- Quarterly Report (10-Q)

SLTN Silverton Energy Inc (PK)

SLTN Silverton Energy Inc (PK)

Hot Features

News

Hot Features

News

Follow Feed

Options Flow

Monitor

Your Recent History

Trending Now

Toplists

Follow Feed

Options Flow

Monitor

Your Recent History

Market Data

News

Trading Tools

Markets

Discover

Company

Business

Popular

Get The App

Market Data

News

Trading Tools

Markets

Discover

Company

Business

Popular

Get The App

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF1934

For the quarterly period ended March 31, 2009

o TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

For the transition period from _________ to _________

Commission file number 001-13549

SOLAR THIN FILMS, INC.

(Exact name of registrant as specified in its charter)

Delaware	95-4356228
(State or other jurisdiction of incorporation or organization)	(IRS Employee Identification No.)

25 Highland Blvd, Dix Hills, New York 11746

(Address of principal executive offices)

(516) 417-8454

(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) 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 the filing requirements for the past 90 days.

Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes o No o

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.

Large accelerated filer o	Accelerated filer o

Non-accelerated filer o	Smaller reporting company x

Indicate by check mark whether registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)

Yes o No x

Number of outstanding shares of the registrant's par value $0.01 common stock, as of May 14, 2009: 58,136,113.

SOLAR THIN FILMS, INC.

FORM 10-Q

INDEX

		PAGE

Cautionary Statement Concerning Forward-Looking Statements		3

PART I	FINANCIAL INFORMATION	F-1
Item 1.	Condensed Consolidated Balance Sheets at March 31, 2009 (unaudited) and December 31, 2008	F-1
	Condensed Consolidated Statements of Operations and Comprehensive Loss for the Three Months Ended March 31, 2009 and 2008 (unaudited)	F-2
	Condensed Consolidated Statement of Stockholders’ Deficit for the Twelve Months Ended December 31, 2008 and Three Months Ended March 31, 2009 (unaudited)	F-3 to F-4
	Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2009 and 2008 (unaudited)	F-5
	Notes to Unaudited Condensed Consolidated Financial Statements	F-6 to F-33
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	5
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	19
Item 4T.	Controls and Procedures	19

PART II	OTHER INFORMATION	20
Item 1.	Legal Proceedings	20
Item 1A.	Risk Factors	20
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	20
Item 3.	Defaults on Senior Securities	20
Item 4.	Submission of Matters to a Vote of Security Holders	21
Item 5.	Other Information	21
Item 6.	Exhibits	21

Signatures		22

Cautionary Statement Concerning Forward-Looking Statements

Our representatives and we may from time to time make written or oral statements that are "forward-looking," including statements contained in this Quarterly Report on Form 10-Q and other filings with the Securities and Exchange Commission, reports to our stockholders and news releases. All statements that express expectations, estimates, forecasts or projections are forward-looking statements within the meaning of the Act. In addition, other written or oral statements which constitute forward-looking statements may be made by us or on our behalf. Words such as "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates," "projects," "forecasts," "may," "should," variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions which are difficult to predict. These risks may relate to, without limitation:

·	we have a significant working capital shortage; are currently in default in payment of approximately $1.75 million of indebtedness which became due in March 2009, and may face litigation or even bankruptcy if we are unable to met our obligations;

·	we need to raise additional capital which may not be available on acceptable terms or at all;

·	we have a history of substantial losses, may incur addition losses in 2009 and beyond, and may never achieve or maintain profitability;

·	our revenues and operating results are likely to fluctuate significantly;

·	we have only generated limited revenues and may never achieve profitability;

·	our equipment business is small and projected revenues may not materialize;

·	our equipment business is dependent on a small amount of customers and any loss of these customers will have a negative impact on our operations;

·	evaluating our business and future prospects may be difficult due to the rapidly changing market landscape;

·	our future success substantially depends on our ability to significantly increase our manufacturing capacity through the development of additional manufacturing facilities;

·	our “turnkey” manufacturing facility may not gain market acceptance, which would prevent us from achieving increased sales and market share;

·	technological changes in the solar power industry could render our turnkey manufacturing facilities uncompetitive or obsolete, which could reduce our market share and cause our sales to decline;

·	we face risks associated with the marketing, development and sale of our turnkey facilities internationally, and if we are unable to effectively manage these risks, it could impair our ability to expand our business abroad;

·	we may not be able to successfully develop and commercialize our turnkey PV manufacturing facilities which would result in continued losses and may require us to curtail or cease;

·	our fixed-price contracts could subject us to losses in the event that we have cost overruns;

·	we are selling 49% of the equity of our Kraft subsidiary in order to acquire BudaSolar Technologies Co. Ltd;

·	we need to raise significant additional financing to complete the acquisition of Algatec Solar Ag;

·	substantially all of Algatec's existing and projected 2009 revenues from the manufacture and sale of metallurgical crystalline solar modules are derived from its OEM contract with Q-Cells, which contract will expire at the end of 2009;

·	our inability to perform under significant contracts would have a material adverse effect on our consolidated business and prospects;

·	prices of metallurgical crystalline cells and other components may increase causing Algatec's profit margins to decrease;

·	even if we finance and complete the Algatec acquisition, there is no assurance that Algatec will be able to build equip and operate its new manufacturing facilities on schedule or within the amount budgeted for such purpose;

·	we have a few proprietary rights, the lack of which may make it easier for our competitors to compete against us;

·	we depend on the services of key executives and technical and other personnel, the loss of whom could materially harm our business or reduce our operational effectiveness;

·	we do not maintain theft or casualty insurance and only maintain modest liability and property insurance coverage and therefore we could incur losses as a result of an uninsured loss; and

·	governmental regulation may have a negative impact on our business.

Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in or suggested by such forward-looking statements. We undertake no obligation to publicly revise these forward-looking statements to reflect events or circumstances that arise after the date hereof. Readers should carefully review the factors described herein and in other documents we file from time to time with the Securities and Exchange Commission, including our Quarterly Reports on Form 10-Q, Annual Reports on Form 10-K, and any Current Reports on Form 8-K filed by us.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

SOLAR THIN FILMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS

	March 31,			December 31,
	2009			2008
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	1,909,936		$	619,257
Accounts receivable, net of allowance for doubtful accounts of $696,067 and $696,067, respectively		-			194,341
Accounts receivable, related party, net of allowance for doubtful accounts of $831,863 and $831,863, respectively		500,000			500,000
Inventory		701,146			207,041
Advances to suppliers		1,022,674			931,370
Note receivable, net of allowance for doubtful accounts of $250,000		-			-
Deposits and other current assets		180,689			378,331
Total current assets		4,314,445			2,830,340

Property, plant and equipment, net of accumulated depreciation of $371,731 and $439,998, respectively		334,378			413,241

Other assets:
Deferred financing costs, net of accumulated amortization of $595,454 and $581,000, respectively		12,046			26,500
Investments into CG Solar, at cost		1,500,000			1,500,000
Deposits		30,704			38,072
Other assets		583			3,893
Total other assets		1,543,333			1,568,465

Total Assets	$	6,192,156		$	4,812,046

LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable and accrued liabilities	$	4,824,291		$	4,028,115
Notes payable, current portion		2,797,774			2,560,997
Advances received from customers		2,171,678			1,969,390
Deferred revenue		434,079			33,452
Derivative liability		8,867			-
Note payable-other		1,500,000			1,500,000
Total current liabilities		11,736,689			10,091,954

Convertible notes payable, net of unamortized discount		-			-
Dividends payable		115,954			143,778
Total long term debt		115,954			143,778

Commitments and contingencies

Stockholder's Deficit
Preferred stock, par value $0.01 per share; 2,700,000 shares authorized:
Series A Preferred stock, par value $0.01 per share; 1,200,000 shares designated; -0- issued and outstanding at March 31, 2009 and December 31, 2008		-			-
Series B Preferred stock, par value $0.01 per share; 1,500,000 shares designated:
Series B-1 Preferred stock, par value $0.01 per share, 1,000,000 shares designated, 228,652 issued and outstanding at March 31, 2009 and December 31, 2008		2,286			2,286
Series B-3 Preferred stock, par value $0.01 per share, 232,500 shares designated, 47,502 and 47,518 issued and outstanding at March 31, 2009 and December 31, 2008, respectively		475			475
Series B-4 Preferred stock, par value $0.01 per share, 100,000 shares designated, -0- issued and outstanding at March 31, 2009 and December 31, 2008		-			-
Common stock, par value $0.01 per share, 150,000,000 shares authorized, 58,136,113 and 57,810,601 issued and outstanding as of March 31, 2009 and December 31, 2008, respectively		581,361			578,106
Additional paid in capital		22,011,206			24,838,003
Treasury stock		(80,000	)		(80,000	)
Deferred compensation		(69,986	)		(26,250	)
Accumulated deficit		(29,893,251	)		(32,549,564	)
Accumulated other comprehensive income (loss)		632,027			666,670
Total Solar Thin Film's stockholders' deficit		(6,815,882	)		(6,570,274	)
Noncontrolling interest		1,155,395			1,146,588
Total Stockholders’ deficit		(5,660,487	)		(5,423,686	)

Total Liabilities and Stockholders' Deficit	$	6,192,156		$	4,812,046

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

F-1

SOLAR THIN FILMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(unaudited)

	Three months ended March 31,
	2009			2008

REVENUE:
Equipment sales	$	-		$	287,994
Factory Sales		1,658,740			-
Total revenue		1,658,740			287,994

Cost of sales		828,676			270,584
Gross profit		830,064			17,410

OPERATING EXPENSES:
General, selling and administrative expenses		1,169,787			941,640
Research and development		-			90,000
Depreciation and amortization		24,050			35,731
Total operating expenses		1,193,837			1,067,371

NET (LOSS) FROM OPERATIONS		(363,773	)		(1,049,961	)

Other income/(expense):
Foreign currency transaction gain		87,782			40,669
Interest expense, net		(268,214	)		(413,211	)
Gain on change in fair value of derivative liability		12,909			-
Debt acquisition costs		(14,455	)		(25,563	)
Other income		1,269			2,515

Net loss before provision for income taxes		(544,482	)		(1,445,551	)

Income taxes		-			-

Net Loss		(544,482	)		(1,445,551	)

Loss (income) attributable to the noncontrolling interest		349			(8,087	)

NET LOSS ATTRIBUTABLE TO SOLAR THIN FILMS, INC.	$	(544,133	)	$	(1,453,638	)

Net Loss per common share (basic and diluted)	$	(0.01	)	$	(0.03	)
Weighted average shares outstanding (basic and diluted)		58,081,696			57,404,579

Comprehensive Loss:
Net Loss	$	(544,482	)	$	(1,445,551	)
Foreign currency translation (loss) gain		(34,643	)		107,682

Comprehensive Loss		(579,125	)		(1,337,869	)
Comprehensive loss (income) attributable to the noncontrolling interest		349			(8,087	)
Comprehensive loss attributable to Solar Thin Films, Inc.	$	(578,776	)	$	(1,345,956	)

