------    --------
         Gross profit                                        12          25
     Selling, general and administrative expenses           (33)        (26)
     Internal research and development expenses              (2)         (1)
     Gain on termination of contract                         12          --
                                                         --------    --------
         Loss from operations                               (11)         (2)
     Other loss, net                                         (1)         (2)
                                                         --------    --------
         Loss before income tax provision                   (12)         (4)
     Income tax provision                                    --          --
                                                         --------    --------
          Net loss                                          (12%)        (4%)
                                                         ========    ========

OVERALL

Our total net sales and revenues for the three months ended March 31, 2009 were $12.3 million as compared to $14.5 million for the three months ended March 31, 2008, which represents a decrease of $2.2 million or 15%. The decrease was primarily attributable to a $1.7 million decrease in solar sales and a $781 thousand decrease in optoelectronics sales, partially offset by a slight increase in biomedical sales.

SOLAR BUSINESS UNIT

Sales in our solar business unit decreased 17% during the three months ended March 31, 2009 to $8.6 million as compared to $10.3 million in the three months ended March 31, 2008. The decrease is the result of a slowdown of solar equipment shipments reflecting the overall decrease in activity in the solar power industry due to a further deepening of the current global economic recession.

BIOMEDICAL BUSINESS UNIT

Revenues of our biomedical business unit increased 9% during the three months ended March 31, 2009 to $3.1 million as compared to $2.8 million in the three months ended March 31, 2008. The increase reflects increased revenues from our orthopedics coatings services partially offset by a decrease in revenue from research and development contracts.

OPTOELECTRONICS BUSINESS UNIT

Revenues in our optoelectronics business unit decreased 54% to $656 thousand during the three months ended March 31, 2009 as compared to $1.4 million in the three months ended March 31, 2008. The decrease reflects an overall decrease in optoelectronics activities attributable to a further deepening of the current global economic recession and to a lesser extent the termination of a contract as discussed below in Gain on Termination of Contact.

Three Months Ended March 31, 2009 Compared to Three Months Ended March 31, 2008
-------------------------------------------------------------------------------

NET SALES AND REVENUES

     The following table categorizes our net sales and revenues for the periods
presented:
 <CAPTION>
                                                             Three Months Ended
                                                                  March 31,                Decrease
                                                           -----------------------   --------------------
     (in thousands)                                           2009         2008           $          %
                                                           ----------   ----------   ----------   -------
     Sales of goods                                          $ 9,429     $ 10,995     $ (1,566)    (14%)
     Contract research, services and license revenues          2,865        3,543         (678)    (19%)
                                                           ----------   ----------   ----------   -------
        Net sales and revenues                              $ 12,294     $ 14,538     $ (2,244)    (15%)
                                                           ==========   ==========   ==========   =======

The 19% decrease in contract research, services and license revenues for the three months ended March 31, 2009 as compared to the three months ended March 31, 2008 is primarily attributable to a decrease in optoelectronics, royalties and research and development activities, partially offset by orthopedics service revenue. Revenue from our optoelectronics processing services (Spire Semiconductor) decreased 54% in 2009 compared to 2008 as a result of an overall decrease in optoelectronics activities attributable to a further deepening of the current global economic recession and to a lesser extent the termination of a contract with Principia Lightworks, Inc. in March 2009 (see Gain on Termination of Contact). Revenue from royalties decreased 100% as a result of the termination of contract with Nisshinbo Industries, Inc. in November. Revenues from our research and development activities decreased 31% in 2009 as compared to 2008 primarily due to a decrease in the number and value of contracts associated with funded research and development. Revenues from our orthopedic activities increased 29% in 2009 as compared to 2008. This increase is primarily the result of revenue from a new customer added in the third quarter of 2008.

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:
 <CAPTION>

                                            Three Months Ended March 31,       Increase/(Decrease)
                                       -------------------------------------  ---------------------
(in thousands)                            2009       %        2008       %        $          %
                                       ---------   -----   ---------   -----    ------     -----
Cost of goods sold                      $ 8,677     92%     $ 8,494     77%      $183        2%
Cost of contract research,
 services and licenses                    2,164     76%       2,374     67%      (210)      (9%)
                                       ---------           ---------            ------
 Net cost of sales and revenues         $10,841     88%     $10,868     75%      $(27)       0%
                                       =========           =========            ======

Cost of goods sold increased 2% for the three months ended March 31, 2009 as compared to the three months ended March 31, 2008, primarily as a result of costs related to solar materials and a provision for a reserve of $504 thousand related to estimated costs to complete two solar projects; partially offset by a decrease in solar equipment costs related to a decrease in associated revenue. As a percentage of sales, cost of goods sold was 92% of sales of goods in 2009 as compared to 77% of sales of goods in 2008. This increase in the percentage of sales in 2009 is due to the provision for a reserve of $504 thousand related to estimated costs to complete two solar projects and an unfavorable product mix with lower margins in solar equipment sales along with an unfavorable utilization of solar manufacturing overhead.