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

F-2

	SOLAR THIN FILMS, INC.
	Preferred Series B-1				Preferred Series B-3					Common shares
	Shares		Amount		Shares			Amount		Shares		Amount
Balance, December 31, 2007		228,652	$	2,286		47,518		$	475		57,012,601	$	570,126
Issuance of 595,000 shares of common stock in exchange for convertible notes payable		-		-		-			-		595,000		5,950
Fair value of vested portion of employee options issued		-		-		-			-		-		-
Sale of majority owned subsidiary common stock by subsidiary		-		-		-			-		-		-
Reduction in ownership of majority owned subsidiary		-		-		-			-		-		-
Issuance of 199,000 shares of common stock in exchange for convertible notes payable		-		-		-			-		199,000		1,990
Issuance of 4,000 shares of common stock in exchange for convertible notes payable		-		-		-			-		4,000		40
Amortization of deferred compensation		-		-		-			-		-		-
Foreign currency translation gain		-		-		-			-		-		-
Net loss		-		-		-			-		-		-
Balance, December 31, 2008		228,652		2,286		47,518			475		57,810,601		578,106
Cumulative effect of a change in accounting principle adoption of EITF 07-05 effective January 1, 2009		-		-		-			-		-		-
Issuance of 325,000 shares of common stock in exchange for services rendered		-		-		-			-		325,000		3,250
Issuance of 512 shares of common stock in exchange for 16 Preferred Series B-3 shares		-		-		(16	)		-		512		5
Change in majority owned subsidiary equity		-		-		-			-		-		-
Fair value of vested portion of employee options granted		-		-		-			-		-		-
Amortization of deferred compensation		-		-		-			-		-		-
Foreign currency translation loss		-		-		-			-		-		-
Net loss		-		-		-			-		-		-
		228,652	$	2,286		47,502		$	475		58,136,113	$	581,361

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

F-3

SOLAR THIN FILMS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
TWELVE MONTHS ENDED DECEMBER 31, 2008 AND THREE MONTHS ENDED MARCH 31, 2009
(UNAUDITED)

	SOLAR THIN FILMS, INC.
										Other						Non			Total
	Additional			Deferred			Treasury			Comprehensive			Accumulated			contolling			Stockholders'
	Paid in Capital			Compensation			Stock			Income (loss)			Deficit			Interest			Deficiency
Balance, December 31, 2007		22,857,742			(79,750	)		(80,000	)		441,044			(24,075,554	)		999,496			635,865
Issuance of 595,000 shares of common stock in exchange for convertible notes payable		589,050			-			-			-			-						595,000
Fair value of vested portion of employee options		1,085,016			-			-			-			-						1,085,016
Sale of majority owned subsidiary common stock by subsidiary		105,225			-			-			-			-			44,775			150,000
Reduction in ownership of majority owned subsidiary		-			-			-			-			-			170,221			170,221
Issuance of 199,000 shares of common stock in exchange for convertible notes payable		197,010			-			-			-			-			-			199,000
Issuance of 4,000 shares of common stock in exchange for convertible notes payable		3,960			-			-			-			-			-			4,000
Amortization of deferred compensation		-			53,500			-			-			-			-			53,500
Foreign currency translation gain		-			-			-			225,626			-			-			225,626
Net loss		-			-			-			-			(8,474,010	)		(67,904	)		(8,541,914	)
Balance, December 31, 2008		24,838,003			(26,250	)		(80,000	)		666,670			(32,549,564	)		1,146,588			(5,423,686	)
Cumulative effect of a change in accounting principle adoption of EITF 07-05 effective January 1, 2009		(3,222,222	)		-			-			-			3,200,446			-			(21,776	)
Issuance of 325,000 shares of common stock in exchange for services rendered		74,750			(78,000	)		-			-			-						-
Issuance of 512 shares of common stock in exchange for 16 Preferred Series B-3 shares		(5	)		-			-			-			-						-
Change in majority owned subsidiary equity		(9,156	)		-			-			-			-			9,156			-
Fair value of vested portion of employee options granted		329,836			-			-			-			-						329,836
Amortization of deferred compensation		-			34,264			-			-			-						34,264
Foreign currency translation loss		-			-			-			(34,643	)		-						(34,643	)
Net loss		-			-			-			-			(544,133	)		(349	)		(544,482	)
		22,011,206		$	(69,986	)		(80,000	)	$	632,027			(29,893,251	)		1,155,395		$	(5,660,487	)

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

F-4

SOLAR THIN FILMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

	Three months ended March 31,
	2009			2008

CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss attributable to Solar Thin Films, Inc.	$	(544,133	)	$	(1,453,638	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization		33,533			49,922
(Loss) income attributable to noncontrolling interest, net of tax		(349	)		8,087
Amortization of deferred financing costs		14,454			25,562
Amortization of debt discounts		236,777			361,679
Amortization of deferred compensation costs		34,264			10,875
Fair value of vested options granted to officer and director		329,836			161,362
Change in fair value of derivative liability		(12,909	)		-
Changes in operating assets and liabilities:
Accounts receivable		161,280			189,810
Accounts receivable, related party		-			125,000
Inventory		(549,671	)		(491,941	)
Deposits and other current assets		173,389			(35,267	)
Accounts payable and accrued liabilities		851,582			223,198
Advances received from customers		340,783			635,055
Deferred revenue		412,251			-
Net cash provided by (used in) operating activities		1,481,087			(190,296	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of investments		-			(1,500,000	)
Acquisition of property, plant and equipment		(34,672	)		(39,815	)
Net cash used in investing activities:		(34,672	)		(1,539,815	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of common stock by majority owned subsidiary		-			150,000
Net cash provided by financing activities:		-			150,000

Effect of currency rate change on cash		(155,736	)		107,682

Net increase (decrease) in cash and cash equivalents		1,290,679			(1,472,429	)
Cash and cash equivalents at beginning of period		619,257			4,157,476
Cash and cash equivalents at end of period	$	1,909,936		$	2,685,047

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for interest	$	164		$	1,101
Cash paid during the period for taxes		-			-

NON CASH INVESTING AND FINANCING ACTIVITIES:
Common stock issued as deferred compensation	$	78,000		$	-
Stock options granted to officer and director for services rendered	$	329,836		$	-

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

F-5

SOLAR THIN FILMS, INC .

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2009

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A summary of the significant accounting policies applied in the presentation of the accompanying financial statements are as follows:

General

The accompanying unaudited condensed consolidated financial statements of Solar Thin Film, Inc., (“Solar” or the “Company”), have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.

In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Accordingly, the results from operations for the three month period ended March 31, 2009, are not necessarily indicative of the results that may be expected for the year ending December 31, 2009. The unaudited condensed consolidated financial statements should be read in conjunction with the consolidated December 31, 2008 financial statements and footnotes thereto included in the Company's Form 10-K/A filed with the SEC on April 23, 2009.

Business and Basis of Presentation

The Company is incorporated under the laws of the State of Delaware, and is in the business of designing, manufacturing and marketing “turnkey” systems and equipment for the manufacture of low cost solar modules on a world-wide basis.

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, Superior Ventures Corp. and Kraft Elektronikai Zrt. (“Kraft”) and majority owned subsidiary, Solar Thin Power, Inc. All significant intercompany balances and transactions have been eliminated in consolidation.

Accounts Receivable

The Company assesses the realization of its receivables by performing ongoing credit evaluations of its customers' financial condition. Through these evaluations, the Company may become aware of a situation where a customer may not be able to meet its financial obligations due to deterioration of its financial viability, credit ratings or bankruptcy. The Company’s reserve requirements are based on the best facts available to the Company and are reevaluated and adjusted as additional information is received. The Company’s reserves are also based on amounts determined by using percentages applied to certain aged receivable categories. These percentages are determined by a variety of factors including, but not limited to, current economic trends, historical payment and bad debt write-off experience. Allowance for doubtful accounts for accounts and notes receivable was $1,777,930 as of March 31, 2009 and December 31, 2008. As of December 31, 2008, the Company determined accounts receivable, related party of $831,863, trade receivables of $696,067 and a note receivable of $250,000 were impaired and accordingly recorded an allowance for doubtful accounts. There were no additional provisions recorded during the three months ended March 31, 2009.

F-6

SOLAR THIN FILMS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2009

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Revenue Recognition

For revenue from Equipment sales, which include equipment and sometimes installation, the Company recognizes revenue in accordance with Staff Accounting Bulletin No. 104, Revenue Recognition (“SAB 104"), which superseded Staff Accounting Bulletin No. 101, “Revenue Recognition in Financial Statements” (“SAB 101"). SAB 104 requires that four basic criteria must be met before revenue can be recognized: (1) Persuasive evidence of an arrangement exists; (2) delivery has occurred; (3) the selling price is fixed and determinable; and (4) collectibility is reasonably assured.

Determination of criteria (3) and (4) are based on management’s judgments regarding the fixed nature of the selling prices of the products delivered and the collectibility of those amounts. Provisions for discounts and rebates to customers, estimated returns and allowances, and other adjustments are provided for in the same period the related sales are recorded. The Company defers any revenue for which the product has not been delivered or is subject to refund until such time that the Company and the customer jointly determine that the product has been delivered or no refund will be required. Deferred revenues as of March 31, 2009 and December 31, 2008 amounted to $434,079 and $33,452, respectively. SAB 104 incorporates Emerging Issues Task Force 00-21 (“EITF 00-21"), Multiple-Deliverable Revenue Arrangements. EITF 00-21 addresses accounting for arrangements that may involve the delivery or performance of multiple products, services and/or rights to use assets.

The Company recognizes revenue when persuasive evidence of an arrangement exists, the price to the customer is fixed, collectibility is reasonable assured and title and risk of ownership is passed to the customer, which is usually upon shipment. However, certain customers traditionally have requested to take title and risk of ownership prior to shipment. Revenue for these transactions is recognized only when:

	1.	Title and risk of ownership have passed to the customer;

	2.	The Company has obtained a written fixed purchase commitment;

	3.	The customer has requested the transaction be on a bill and hold basis;

	4.	The customer has provided a delivery schedule;

	5.	All performance obligations related to the sale have been completed;

	6.	The product has been processed to the customer’s specifications, accepted by the customer and made ready for shipment; and

	7.	The product is segregated and is not available to fill other orders.

The remittance terms for these “bill and hold” transactions are consistent with all other sale by the Company. There were no bill and hold transactions at March 31, 2009 and December 31, 2008.

For Complete Factory sales, which include sale of equipment, installation, and commissioning, the Company recognizes revenues from the product portion (pieces of equipment) on shipment and services portion (installation and commissioning process) upon completion of the installation and commissioning process. The commissioning includes a range of consulting services necessary to successfully complete a performance test, such as training of management, engineering and production personnel, debugging and resolving problems, initial oversight or support for vendor relations and purchasing, documentation and transfer of process knowledge and potential co-management of the production line during performance testing or completion of the training process.

F-7

SOLAR THIN FILMS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2009

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

The Company has accounted for its Equipment Sales and Factory Sales arrangements as separate units of accounting as a) the shipped equipment (both Equipment Sales and Factory Sales) has value to the customer on a standalone basis, b) there is an objective and reliable evidence of the fair value of the service portion of the revenue (installation and commissioning) approximated by the fair value that a third party would charge the Company’s customer for the installation and commissioning fees if the customer so desired not to use the Company’s services (or the customer could complete the process using the information in the owner’s manual, although it would probably take significantly longer than it would take the Company’s technicians and or a third party to perform the installation and commissioning process), and c) there is no right of return for the shipped equipment and all equipments are inspected and approved by the customer before shipment.

Cost of sales

Cost of sales includes cost of raw materials, labor, production related depreciation and amortization, subcontractor work, inbound freight charges, purchasing and receiving costs, inspection costs, internal transfer costs and absorbed indirect manufacturing cost, as well as installation related travel costs and warranty costs.

General, selling and administrative expenses

General, selling and administrative expenses primarily include indirect labor costs, rental fees, accounting, legal and consulting fees.

Investments

As part of the Company’s business strategy to take a minority interest in its customer base and to secure module supply for planned power projects to improve the chances of securing contracts, during the year ended December 31, 2008, the Company acquired a 15% interest in CG Solar, formerly WeiHai Blue Star Terra Photovoltaic Co., Ltd, a Sino-Foreign Joint Venture Company organized under the laws of the People’s Republic of China. The investment of $1,500,000 represented 15% of total committed capital of $10,000,000 and is carried at cost under the cost method of accounting for investment. Blue Star Glass and China Singyes own the remaining 85% of CG Solar.

The Company supplied equipment to RESI that was utilized in the construction of CG Solar's first a-Si production line. The investment was accomplished by purchasing a 10% interest from Terrasolar for $1 million (representing 10% of the committed capital) in March 2008 and a 5% interest from RESI for $500,000 (representing 5% of the committed capital) in January 2008. The balance of the committed capital was invested by CG Solar's parent, Blue Star Glass, and by a strategic partner, China Singyes. Management believed that the investment represented a reasonable equity investment on its own account, expected to have preferential access to module output for power projects, and expected to increase the chances of securing contracts to expand the facility in 2009.

The Company did not evaluate for impairment and the fair value of the cost-method investment is not estimated since there were no identified events or changes in circumstances that may have a significant adverse effect on the fair value and the Company determined, in accordance with SFAS No. 107 that it is not practicable to estimate the fair value of the investment.

F-8

SOLAR THIN FILMS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2009

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Segment information

Statement of Financial Accounting Standards No. 131, “Disclosures about Segments of an Enterprise and Related Information” (“SFAS No.131”) establishes standards for reporting information regarding operating segments in annual financial statements and requires selected information for those segments to be presented in interim financial reports issued to stockholders. SFAS No.131 also establishes standards for related disclosures about products and services and geographic areas. Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision maker, or decision-making group, in making decisions how to allocate resources and assess performance. The Company applies the management approach to the identification of our reportable operating segment as provided in accordance with SFAS No. 131. The information disclosed herein materially represents all of the financial information related to the Company’s principal operating segment

Product Warranty costs

The Company provides for estimated costs to fulfill customer warranty obligations upon recognition of the related revenue in accordance with the FASB Interpretation No. 45, “Guarantors Accounting and Disclosure Requirements for Guarantees” as a charge in the current period cost of goods sold. The range for the warranty coverage for the Company’s products is up to 18 to 24 months. The Company estimates the anticipated future costs of repairs under such warranties based on historical experience and any known specific product information. These estimates are reevaluated periodically by management and based on current information, are adjusted accordingly. The Company’s determination of the warranty obligation is based on estimates and as such, actual product failure rates may differ significantly from previous expectations.

The Company accrued a provision for product warranty costs of approximately $180,000 during 2007; of which approximately $85,000 was utilized during the year ended December 31, 2007. During 2008 an additional $73,000 in warranty costs were accrued and a total of $108,070 was utilized, leaving a balance of approximately $59,930 remaining as of December 31, 2008. During the first quarter of 2009 the Company accrued an additional $26,000 in warranty costs as a result of shipments to Grupo Unisolar, and did not incur any product warranty costs, leaving a balance of $85,930 in product warranty provision as of March 31, 2009.

Research and Development

The Company accounts for research and development costs in accordance with the Financial Accounting Standards Board’s Statement of Financial Accounting Standards No. 2 (“SFAS 2"), “Accounting for Research and Development Costs.” Under SFAS 2, all research and development cost must be charged to expense as incurred. Accordingly, internal research and developments cost is expensed as incurred.

Third-party research and developments costs are expensed when the contracted work has been performed or as milestone results have been achieved. Company-sponsored research and development costs related to products are expensed in the period incurred. The Company incurred expenditures of $-0- and $90,000 on research and product development for the three month periods ended March 31, 2009 and 2008, respectively.

Reclassification

Certain reclassifications have been made to conform to prior periods’ data to the current year’s presentation. These reclassifications had no effect on reported income or losses.

F-9

SOLAR THIN FILMS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2009

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Fair Value of Financial Instruments

SFAS No. 107, "Disclosures About Fair Value of Financial Instruments," requires disclosure of the fair value of certain financial instruments. The carrying value of cash and cash equivalents, accounts payable and accrued liabilities, and short-term borrowings, as reflected in the consolidated balance sheets, approximate fair value because of the short-term maturity of these instruments. All other significant financial assets, financial liabilities and equity instruments of the Company are either recognized or disclosed in the consolidated financial statements together with other information relevant for making a reasonable assessment of future cash flows, interest rate risk and credit risk. Where practicable the fair values of financial assets and financial liabilities have been determined and disclosed; otherwise only available information pertinent to fair value has been disclosed.

Effective January 1, 2008, we adopted SFAS No. 157, "Fair Value Measurements" ("SFAS No. 157") and SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities - Including an Amendment of FASB Statement No. 115" ("SFAS No. 159"), which permits entities to choose to measure many financial instruments and certain other items at fair value. Neither of these statements had an impact on the Company’s consolidated financial position, results of operations or cash flows.

Property, plant and equipment

Property, plant and equipment are stated at cost less accumulated depreciation and impairment losses. Depreciation is computed using the straight-line method over the estimated useful lives of the respective assets.

The estimated useful lives of property, plant and equipment are as follows:

Land		-
Buildings		50 years
Leasehold improvements		3 to 7 years
Fur Furniture and fixtures		3 to 7 years
Machinery, plant and equipment		3 to 7 years

We evaluate the carrying value of items of property, plant and equipment to be held and used whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. The carrying value of an item of property, plant and equipment is considered impaired when the projected undiscounted future cash flows related to the asset are less than its carrying value. We measure impairment based on the amount by which the carrying value of the respective asset exceeds its fair value. Fair value is determined primarily using the projected future cash flows discounted at a rate commensurate with the risk involved.

Stock Based Compensation

Effective for the year beginning January 1, 2006, the Company has adopted SFAS 123 (R) “Share-Based Payment” which supersedes APB Opinion No. 25, “Accounting for Stock Issued to Employees” and eliminates the intrinsic value method that was provided in SFAS 123 for accounting of stock-based compensation to employees. The Company made no employee stock-based compensation grants before December 31, 2005 and therefore has no unrecognized stock compensation related liabilities or expense unvested or vested prior to 2006. Stock-based compensation expense recognized under SFAS 123(R) for the three month periods ended March 31, 2009 and 2008 was $329,836 and $161,362, respectively.

F-10

SOLAR THIN FILMS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2009

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Use of Estimates

The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that effect 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 periods. Actual results could differ from those estimates.

Comprehensive Income (Loss)

The Company adopted SFAS No. 130; “Reporting Comprehensive Income”. SFAS No. 130 establishes standards for the reporting and displaying of comprehensive income and its components. Comprehensive income is defined as the change in equity of a business during a period from transactions and other events and circumstances from non-owners sources. It includes all changes in equity during a period except those resulting from investments by owners and distributions to owners. SFAS No. 130 requires other comprehensive income (loss) to include foreign currency translation adjustments and unrealized gains and losses on available for sale securities.

Foreign Currency Translation

The Company translates the foreign currency financial statements into US Dollars using the year or reporting period end or average exchange rates in accordance with the requirements of SFAS No. 52, “Foreign Currency Translation” . Assets and liabilities of these subsidiaries were translated at exchange rates as of the balance sheet date. Revenues and expenses are translated at average rates in effect for the periods presented. The cumulative translation adjustment is included in the accumulated other comprehensive gain (loss) within shareholders’ equity (deficit). Foreign currency transaction gains and losses arising from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the consolidated results of operations.

Net income (loss) per share

The Company accounts for net (loss) income per share in accordance with Statement of Financial Accounting Standards No. 128, "Earnings Per Share" (“EPS”), which requires presentation of basic and diluted EPS on the face of the statement of operations for all entities with complex capital structures and requires a reconciliation of the numerator and denominator of the basic EPS computation to the numerator and denominator of the diluted EPS.

Basic net (loss) income per share is computed by dividing net (loss) income by the weighted average number of shares of common stock outstanding during each period. It excludes the dilutive effects of potentially issuable common shares such as those related to our convertible notes, warrants and stock options. Diluted net (loss) income per share is calculated by including potentially dilutive share issuances in the denominator. However, diluted net (loss) income per share for the three month periods ended March 31, 2009 and 2008 does not reflect the effects of 1,533,514 and 1,534,026 shares potentially issuable upon conversion of our convertible preferred shares as of March 31, 2009 and 2008, respectively 2,423,000 and 2,626,000 shares potentially issuable upon the conversion of convertible debt as of March 31, 2009 and 2008, respectively and -0- and 1,265,894 shares potentially issuable upon the exercise of the Company's stock options and warrants (calculated using the treasury stock method) as of March 31, 2009 and 2008, respectively. These potentially issuable shares would have an anti-dilutive effect on our net (loss) income per share.

Liquidity

The Company has incurred a net loss of $544,133 and $1,453,638 for the three month periods ended March 31, 2009 and 2008, respectively. In addition, the Company has negative working capital of $7,422,244 at March 31, 2009.

F-11

SOLAR THIN FILMS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2009

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

N ew Accounting Pronouncements Effective January 1, 2009

SFAS No.161

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities—an amendment of FASB Statement No. 133” (“SFAS No. 161”) . The new standard is intended to improve financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity’s financial position, results of operations and cash flows. The new standard also improves transparency about how and why a company uses derivative instruments and how derivative instruments and related hedged items are accounted for under Statement No. 133. It is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. We adopted SFAS No. 161 effective January 1, 2009 and addressed the relevant disclosures accordingly.