Cost of contract research, services and licenses decreased 9% for the three months ended March 31, 2009 as compared to the three months ended March 31, 2008, primarily as a result of decreased costs at our optoelectronics facility (Spire Semiconductor) due to lower associated revenues along with decreased costs of our contract research activities due to lower volumes. Cost of contract research, services and licenses as a percentage of revenue increased to 76% of revenues in 2009 from 67% in 2008, primarily due to unfavorable margin related to our optoelectronics facility, partially offset by favorable margins in orthopedic services in 2008.

Cost of sales and revenues also includes approximately $36 thousand and $45 thousand of stock-based compensation for the three months ending March 31, 2009 and 2008, respectively.

OPERATING EXPENSES

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

 <CAPTION>

                                            Three Months Ended March 31,            Increase
                                       -------------------------------------    ----------------
(in thousands)                            2009       %        2008       %        $          %
                                       ---------   -----   ---------   -----    ------     -----

Selling, general and administrative     $ 4,045     33%     $ 3,778     26%      $267         7%
Internal research and development           311      2%         111      1%       200       180%
                                       ---------           ---------            ------
   Operating expenses                   $ 4,356     35%     $ 3,889     27%      $467        12%
                                       =========           =========            ======

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Selling, general and administrative expense increased 7% in the three months ended March 31, 2009 as compared to the three months ended March 31, 2008, primarily as a result of an increase in corporate staffing levels and related employee costs to support our overall growth, partially offset by a decrease in professional services. Selling, general and administrative expense increased to 33% of sales and revenues in 2009 as compared to 26% in 2008. The increase was primarily due to the under absorption of selling, general and administrative overhead costs by the 15% decrease in sales and revenues.

Operating expenses includes approximately $113 thousand and $151 thousand of stock-based compensation for the three months ending March 31, 2009 and 2008, respectively.

INTERNAL RESEARCH AND DEVELOPMENT

Internal research and development expense increased 180% in the three months ended March 31, 2009 as compared to the three months ended March 31, 2008, primarily as a result of our cost sharing contract with the National Renewable Energy Laboratory ("NREL") reducing 2008 costs. As a percentage of sales and revenue, internal research and development expenses remained increased slightly to 2% of sales and revenues in 2009 as compared to 1% in 2008.

GAIN ON TERMINATION OF CONTRACT

On August 29, 2008, we delivered to Principia Lightworks, Inc. ("Principia") a Notice of Breach and Pending Termination (the "Notice") of a certain Manufacturing Agreement, dated August 29, 2006, by and between Spire Semiconductor and Principia (the "Manufacturing Agreement"). Under the terms of the Manufacturing Agreement, Principia made an up-front payment for nonrecurring engineering and facility access costs and was required to make monthly facility availability payments throughout the term of the agreement. As a result of Principia's failure to make monthly facility availability payments in 2008, we have fully reserved $225 thousand against Principia's accounts receivable balance. We entered into a mutual standstill agreement with Principia which expired on March 15, 2009. The purpose of the standstill was to give the parties additional time to negotiate a resolution.

On March 27, 2009, Spire Semiconductor and Principia mutually agreed to terminate the Manufacturing Agreement for convenience and entered into a separation and novation agreement (the "Novation Agreement"). Under the terms of the Novation Agreement, both parties agreed to terminate technology licenses that were granted to each other under the terms of the Manufacturing Agreement and Spire Semiconductor was released from its production requirements to Principia. Principia was released from paying its future facility availability payments due under the Manufacturing Agreement but will be required to pay facility availability payments of $300 thousand. Spire Semiconductor holds 67,500 shares of Principia stock as collateral against the outstanding facility availability payments. During the three months ended March 31, 2009, we accelerated the amortization of deferred revenue and recognized $1.54 million as a gain on termination of contract related to the termination of the Manufacturing Agreement.

OTHER INCOME (EXPENSE), NET

We earned $11 thousand and $9 thousand of interest income for the three months ended March 31, 2009 and 2008, respectively. We incurred interest expense of $69 thousand for both three months ended March 31, 2009 and 2008. We recorded a loss of $280 thousand and $130 thousand on equity investment in joint venture with Gloria Solar for the three months ended March 31, 2009 and 2008, respectively. We had a currency exchange gain of approximately $209 thousand and a currency exchange loss of $114 thousand during the three months ended March 31, 2009 and 2008, respectively.

INCOME TAXES

We recorded a provision for income taxes of $27 thousand for the three months ended March 31, 2009. We did not record an income tax provision or benefit in the three months ending March 31, 2008. A valuation allowance has been provided against the current period tax benefit due to uncertainty regarding the realization of the net operating loss in the future.

NET LOSS

We reported a net loss for the three months ended March 31, 2009 and 2008 of approximately $1.52 million and $523 thousand, respectively. The net loss increased approximately $1.0 million primarily due to the decline in sales and revenue and decreased margins, partially offset by a one time gain on termination of contract.