SFAS No. 160

In December 2007, the FASB issued SFAS No. 160, “Non-controlling Interests in Consolidated Financial Statements—an amendment of ARB No. 51” (“SFAS No. 160”). In SFAS No. 160, the FASB established accounting and reporting standards that require non-controlling interests to be reported as a component of equity, changes in a parent’s ownership interest while the parent retains its controlling interest to be accounted for as equity transactions, and any retained non-controlling equity investment upon the deconsolidation of a subsidiary to be initially measured at fair value. SFAS No. 160 is effective for annual periods beginning on or after December 15, 2008. Retroactive application of SFAS No. 160 is prohibited. We adopted SFAS No. 160 effective January 1, 2009 which primarily resulted in moving the presentation of non-controlling interest to the “Stockholders’ equity” section of our condensed consolidated balance sheets.

EITF No. 07-1

In December 2007, the FASB issued EITF No. 07-1, “Accounting for Collaborative Arrangements” (“EITF No. 07-1”). EITF No. 07-1 prescribes the accounting for parties of a collaborative arrangement to present the results of activities for the party acting as the principal on a gross basis and report any payments received from (made to) other collaborators based on other applicable GAAP or, in the absence of other applicable GAAP, based on analogy to authoritative accounting literature or a reasonable, rational, and consistently applied accounting policy election. Further, EITF No. 07-1 clarified the determination of whether transactions within a collaborative arrangement are part of a vendor-customer (or analogous) relationship subject to Issue No. 01-9, “Accounting for Consideration Given by a Vendor to a Customer.” EITF No. 07-1 is effective for collaborative arrangements that exist on January 1, 2009 and application is retrospective. We adopted EITF No. 07-1 effective January 1, 2009 and the adoption had no material effect on our financial position or results of operations.

EITF No. 07-5

In June 2008, the FASB ratified EITF No. 07-5, “Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entity’s Own Stock” (“EITF No. 07-5”). EITF No. 07-5 provides that an entity should use a two-step approach to evaluate whether an equity-linked financial instrument (or embedded feature) is indexed to its own stock, including evaluating the instrument’s contingent exercise and settlement provisions. It also clarifies the impact of foreign currency denominated strike prices and market-based employee stock option valuation instruments on the evaluation. EITF No. 07-5 is effective for fiscal years beginning after December 15, 2008. We adopted EITF No. 07-5 effective January 1, 2009 and the adoption resulted in our warrants with anti-dilutive provisions being classified as derivatives in accordance with FASB Statement No. 133.

F-12

SOLAR THIN FILMS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2009

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Recently Issued Accounting Standards

In April 2009, the Financial Accounting Standards Board (“FASB”) issued the following new accounting standards:

FASB Staff Position FAS No. 157-4, Determining Whether a Market Is Not Active and a Transaction Is Not Distressed, (“FSP FAS No. 157-4”) provides guidelines for making fair value measurements more consistent with the principles presented in SFAS No. 157. FSP FAS No. 157-4 provides additional authoritative guidance in determining whether a market is active or inactive and whether a transaction is distressed. It is applicable to all assets and liabilities (i.e., financial and non-financial) and will require enhanced disclosures.

FASB Staff Positions FAS No. 115-2, FAS 124-2, and EITF No. 99-20-2, Recognition and Presentation of Other-Than-Temporary Impairments , (“FSP FAS No. 115-2, FAS No. 124-2, and EITF No. 99-20-2”) provides additional guidance to provide greater clarity about the credit and noncredit component of an other-than-temporary impairment event and to more effectively communicate when an other-than-temporary impairment event has occurred. This FSP applies to debt securities.

FASB Staff Position FAS No. 107-1 and APB No. 28-1, Interim Disclosures about Fair Value of Financial Instruments , (“FSP FAS No. 107-1 and APB No. 28-1”) amends FASB Statement No. 107, Disclosures about Fair Value of Financial Instruments , to require disclosures about fair value of financial instruments in interim as well as in annual financial statements. This FSP also amends APB Opinion No. 28, Interim Financial Reporting , to require those disclosures in all interim financial statements.

These standards are effective for periods ending after June 15, 2009. We are evaluating the impact that these standards will have on our consolidated financial statements.

Other recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the AICPA, and the SEC did not, or are not believed by management to, have a material impact on the Company’s present or future consolidated financial statements.

NOTE 2 - GOING CONCERN MATTERS

The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As shown in the accompanying consolidated financial statements, the Company incurred a net loss of $544,133 and $1,453,638 for the three month periods ended March 31, 2009 and 2008, respectively. Additionally, the Company has negative working capital of $7,422,244 as of March 31, 2009. The Company is currently in default in the payment of certain notes payable. These factors among others raised substantial doubt about the Company’s ability to continue as a going concern.

The Company has undertaken further steps as part of a plan to improve operations with the goal of sustaining our operations for the next twelve months and beyond to address its lack of liquidity by raising additional funds, either in the form of debt or equity or some combination thereof. However, there can be no assurance that the Company can successfully accomplish these steps and or business plans, and it is uncertain that the Company will achieve a profitable level of operations and be able to obtain additional financing.

The Company’s continued existence is dependent upon management’s ability to develop profitable operations and resolve its liquidity problems. The accompanying consolidated financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result should the Company be unable to continue as a going concern.

F-13

SOLAR THIN FILMS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2009

NOTE 2 - GOING CONCERN MATTERS (continued)

There can be no assurance that any additional financings will be available to the Company on satisfactory terms and conditions, if at all. In the event that the Company is unable to continue as a going concern, it may elect or be required to seek protection from its creditors by filing a voluntary petition in bankruptcy or may be subject to an involuntary petition in bankruptcy. To date, management has not considered this alternative, nor does management view it as a likely occurrence.

NOTE 3 - INVENTORIES

Inventories are stated at the lower of cost or market determined by the first-in, first-out (FIFO) method. Components of inventories as of March 31, 2009 and December 31, 2008 consist of the following.

	March 31, 2009		December 31, 2008
Work in Progress	$	654,105	$	103,919
Raw Materials		47,041		103,122
	$	701,146	$	207,041

NOTE 4 - NOTE RECEIVABLE

Note receivable consists of the following:

	March 31, 2009			December 31, 2008
Note receivable, 7% per annum, secured and due June 10, 2009	$	250,000		$	250,000
Less: allowance for doubtful accounts		(250,000	)		(250,000	)
Net	$	-		$	-

The Company’s note receivable along with accrued interest is due on June 10, 2009 and can be prepaid at any time without penalty or premium. The note is secured by the Company’s common stock held by certain shareholders. At December 31, 2008, management determined the collectibility may be impaired and accordingly recorded an allowance for doubtful accounts with a current period charge to the Company’s operations. There was no change in allowance for doubtful accounts at March 31, 2009.

NOTE 5 – DEPOSITS AND OTHER CURRENT ASSETS

Deposits and other current assets are comprised of the following:

	March 31, 2009		December 31, 2008
Real estate deposits, net of liquidated damages (see below)	$	-	$	194,254
Tax receivable		179,083		176,601
Other		1,606		7,476
Total	$	180,689	$	378,331

On August 20, 2008, the Company entered into a contract (the “Contract”) to purchase certain property, plant and equipment, including all buildings and improvements, all fixtures and equipment attached to the property and certain equipment for a purchase price of $4,550,000. In conjunction with the purchase, the Company made a wire transfer of a $30,000 non-refundable initial down payment upon signing of the agreement to an escrow account. In addition, the Company made a $425,000 second down payment, which was subject to an environmental testing result. The initial closing was scheduled on September 26, 2008. The closing date was then adjourned in order to complete the Phase I environmental assessment and to address any issues identified. Subsequently the Company has identified an environmental condition, which it believed might lead to contamination, and determined not to purchase the property.

F-14

SOLAR THIN FILMS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2009

NOTE 5 – DEPOSITS AND OTHER CURRENT ASSETS (continued)

The Company then negotiated a refund in the amount of $194,254 and accounted for the liquidated damages of $260,746 as loss on settlement of real estate deposits in the Company’s other expenses for the year ended December 31, 2008.

NOTE 6 - PROPERTY, PLANT AND EQUIPMENT

The Company's property and equipment at March 31, 2009 and December 31, 2008 consist of the following:

	March 31, 2009			December 31, \|2008
Land and buildings	$	179,952		$	223,132
Furniture and fixture		63,854			78,644
Machinery, plant and equipment		462,303			551,463
Total		706,109			853,239

Accumulated depreciation		(371,731	)		(439,998	)
Property and equipment	$	334,378		$	413,,241

Property and equipment are recorded on the basis of cost. For financial statement purposes, property, plant and equipment are depreciated using the straight-line method over their estimated useful lives.

Depreciation and amortization expense was $33,533 and $49,922 for the three month periods ended March 31, 2009 and 2008, respectively, of which $9,483 and $14,191 was included as part of cost of sales for the three month periods ended March 31, 2009 and 2008, respectively.

NOTE 7 - ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

Accounts payable and accrued liabilities at March 31, 2009 and December 31, 2008 were as follows:

	March 31, 2009		December 31, 2008
Accounts payable	$	620,280	$	149,324
Other accrued expenses, including a penalty in the amount of $720,000 in connection with liquidating charges as of March 31, 2009 and December 31, 2008		2,356,311		2,068,591
Accrued interest, see Note 8 below		1,847,700		1,810,200
	$	4,824,291	$	4,028,115

As described on Note 20 below, the Company entered into a stock exchange agreement. As such, the Company recorded estimated legal and other related costs of $500,000 as other accrued expenses for service rendered during the year ended December 31, 2008.

NOTE 8 - NOTES PAYABLE OTHER

A summary of notes payable other at March 31, 2009 and December 31, 2008 consists of the following:

	March 31, 2009		December 31, 2008
Demand note payable: interest payable at 8.0% per annum (default rate of 10% per annum); unsecured	$	1,500,000	$	1,500,000
	$	1,500,000	$	1,500,000

F-15

SOLAR THIN FILMS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2009

NOTE 8 - NOTES PAYABLE OTHER (continued)

In 1996, the Company issued an unsecured 8%, $1.5 million note to an unrelated party in connection with the Company's acquisition of a software company. The note was due and payable on April 30, 1999. The note was governed by the laws of the State of New York. The New York statute of limitations for seeking to collect on a note is six years from the maturity date. The creditor has never sought to collect the note since its maturity date and in or about 2001 orally advised a representative of the Company that it had "written off the debt." Although the Company has previously and currently listed the note as a liability on its balance sheet, it does not believe that it has any further liability under this note.

NOTE 9- DIVIDENDS PAYABLE

In 2000 and 2001, the Company’s wholly owned subsidiary declared a dividend to its shareholders. However based on the Company’s limited financial resources it has been unable to pay it. The shareholders have conceded the deferment of this dividend until the Company financially can afford paying it. At March 31, 2009 and December 31, 2008, the outstanding balance was $115,954 and $143,778, respectively. The underlying liability is in the local currency. Changes in the recorded amounts are related to the changes in the currency exchange rates.

NOTE 10- PRIVATE PLACEMENT OF CONVERTIBLE NOTES AND NOTE PAYABLE

A summary of convertible notes payable at March 31, 2009 and December 31, 2008 are as follows:

	March 31, 2009			December 31, 2008
Convertible notes payable (“March 2006”) non-interest bearing; secured and due March 2009. The company is currently in default under the terms of this note agreement.		1,250,000			1,250,000
Debt Discount, net of accumulated amortization of $1,250,000 and $1,165,525, respectively		( -	)		(84,475	)
Net		1,250,000			1,165,525
Convertible notes payable (“June 2006”), non- interest bearing; secured and due June 2009; Noteholder has the option to convert unpaid note principal to the Company’s common stock at a rate of $1.00 per share		1,173,000			1,173,,000
Debt Discount, net of accumulated amortization of $1,047,774 and $895,472, respectively		(125,226	)		(277,528	)
Net		1,047,774			895,472

Note payable, non interest bearing, due March 4, 2009. The Company is currently in default under the terms of the note agreement.		500,000			500,000

Total		2,797,774			2,560,997
Less Current Maturities		(2,797,774	)		( 2,560,997	)
Convertible notes payable – long-term portion	$	-		$	-

March 2006 Financing

In connection with the merger and corporate restructure on June 14, 2006, the Company assumed a financing arrangement dated March 16, 2006, subsequently amended on May 18, 2006, with several investors (the "March Investors") for the sale of (i) $1,250,000 in notes (the "Notes"), (ii) 625,000 shares of common stock of the Company (the "Shares") (Note 11) and (iii) common stock purchase warrants to purchase 625,000 shares of common stock at $1.00 price per share for a period of five years (the "Warrants").

The March 2006 Notes are interest free and mature on the earlier of (i) March 16, 2009 or (ii) the Company closing on a financing in the aggregate amount of $12,000,000. The Company granted the March 2006 Investors piggyback registration rights with respect to the March 2006 Shares and the shares of common stock underlying the warrants. Further, Robert M. Rubin, CEO and a Director of the Company, has personally guaranteed payment of the March 2006 Notes.

F-16

SOLAR THIN FILMS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2009

NOTE 10- PRIVATE PLACEMENT OF CONVERTIBLE NOTES AND NOTE PAYABLE (continued)

March 2006 Financing (continued)

The March 2006 Investors have contractually agreed to restrict their ability to convert the March 2006 Notes and exercise the March 2006 Warrants and receive shares of our common stock such that the number of shares of the Company common stock held by them and their affiliates after such conversion does not exceed 4.99% of the Company’s then issued and outstanding shares of common stock.

The sale of the Notes was completed on March 16, 2006. As of the date hereof, the Company is obligated on $1,250,000 in face amount of Notes issued to the March investors.

In accordance with Emerging Issues Task Force Issue 00-27, “Application of Issue No. 98-5 to Certain Convertible Instruments” (“EITF - 0027”), the Company recognized the relative value attributable to the warrants in the amount of $231,797 to additional paid in capital and a discount against the March 2006 Notes. The Company valued the warrants in accordance with EITF 00-27 using the Black-Scholes pricing model and the following assumptions: (1) dividend yield of 0%; 2) expected volatility of 93.03%, (3) risk-free interest rate of 5.08% to 5.10%, and (4) expected life of 5 years. The Company also recognized the relative value attributable to the common stock issued in the amount of $498,712 to additional paid in capital and a discount against the March 2006 Notes. Total debt discount to the March 2006 Notes amounted $1,250,000. The note discount was being amortized over the maturity period of the Notes, being thirty-four (34) months.

The Company amortized the Convertible Notes’ debt discount and recorded non-cash interest expense of $84,475 and $110,223, respectively, during the three month periods ended March 31, 2009 and 2008, respectively.

June 2006 Financing

In connection with the merger and corporate restructure on June 14, 2006, the Company entered into a financing arrangement with several investors (the “June 2006 Investors”) pursuant to which it sold various securities in consideration of an aggregate purchase price of $6,000,000 consisting of the following securities:

$ 6,000,000 in senior secured convertible notes (“June 2006 Notes”);

3,000,000 shares of the Company’s common stock;

Series A Common Stock Purchase Warrants to purchase 3,000,000 shares of common stock at $2.00 per share for a period of three years (“Series A Warrants”);

Series B Common Stock Purchase Warrants to purchase 3,000,000 shares of common stock at $2.20 per share for a period of four years (“Series B Warrants”);

Series C Common Stock Purchase Warrants to purchase 3,000,000 shares of common stock at $3.00 per share for a period of three years (“Series C Warrants”); and

Series D Common Stock Purchase Warrants to purchase 3,000,000 shares of common stock at $3.30 per share for a period of four years (“Series D Warrants”).

The warrants and warrant agreement provide for certain anti-dilution rights (see Note 11).

The Series B Warrants and the Series D Warrants are exercisable only following the exercise of the Series A Warrants and the Series C Warrants, respectively, on a share by share basis.

F-17

SOLAR THIN FILMS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2009

NOTE 10- PRIVATE PLACEMENT OF CONVERTIBLE NOTES AND NOTE PAYABLE (continued)

June 2006 Financing (continued)

The June 2006 Notes are interest free and mature in June 2009 and are convertible into the Company’s common stock, at the June 2006 Investors’ option, at a conversion price equal to $1.00 per share (Note 11). The Company granted the June 2006 Investors a first priority security interest in all of its assets subject only to the secured convertible notes in the amount of $525,000 previously issued in September 2005. In addition, the Company pledged one hundred percent (100%) of the shares held in its majority owned subsidiary , Kraft Rt, as collateral to the June 2006 Investors.

The Company granted the June 2006 Investors registration rights with respect to the June 2006 Shares, and the shares of common stock underlying the June 2006 Notes, Series A Warrants, Series B Warrants, the Series C Warrants and Series D Warrants. The Company is required to file a registration statement within 30 days from closing and have such registration statement declared effective within 90 days from closing if the registration statement is not reviewed or, in the event that the registration statement is reviewed, within 120 days from closing. If the Company fails to have the registration statement filed or declared effective by the required dates, it will be obligated to pay a liquidated damages equal to 2% of the aggregate financing to each investor upon any such registration failure and for each thirty days that such registration failure continues in cash.

The June 2006 Investors have contractually agreed to restrict their ability to convert the June 2006 Notes, Series A Warrants, Series B Warrants, Series C Warrants and Series D Warrants and receive shares of the Company’s common stock such that the number of shares of the Company’s common stock held by them and their affiliates after such conversion does not exceed 4.99% of the Company’s then issued and outstanding shares of common stock.

In accordance with Emerging Issues Task Force Issue 98-5, “Accounting For Convertible Securities With a Beneficial Conversion Feature or Contingently Adjustable Conversion Ratios” (EITF 98-5) , the Company allocated, on a relative fair value basis, the net proceeds amongst the common stock and Convertible Notes issued to the investors. As of December 31, 2006, the Company recognized $2,777,778 of the proceeds, which is equal to the intrinsic value of the imbedded beneficial conversion feature, to additional paid-in capital and a discount against the Convertible Note. The debt discount attributed to the beneficial conversion feature is amortized over the Convertible Notes’ maturity period, being three (3) years, as interest expense. In accordance with Emerging Issues Task Force Issue 00-27, “Application of Issue No. 98-5 to Certain Convertible Instruments” (“EITF - 0027”), the Company also recognized the relative value attributable to the common stock issued in the amount of $3,222,222 to additional paid in capital and a discount against the June 2006 Notes. Total debt discount to the June 2006 Notes amounted $6,000,000. The note discount is amortized over the maturity period of the notes, being (3) years.

In the year ended December 31, 2007, certain June 2006 investors converted $4,029,000 of convertible notes to 4,029,000 shares of the Company’s common stock.

In the year ended December 31, 2008, certain June 2006 investors converted $798,000 of convertible notes to 798,000 shares of the Company’s common stock.

The Company amortized and wrote off the Convertible Notes’ debt discount and recorded a non-cash interest expense of $152,302 and $251,456 for the three month periods ended March 31, 2009 and 2008, respectively.

F-18

SOLAR THIN FILMS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2009

NOTE 10- PRIVATE PLACEMENT OF CONVERTIBLE NOTES AND NOTE PAYABLE (continued)

June 2006 Financing (continued)

In conjunction with raising capital through the issuance of $6,000,000 Notes, the Company has issued warrants that have registration rights for the underlying shares. As the contract must be settled by the delivery of registered shares and the delivery of the registered shares is not controlled by the Company, pursuant to EITF 00-19, “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock”, the warrants were recorded as a derivative liability and valued at fair market value until the Company meets the criteria under EITF 00-19 for permanent equity. The net value of the warrants at the date of issuance was recorded as a warrant liability on the balance sheet in the amount of $10,821,900 and charged to operations as interest expense. Upon the registration statement being declared effective, the fair value of the warrant on that date will be reclassified to equity. The Company initially valued the warrants using the Black-Scholes pricing model with the following assumptions: (1) dividend yield of 0%; (2) expected volatility of 93.03%, (3) risk-free interest rate of 5.08% to 5.10%, and (4) expected life of 5 years.

In connection with the merger and corporate restructure on June 14, 2006, the Company assumed as liability the fair value of $10,821,900 representing the warrants issued and outstanding as described above. At December 31, 2006, the Company revalued the warrants using the Black-Scholes option pricing model with the following assumptions: (1) dividend yield of 0%; (2) expected volatility of 51.21%, (3) risk-free interest rate of 4.62% to 4.82% to 5.10%, and (4) expected life of 2.45 to 3.44 years. And 5) a deemed fair value of common stock of $0.99. The decrease of $9,356,400 in the fair value of the warrants at December 31, 2006 has been recorded as a gain on revaluation of warrant liability for the year ended December 31, 2006. Warrant liability at December 31, 2006 amounted to $1,465,500. On February 13, 2007, upon the registration statement being declared effective, the assumed liability of $10,821,900 was adjusted to additional paid in capital.

During the year ended December 31, 2008, the Company issued a $500,000 non interest bearing note, which was due on March 4, 2009 and is currently in default.

NOTE 11 – DERIVATIVE LIABILITY

The Company issued convertible debentures and related warrants with certain reset exercise price provisions (see Note 10). If the Company issues or sells shares of its common stock (other than certain “Excluded Securities” as defined in the June 2006 Senior Secured Convertible Note Agreement) after the June 2006 Financing for an amount less than the original price per share, the conversion price of the warrants is reduced to equal the new issuance price of those shares.