Liquidity and Capital Resources

                                   March 31,  December 31,         Decrease
     (in thousands)                  2009         2008            $        %
                                   ---------  ------------   ---------  -------

     Cash and cash equivalents      $ 2,329      $ 5,971      $(3,642)   (61%)
     Working capital                $ 4,245      $ 6,835      $(2,590)   (38%)
     --------------------------------------------------------------------------

Cash and cash equivalents decreased due to cash used in operating activities, primarily inventories, and to a lesser extent investing and financing activities. The overall reduction in working capital is due to a decrease in cash and an increase in current liabilities, primarily accounts payable, partially offset by an increase in inventories. We have historically funded our operating cash requirements using operating cash flow, proceeds from the sale and licensing of technology and proceeds from the sale of equity securities.

There are no material commitments by us for capital expenditures. At March 31, 2009, our accumulated deficit was approximately $8.4 million, compared to accumulated deficit of approximately $6.9 million as of December 31, 2008.

We have numerous options on how to fund future operational losses or working capital needs, including but not limited to sales of equity, bank debt or the sale or license of assets and technology, as we have done in the past; however, there are no assurances that we will be able to sell equity, obtain bank debt, or sell or license assets or technology on a timely basis and at appropriate values. We have developed several plans including cost containment efforts and outside financing to offset a decline in business due to a further deepening of the current global economic recession. As a result, we believe we have sufficient resources to finance our current operations through at least March 31, 2010.

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 $3.5 million in the aggregate to finance certain equipment purchases (including reimbursement of certain previously-made purchases). Advances made under the Equipment Credit Facility would bear interest at the Bank's prime rate, as determined, plus 0.5% and payable in thirty-six (36) consecutive monthly payments following the funding date of that advance.

On March 31, 2008, we entered into a second Loan and Security Agreement (the "Revolving Credit Facility") with the Bank. Under the terms of the Revolving Credit Facility, the Bank agreed to provide us with a credit line up to $5.0 million. Our obligations under the Equipment Credit Facility are secured by substantially all of our assets and advances under the Revolving Credit Facility are limited to 80% of eligible receivables and the lesser of 25% of the value of our eligible inventory, as defined, or $2.5 million 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 (7.0%). In addition, we agreed to pay to the Bank a collateral monitoring fee of $750 per month in the event we are in default of our covenants and agreed to the following additional terms: (i) $50 thousand 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. In addition, on March 31, 2008 our existing Equipment Credit Facility was amended whereby the Bank granted a waiver for our defaults for not meeting our December 31, 2007 quarter liquidity and profit covenants and for not meeting our January and February 2008 liquidity covenants. Further, the covenants were amended to match the covenants, as discussed below, contained in the Revolving Credit Facility. Our interest rate under the Equipment Credit Facility was also modified from Bank Prime plus one half percent (0.5%) to the greater of Bank Prime plus one percent (1.0%) or seven percent (7.0%).

On May 13, 2008, the Bank amended the Equipment Credit Facility and the Revolving Credit Facility, modifying our net income profitability covenant requirements in exchange for a three quarters percent (0.75%) increase in our interest rate (7.75% at March 31, 2009) and waiver restructuring fee equal to one half percent (0.5%) of amounts outstanding under the Equipment Credit Facility and committed under the Revolving Credit Facility. 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 (7.0%). In addition, our term loan balance will be factored in when calculating our borrowing base under the Revolving Credit Facility.

Under the amended terms of both credit facilities, as long as any commitment remains outstanding under the facilities, we must comply with an adjusted quick ratio covenant and a minimum monthly 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.

On March 31, 2009, the Bank extended the expiration of the Revolving Credit Facility under the same terms for an additional sixty-one days, to expire on May 31, 2009. The purpose of the extension is to allow both parties the time to negotiate an expansion of the credit limit contingent upon our qualifying for an Export-Import Bank loan guarantee.

Our Equipment Credit Facility principal balance outstanding was $1.46 million and $1.75 million at March 31, 2009 and December 31, 2008, respectively. Our Revolving Credit Facility principal balance outstanding was $1.5 million at March 31, 2009 and December 31, 2008. We were in compliance with our credit facility covenants as of March 31, 2009.

On August 29, 2008, we delivered to Principia Lightworks, Inc. ("Principia") a Notice of Breach and Pending Termination (the "Notice") of a certain Manufacturing Agreement, dated August 29, 2006, by and between Spire Semiconductor and Principia (the "Manufacturing Agreement"). Under the terms of the Manufacturing Agreement, Principia made an up-front payment for nonrecurring engineering and facility access costs and was required to make monthly facility availability payments throughout the term of the agreement. As a result of Principia's failure to make monthly facility availability payments in 2008, we have fully reserved $225 thousand against Principia's accounts receivable balance. We entered into a mutual standstill agreement with Principia which expired on March 15, 2009. The purpose of the standstill was to give the parties additional time to negotiate a resolution.

On March 27, 2009, Spire Semiconductor and Principia mutually agreed to terminate the Manufacturing Agreement for convenience and entered into a separation and novation agreement (the "Novation Agreement"). Under the terms of the Novation Agreement, both parties agreed to terminate technology licenses that were granted to each other under the terms of the Manufacturing Agreement and Spire Semiconductor was released from its production requirements to Principia. Principia was released from paying its future facility availability payments due under the Manufacturing Agreement but will be required to pay facility availability payments of $300 thousand. Spire Semiconductor holds . . .