Upon the Company’s adoption of EITF No. 07-05 on January 1, 2009, the Company determined that the warrants did not qualify for a scope exception under SFAS No. 133 as they were determined to not be indexed to the Company’s stock as prescribed by EITF No. 07-05. On January 1, 2009, the warrants, under EITF No. 07-05, were reclassified from equity to derivative liability for the then relative fair market value of $3,222,222 and marked to market. The value of the warrants decreased by $3,200,446 from the warrants issuance date to the adoption date of EITF No. 07-05, January 1, 2009. As of January 1, 2009, the cumulative effect in adopting EITF No. 07-05 was a reduction to additional paid in capital of $3,222,222 to reclassify the warrants from equity to derivative liability and a decrease in accumulated deficit of $3,200,446 as a cumulative effect of a change in accounting principle to reflect the change in the value of the warrants between their issuance date and January 1, 2009. For the three month period ended March 31, 2009, the Company recorded a gain of $12,909 as to mark to market for the fair value of the warrants was primarily due to the decrease in the fair value related to these instruments during the quarter ended March 31, 2009. Under EITF 07-05, the warrants will be carried at fair value and adjusted at each reporting period.

The Company determined the fair value of these reset provisions at January 1, 2009 was $21,776 as the initial fair value at the adoption date of EITF No. 07-05. The fair value was determined using the Black Scholes Option Pricing Model based on the following assumptions: dividend yield: -0-%; volatility: 97.17%, risk free rate: 0.27% to 0.37%, expected term: 0.43 to 1.43 years.

F-19

SOLAR THIN FILMS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2009

NOTE 11 – DERIVATIVE LIABILITY (continued)

The Company determined the fair value of the reset provisions at March 31, 2009 was $8,867. The fair value was determined using the Black Scholes Option Pricing Model based on the following assumptions: dividend yield: -0-%; volatility: 103.97%, risk free rate: 0.21% to 0.57%, expected term: 0.18 to 1.18 years.

NOTE 12- CAPITAL STOCK

Preferred Stock

The Company has authorized 2,700,000 total shares of preferred stock.

The Board of Directors designated 1,200,000 shares as Series A 12.5% cumulative preferred stock (“Series A Preferred Stock”), with a par value of $0.01 per share. The preferred stock is entitled to preference upon liquidation of $0.63 per share for any unconverted shares. As of March 31, 2009 and December 31, 2008, there were no shares of Series A Preferred Stock issued and outstanding.

The Board of Directors has designated a total of 1,500,000 shares of Series B Preferred Stock:

The Board of Directors has designated 1,000,000 shares of its preferred stock as Series B-1 Preferred Stock (“B-1 Preferred”). Each share of Series B-1 Preferred Stock is entitled to preference upon liquidation of $2.19 per share for any unconverted shares. Each shares of the Series B-1 Preferred shall be entitled to one (1) vote on all matters submitted to the stockholders for a vote together with the holders of the Common Stock as a single class. Seventeen (17) Series B-1 Preferred shares may be converted to one (1) share of the Company’s common stock. As of March 31, 2009 and December 31, 2008 there were 228,652 shares of Series B-1 Preferred issued and outstanding.

The Board of Directors has designated 232,500 shares of its preferred stock as Series B-3 Preferred Stock (“B-3 Preferred”). Each share of the Series B-3 Preferred shall be entitled to thirty two (32) votes on all matters submitted to the stockholders for a vote together with the holders of the Common Stock as a single class. Each Series B-3 Preferred share may be converted to thirty two (32) shares of the Company’s common stock. As of March 31, 2009 and December 31, 2008, there were 47,502 and 47,518 shares of Series B-3 Preferred issued and outstanding, respectively.

In June 2006 the Board of Directors designated 100,000 shares of its preferred stock as Series B-4 Preferred Stock (“B-4 Preferred”). Upon the filing of an amendment which increased the number of authorized common shares such that there was an adequate amount of authorized common stock per issuance upon conversion of the Series B-4 Preferred, the Series B-4 Preferred shares automatically converted to shares of the Company's common stock at a rate of three hundred fifty (350) common shares for each share of Series B-4 Preferred. During the year ended December 31, 2007, 95,500 shares of Series B-4 Preferred were converted into 33,425,000 shares of the Company’s common stock. As of March 31, 2009 and December 31, 2008, there were no shares of Series B-4 Preferred issued and outstanding.

Common Stock

On February 9, 2007, the Company effected a one-for-one sixth (1 to 1.6) reverse stock split of its authorized and outstanding shares of common stock, $0.01 par value. All references in the consolidated financial statements and the notes to consolidated financial statements, number of shares, and share amounts have been retroactively restated to reflect the reverse split. The Company has restated from 26,031,355 to 16,269,597 shares of common stock issued and outstanding as of December 31, 2006 to reflect the reverse split.

On February 9, 2007, the Company is authorized to issue 150,000,000 shares of common stock with a par value of $0.01 per share. As of March 31, 2009 and December 31, 2008, there were 58,136,113 and 57,810,601 shares of common stock issued and outstanding, respectively.

F-20

SOLAR THIN FILMS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2009

NOTE 12- CAPITAL STOCK (continued)

In February 2007, the Company amended its Certificate of Incorporation increasing its authorized shares of common stock to issue 150,000,000 shares of common stock with a par value of $0.01 per share.

In January 2008, the Company issued 400,000 shares of its Common stock in exchange for convertible debentures of $400,000.

In March 2008, the Company issued 195,000 shares of its Common stock in exchange for convertible debentures of $195,000.

In April 2008, the Company issued 1,000 shares of its Common stock in exchange for convertible debentures of $1,000.

In June 2008, the Company issued 175,000 shares of its Common stock in exchange for convertible debentures of $175,000.

In September 2008, the Company issued 23,000 shares of its Common stock in exchange for convertible debentures of $23,000.

In October 2008, the Company issued 4,000 shares of its Common Stock in exchange for convertible debentures of $4,000.

In January 2009, the Company issued 325,000 shares of its Common Stock in exchange for services rendered. The shares of Common Stock were valued at $78,000.

In February 2009, the Company issued 512 shares of its Common Stock in conversion of 16 shares of Series B-3 Preferred Stock.

NOTE 13- RELATED PARTY NOTES PAYABLE AND TRANSACTIONS

A significant majority of sales during 2008 were Equipment Sales rather than Factory Sales. In some cases the equipment was supplied directly to an end user, as in the case of EPV Solar; in other cases the equipment was supplied to a general contractor who subsequently delivered a complete factory, as in the case of equipment supplied in collaboration with RESI and Terrasolar on behalf of CG Solar (previously Blue Star Terra Corporation). During late 2007, the main strategic partner for the Company on such sales had been Renewable Energy Solutions, Inc. (“RESI”). Prior to RESI assuming the role of general contractor on the CG Solar project the primary partner was Terra Solar Global, Inc. (“Terra Solar”).

Terra Solar, Inc. (“TSI”) owns approximately 49% of the outstanding securities of Terra Solar. Zoltan Kiss, a shareholder and former director of the Company, was also a shareholder of TSI. Zoltan Kiss, a shareholder and former director of the Company, is also the Chairman and majority owner of RESI. Mr. Kiss resigned as Chairman and a Director of the Company effective December 20, 2007.

An additional $369,108 was invoiced to RESI for a separate project during 2007. No revenue was generated from either party during 2008.

The Company currently has related party trade receivables of $1,197,548 from RESI as of March 31, 2009 and December 31, 2008 from the Blue Star Contract and $134,315 from another project. RESI assumed the trade payable from Terrasolar upon assumption of the Blue Star contract in April 2007 and made several payments during 2007. The Company has decided to reserve $831,863 out of the total balance of $1,331,863 related party trade receivable based on management’s evaluation of the related party’s current financial condition as of December 31, 2008. There was no change in reserve at March 31, 2009.

The Company has since decided to focus its sales effort on Factory Sales.

F-21

SOLAR THIN FILMS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2009

NOTE 13- RELATED PARTY NOTES PAYABLE AND TRANSACTIONS (continued)

The Company signed a cooperative Research and Development Contract, and a Marketing and Manufacturing Facility Turn On Function Contract with RESI on December 20, 2006 and January 30, 2007, respectively. Zoltan Kiss, the Company’s former Chairman of the Board, is Chairman and majority shareholder of RESI. Payments made to RESI under the Research and Development Contract were $-0- and $90,000 for the three month periods ended March 31, 2009 and 2008, respectively. No payments have been made to RESI under the Marketing and Manufacturing Facility Turn On Function Contract for the three month periods ended March 31, 2009 and 2008.

During 2008, the Company also entered into a Settlement Agreement with Zoltan Kiss, replacing both the Research and Development Contract and the Marketing Contract.

There were no related party sales and/or cost of sales for the three month periods ended March 31, 2009 and 2008.

The Company has a dividend payment obligation due to the former shareholders valued at $115,954 and $143,778 as of March 31, 2009 and December 31, 2008, respectively.

NOTE 14 – NON CONTROLLING INTEREST AND PUT LIABILITY

Formation of Subsidiary

On October 18, 2007, the Company organized a wholly owned subsidiary, Solar Thin Power, Inc. under the laws of the state of Nevada. On October 24, 2007, Solar Thin Power, Inc. issued 50,000,000 shares of its common stock in exchange for services rendered to the Company and 14,500,000 common shares for services to be performed. On December 19, 2007 and January 23, 2008, Solar Thin Power, Inc. completed the sale of 7,070,000 shares of its common stock at a net sales price of $0.4948 per share. In conjunction with the sale of the common stock of Solar Thin Power, Inc., the Company issued 3,685,000 warrants to purchase shares in the Company’s common stock at $3.30 per share for five years.

For the period from October 18, 2007 (date of incorporation) to March 31, 2009, Solar Thin Power, Inc. had total revenue of $0, losses of $1,000 and $26,984 for the three month periods ended March 31, 2009 and 2008, respectively and a total accumulated deficit of $299,131 at March 31, 2009. As of March 31, 2009, the Company owned a 65.12% interest in Solar Thin Power, Inc. Due to this majority interest, our consolidated financial statements includes the balance sheet, results of operations and cash flows of Solar Thin Power, Inc. net of intercompany charges. We therefore eliminated 34.88% of financial results that pertain to the non controlling interest shareholders of Solar Thin Power, Inc.; the eliminated amount was reported as a separate line on our consolidated statements of operations and balance sheets.

The following table summarizes the changes in Non Controlling Interest from December 31, 2007 to March 31, 2009:

Balance as of December 31, 2007	$	999,496
Period loss applicable to non controlling interest for 2008		(67,904	)
Dilution of ownership interest from 70.15% ownership to 65.12% through issuance of Solar Power’s common stock by the Company for services rendered		214,996
Balance as of December 31, 2008		1,146,588
Period loss applicable to non controlling interest for the three months ended March 31, 2009		(349	)
Dilution of ownership interest related to change in equity of non controlling interest		9,156
Balance as of March 31, 2009	$	1,155,395

F-22

SOLAR THIN FILMS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2009

NOTE 14 – NON CONTROLLING INTEREST AND PUT LIABILITY (continued)

Put Liability

Additionally, in conjunction with the sale of the common stock of Solar Thin Power, Inc. at December 19, 2007; the Company agreed to complete a Registration Statement with the Securities Exchange Commission and use its best efforts to have the Registration Statement declared effective within eighteen months (“ Effective Date ”) of closing (June 10, 2009). In the event that Solar Thin Power, Inc. is not a public reporting company by the Effective Date, the Company has agreed to re-acquire, at the option of the shareholders, half of the common stock issued or 3,535,000 shares at the aggregate purchase price ($0.50 per share for a total of $1,767,500) (“ Put Option ”). The Company follows the SFAS No. 5, “Accounting for Contingencies” in accounting for this put liability as of March 31, 2009 and December 31, 2008, which provides that loss contingencies should be recognized as liabilities if they are probable and reasonably estimable.

The Company believes that its obligations under the put option are not probable due to the fact that it is anticipated that Solar Thin Power will enter into an agreement with the Company to merge with and into the Company. Following the consummation of the merger, Solar Thin Power will be operated as a division of the Company and will seek to facilitate power projects and joint ventures designed to provide solar electricity using thin film a-Si solar modules. Under the proposed terms of the merger:

·	the stockholders of Solar Thin Power, Inc., other than the Company, will receive an aggregate of 32,085,000 shares of the Company common stock, or one share of the Company common stock for each share of Solar Thin Power, Inc. common stock owned by them; and

·	all of the 36,315,000 shares of Solar Thin Power, Inc. common stock owned by the Company will be cancelled as part of the merger.

It is anticipated that the merger of Solar Thin Power into Solar Thin Films, Inc. will occur on or before the second quarter ending June 30, 2009.

NOTE 15- ECONOMIC DEPENDENCY

During the three month period March 31, 2009, $1,658,740 or 100% of the total revenues were derived from one customer; for the three month period ended March 31, 2008; $287,994 or 100% were derived from one customer.

NOTE 16 – STOCK OPTIONS AND WARRANTS

Warrants

The following table summarizes the changes in warrants outstanding and related prices for the shares of the Company’s common stock at March 31, 2009:

Exercise Price		Number Outstanding		Warrants Outstanding Weighted Average Remaining Contractual Life (years)		Weighted Average Exercise price		Number Exercisable		Warrants Exercisable Weighted Average Exercise Price
$	1.00		333,334		1.22	$	1.00		333,334	$	1.00
	2.00		3,000,000		0.21		2.00		3,000,000		2.00
	2.20		3,000,000		1.21		2.20		—		-
	3.00		3,000,000		0.21		3.00		3,000,000		3.00
	3.30		6,685,000		2.56		3.30		3,685,000		3.30
Total			16,018,334		1.40	$	2.75		10,643,334	$	2.07

F-23

SOLAR THIN FILMS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2009

NOTE 16 – STOCK OPTIONS AND WARRANTS (continued)

Warrants (continued)

Transactions involving the Company’s warrant issuance are summarized as follows:

	Number of Shares			Weighted Average Price Per Share
Outstanding at December 31, 2007		16,343,334		$	2.68
Granted		300,000			3.30
Exercised		—			—
Canceled or expired		—			—
Outstanding at December 31, 2008		16,643,334			2.69
Granted		-			-
Exercised		—			—
Canceled or expired		(625,000	)		(1.20	)
Outstanding at March 31, 2009		16,018,334		$	2.75

In conjunction with the sale of the Company’s majority owned subsidiary, Solar Thin Power, Inc., the Company issued 300,000 warrants during the year ended December 31, 2008 to purchase the Company’s common stock at $3.30 per share exercisable until five years from the date of issuance. (see Note 14 above)

Stock options

The following table summarizes the changes in options outstanding and the related prices for the shares of the Company's common stock issued to employees and directors of the Company at March 31, 2009:

		Options Outstanding					Options Exercisable
Exercise Prices		Number Outstanding		Weighted Average Remaining Contractual Life (Years)	Weighted Average Exercise Price		Number Exercisable	Weighted Average Exercise Price
$	0.42		500,000	4.57	$	0.42	69,444	$	0.42
$	0.533		3,000,000	8.22	$	0.533	2,753,425	$	0.533
$	0.75		630,000	9.00	$	0.75	434,111	$	0.75
$	0.80		600,000	9.04	$	0.80	—	$	-
$	2.07		15,625	0.70	$	2.07	15,625	$	2.07
Total			4,745,625	8.01	$	0.59	3,272,605	$	0.56

F-24

SOLAR THIN FILMS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2009

NOTE 16 – STOCK OPTIONS AND WARRANTS (continued)

Stock options (continued)

Transactions involving stock options issued to employees are summarized as follows:

				Weighted Average
	Number of			Price
	Shares			Per Share
Outstanding at December 31, 2007:		3,015,625		$	0.55
Granted		1,770,000		$	0.66
Exercised		—			—
Canceled or expired		(40,000	)		(2.18	)
Outstanding at December 31, 2008:		4,745,625		$	0.59
Granted		-			-
Exercised		—			—
Canceled or expired		-			—
Outstanding at March 31, 2009:		4,745,625		$	0.59

During the year ended December 31, 2008, the Company granted an aggregate of 1,730,000 stock options (net of cancellations, see stock option table per above) to officers, employees and consultants with an exercise prices from $0.42 to $0.80 per share expiring five to ten years from issuance with cliff vesting or graded vesting over eighteen to thirty six months. Compensation cost is recognized over the requisite service period in a manner consistent with the option vesting provisions.

The weighted-average fair value of stock options granted to officers and employees during the year ended December 31, 2008 and the weighted-average significant assumptions used to determine those fair values, using a Black-Scholes option pricing model are as follows:

Significant assumptions (weighted-average):
Risk-free interest rate at grant date	2.67% to 3.75	%
Expected stock price volatility	92.20% to 94.93	%
Expected dividend payout	—
Expected option life-years (a)	5 to 10

(a) The expected option life is based on contractual expiration dates.

Compensation expense in the amount of $329,836 and $161,361 was charged to operating results in connection with the stock options grant for the three month periods ended March 31, 2009 and 2008.

NOTE 17 - COMMITMENTS AND CONTINGENCIES

Lease agreement

In November 2005, the Company entered into a three year fixed term lease agreement for our corporate offices and facilities in Budapest, Hungary at a rate ranging from $4,543 to $15,433 per month as the lease has provisions for additional space for the period calendar year of 2006 and beyond. The lease agreement provides for moderate increases in rent after the first year in accordance with the inflationary index published by the Central Statistical Office. In November 2007, the terms of the lease agreement were modified effectively increasing the monthly rent to $20,800 per month starting on January 1, 2008 for the next three years through December 31, 2010. The minimum future cash flow for the leases at March 31, 2009 is as follows:

F-25

SOLAR THIN FILMS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2009

NOTE 17 - COMMITMENTS AND CONTINGENCIES (continued)

	Amount:


Nine months ending December 31, 2009	$	187,200
Year ending December 31, 2010	$	249,600
Total	$	436,800

Rent expense amounted to $62,934 and $68,299 for the three month periods ended March 31, 2009 and 2008, respectively.

Litigation

New York Medical, Inc. and Redwood Investment Associates, L.P. vs. American United Global, Inc., et al. (Supreme Court, New York State, New York County) . In this suit, filed on December 12, 2003, plaintiffs seek a declaration that a series of transactions by which the Company allegedly acquired Lifetime Healthcare Services, Inc. ("Lifetime") and Lifetime acquired an interest in NY Medical from Redwood (collectively "Transactions") were properly rescinded or, alternatively, that because the Transactions were induced by fraudulent conduct of our company and others, that the Transactions should be judicially rescinded. In addition to the requests for equitable relief, plaintiffs also seek monitory damages in excess of $5 million and exemplary damages in the amount of $15 million.

Currently, the suit has not proceeded past the filing and service of the complaint. The Company has obtained an open-ended extension of time in which to answer and/or move with regard to the complaint. The Company is attempting to resolve the matter amicably. However, in the event litigation proceeds, it will be aggressively defended. Management believes the ultimate outcome of this matter will not have a material adverse effect on the Company’s consolidated financial position, results of operations or liquidity.

From time to time, the Company is a party to litigation or other legal proceedings that the Company considers to be a part of the ordinary course of its business. The Company is not involved currently in legal proceedings that could reasonably be expected to have a material adverse effect on its business, prospects, consolidated financial condition or results of operations. The Company may become involved in material legal proceedings in the future .

Contingent Obligation

The Company remains contingently liable for certain capital lease obligations assumed by EGLOBE, Inc. ("EGLOBE") as part of the Connectsoft Communications Corp. asset sale which was consummated in June 1999. The lessor filed for bankruptcy in 2000 and the leases were acquired by another leasing organization which subsequently also filed for bankruptcy in 2001. In addition, EGLOBE filed for bankruptcy in 2001. The Company has been unable to obtain any further information about the parties but believes that in the normal course of the proceedings that another company most likely acquired the assets and related leases and that a mutually acceptable financial arrangement was reached to accomplish such a transfer.

To date, the Company has not been contacted and has not been notified of any delinquency in payments due under these leases. The original leases were entered into during early to mid 1997 each of which was for a five-year term. Extensions of an additional 20 months were negotiated with the original lessor in 1998 and 1999 moving the ending date to approximately mid 2004. The balance due under the leases in June 1999 upon transfer and sale to EGLOBE was approximately $2,800,000 including accrued interest and the monthly payments were approximately $55,000. The balance that is currently due under the leases is unknown and there would most likely have been negotiated reductions of amounts due during the bankruptcy proceedings.

F-26

SOLAR THIN FILMS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2009

NOTE 17 - COMMITMENTS AND CONTINGENCIES (continued)

In 1996, the Company issued an unsecured 8% $1.5 million note to an unrelated party in connection with the Company's acquisition of a software company. The note was due and payable on April 30, 1999. The note was governed by the laws of the State of New York. The New York statute of limitations for seeking to collect on a note is six years from the maturity date. The creditor has never sought to collect the note since its maturity date and in or about 2001 orally advised a representative of the Company that it had "written off the debt." Although the Company has previously and currently listed the note as a liability on its balance sheet, it does not believe that it has any further liability under this note.

Product Warranty Obligation

The Company provides for estimated costs to fulfill customer warranty obligations upon recognition of the related revenue in accordance with the FASB Interpretation No. 45, “Guarantors Accounting and Disclosure Requirements for Guarantees.” The range for the warranty coverage for the Company’s products is up to 18 to 24 months. The Company estimates the anticipated future costs of repairs under such warranties based on historical experience and any known specific product information. These estimates are reevaluated periodically by management and based on current information, are adjusted accordingly. The Company’s determination of the warranty obligation is based on estimates and as such, actual product failure rates may differ significantly from previous expectations. Accrued provision for product warranty was approximately $87,930 and $59,930 as of March 31, 2009 and December 31, 2008, respectively.

Employment and Consulting Agreements

The Company has consulting agreements with its key officers. In addition to compensation and benefit provisions, the agreements include non-disclosure and confidentiality provisions for the protection of the Company's proprietary information.

In connection with the merger with Kraft, the Company entered into consulting agreements with Zoltan Kiss and Bob Rubin pursuant to which each would receive annual compensation of $160,000 per annum and major medical benefits in consideration for services performed on behalf of the Company. Each of these agreements had a term of three years. The agreement with Mr. Kiss was terminated as part of the agreement with Mr. Kiss as further described below. Mr. Rubin’s agreement was modified upon his appointment as the Company’s Chief Financial Officer in August 2007.

The Company has consulting agreements with outside contractors to provide marketing and financial advisory services. The Agreements are generally for a term of 12 months from the inception and renewable automatically from year to year unless either the Company or consultant terminates such engagement by written notice.

Agreement with Mr. Kiss and other Stockholders.

On August 12, 2008, the Company entered into a stock purchase agreement (the “ Purchase Agreement ”) with Zoltan Kiss (“ Z. Kiss ”), Gregory Joseph Kiss (“ G. Kiss ”), Maria Gabriella Kiss (“ M. Kiss ”), and Steven H. Gifis (“ Gifis ”). Under the terms of the Purchase Agreement, the Company has agreed to arrange for the sale, and each of Z. Kiss, G. Kiss and M. Kiss (the “ Selling Stockholders ”) have agreed to sell, an aggregate of 18.0 million shares of common stock of the Company owned by the Selling Stockholders. The purchase price for the 18.0 million shares is $0.4139 per share, or a total of $7,450,200 for all of the shares. At August 12, 2008, the closing price of the Company’s common stock, as traded on the OTC Bulletin Board, was $0.80 per share.

Z. Kiss, a former director and executive officer of the Company, is selling 10.0 million of the 18.0 million shares, representing his entire share holdings in the Company. In addition, Mr. Kiss has agreed to apply up to $831,863 of the proceeds from the sale of his 10.0 million shares to pay a portion of the $1,331,863 of indebtedness owed by his affiliate Renewable Energy Solutions Inc. (“ RESI ”), to the Company. G. Kiss and M. Kiss, the children of Z. Kiss, are each selling 4.0 million shares in the transaction, and, after the sale, such persons will retain 50,000 and 1,000,000 shares of the Company’s common stock, respectively. Mr. Gifis is acting as agent for each of the Selling Stockholders (the “ Sellers’ Agent ”).

The Company intends to finance the purchase price for the 18.0 million shares being sold by the Selling Stockholders by arranging for a sale of the shares, either through a registered public offering for the account of the Selling Stockholders, or a private purchase.

The closing of the transactions under the Purchase Agreement was to occur on or about November 30, 2008, subject to extension to January 31, 2009, by mutual agreement of the Company and Mr. Gifis; provided, that if such Sellers’ Agent shall receive reasonable assurances from the investment banking firm underwriting securities on behalf of the Company and the Selling Stockholders that the financing to pay the purchase price for the shares being sold, will, in their judgment, be consummated, the Sellers’ Agent shall extend the closing date to January 31, 2009.

On December 22, 2008, the Company and Kraft entered into an Amendment to the Master Settlement Agreement and Stock Purchase Agreement (the “Amendment”) with Amelio, RESI and the Selling Stockholders under which, among other things, the Outside Closing Date as defined in the Settlement Agreement was revised to May 31, 2009. In addition, the definition of “RESI Debt” owed to the Company as defined in the Settlement Agreement was revised to the net amount of indebtedness, net of fees payable under the existing agreements to the closing date, and not to exceed $831,863 owed by RESI to the Company or its affiliates as of the closing date; provided , that if the Transferred CG Solar Equity (as defined below) is not delivered to the Company by December 31, 2008, the RESI Debt shall be an amount not to exceed $1,331,863. Moreover, “RESI Debt Settlement Payment and Deliverables” as set forth in the Settlement Agreement was amended to state that the RESI Debt shall be paid to the Company as follows:

	·	on or before December 31, 2008, Z. Kiss shall cause RESI to transfer to the Company an aggregate of shares of CG Solar, formerly known as Weihai Blue Star Terra Photovoltaic Company (“CG Solar”), representing 5% of the issued and outstanding capital shares of CG Solar, and having an agreed upon value of $500,000 (the “Transferred CG Solar Equity”) - this had not been completed as of the date of filing but the parties are working together to complete this as soon as possible;

	·	the $831,863 balance of the RESI Debt (the “RESI Debt Balance”) shall be paid on or following the closing date as follows:

	·	to the extent not previously paid in full, out of the net proceeds received by him from the public or private sale of all or a portion of his 10,000,000 subject shares under the Purchase Agreement, Z. Kiss shall pay to the Company a total of up to $434,315 of the RESI Debt Balance, such amount to be appropriately pro-rated based upon $0.0434315 to be paid for each such 10,000,000 subject shares sold; and

	·	unless a portion of the RESI Debt Balance has been paid by Z. Kiss in accordance with the above, the entire RESI Debt Balance(or any unpaid portion thereof) will be paid to the Company by Amelio on the earlier to occur of (i) receipt of net proceeds of a financing by Amelio (the “Amelio Financing”) of not less than $10,000,000, or (ii) receipt of payment by RESI or Amelio from CG Solar, the customer from whom the a-Si equipment giving rise to the RESI Debt was shipped. To the extent that the RESI Debt Balance is paid in whole or in part by Z. Kiss, then Amelio shall issue to Z. Kiss a promissory note due and payable to the earlier to occur of the consummation of the Amelio Financing or one year from the closing date.

Amelio agreed to guaranty payment of the RESI Debt Balance to the Company.

The Settlement Agreement was further amended to state that Robert M. Rubin and The Rubin Irrevocable Stock Trust (the “Trust”) agree that all indebtedness owed to Mr. Rubin and the Trust by Nanergy Solar, Inc. (“Nanergy”), an affiliate of Z. Kiss, will be deemed fully paid and satisfied, and Mr. Rubin and the Trust agree to relinquish all capital stock or stock certificates in Nanergy. To the extent that Mr. Rubin and/or the Trust received notes or stock certificates of Nanergy, the same will be returned to Nanergy on or before December 31, 2008.

Under the Amendment, the Purchase Agreement was revised to state that in the event that any time prior to the Outside Closing Date, any of the Selling Stockholders receive a bona fide written offer (the “Offer”) from any financially credible individual or institutional purchaser(s) to purchase as a principal in a private transaction, all or any portion of the subject shares, then the Selling Stockholders shall give written notice to the Company (the “Notice”). The Company shall have the right, within 30 days from receipt of the Notice, to purchase that number of subject shares proposed to be purchases in the Offer at the same price per share and payment terms as set forth in the Offer.

F-27

SOLAR THIN FILMS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2009

NOTE 17 - COMMITMENTS AND CONTINGENCIES (continued)

There can be no assurance that the Company will be able to obtain the requisite financing to consummate the transactions contemplated by the above agreements.

Proposed Acquisition of Algatec

On October 20, 2008, Robert M. Rubin, Chairman, Chief Executive Officer and Chief Financial Officer of Solar Thin Films, formed Algatec Equity Partners, L.P., a Delaware limited partnership (the “Partnership”), for the purpose of acquiring up to 49% of the share capital of Algatec. Effective as October 30, 2008, Algatec and members of Algatec senior management consisting of Messrs. Rainer Ruschke, Ullrich Jank, Dr. Stefan Malik and Andre Freud (collectively, the “Management Stockholders”), and Anderkonto R. Richter, Esq., as trustee for Mr. Ruschke and another Algatec stockholder (the “Trustee”), entered into a share purchase agreement (the “Algatec Share Purchase Agreement”). Under the terms of the Algatec Share Purchase Agreement, on November 3, 2008 (the “First Closing”) the Partnership invested an aggregate of $3,513,000, of which approximately €2,476,000 was represented by a contribution to the equity of Algatec to enable it to acquire all of the assets and equity of Trend Capital, the predecessor to Algatec. The Partnership also purchased for €1.00 per share a total of 13,750 Algatec shares, representing 27.5% of the outstanding share capital of Algatec.

The general partner of the Partnership is Algatec Management LLP, a Delaware limited liability company owned by The Rubin Family Irrevocable Stock Trust and other persons. Mr. Rubin and Barry Pomerantz, a business associate of Mr. Rubin, are the managers of the general partner. Under the terms of the limited partnership agreement, the general partner agreed to invest a total of $165,000 in the Partnership in consideration for 5.0% of the assets, profits and losses of the Partnership. The limited partners, who invested an aggregate of $3,200,000 at the First Closing and additional persons the Partnership will seek to admit as limited partners by the Second Closing, will own 95.0% of the Partnership assets, profits and losses. As part of the First Closing, The Rubin Family Irrevocable Stock Trust invested an additional $1,500,000, as a limited partner, on the same terms as other limited partners of the Partnership.

In addition to its equity investment, the Partnership has agreed under the terms of a loan agreement entered into at the same time as the Algatec Share Purchase Agreement, to lend to Algatec on or about November 30, 2008 (the “Second Closing”), an additional $2,600,000 or approximately €2,000,000. The proceeds of the loan was to be used to assist Algatec in paying the balance of the purchase price for all of the assets and equity of the Trend Capital limited partnership. Upon funding of the loan, the Partnership would purchase for €9,250 an additional 9,250 shares, representing 21.5% of the outstanding share capital of Algatec, thereby increasing its ownership to an aggregate of 49% of the outstanding share capital of Algatec. The loan, together with interest at the rate of 6% per annum, is repayable on the earlier of December 31, 2012 or the completion of one or more financings providing Algatec with up to $50.0 million of proceeds for expansion (the “Algatec Financing”). Upon the Partnership funding the entire €2,000,000 loan at the Second Closing, the Management Group would own the remaining 51% of the share capital of Algatec. If the Partnership funds less than the full €2,000,000 loan, the additional 21.5% equity to be issued to the Partnership at the Second Closing was to have been appropriately pro-rated. On December 29, 2008, the Partnership consummated the Second Closing with Algatec and funded a loan of €2,000,000 ($2.6 million) as a result of which the Partnership’s total equity ownership in Algatec was fixed at 49% of the total number of outstanding Algatec shares.

F-28

SOLAR THIN FILMS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2009

NOTE 17 - COMMITMENTS AND CONTINGENCIES (continued)

Effective as of October 30, 2008, the Trustee, the Management Group and the Partnership (collectively, the “Algatec Stockholders”) and Algatec entered into a stock exchange agreement. Under the terms of the stock exchange agreement the Algatec stockholders agreed, subject to certain conditions, to exchange 100% of the share capital of Algatec for shares of our newly authorized Series B-5 convertible preferred stock. The Series B-5 preferred stock is convertible at any time into that number of shares of our common stock as shall represent 60% of our “Fully-Diluted Common Stock” (as defined). The term “Fully-Diluted Common Stock” means the aggregate number of shares of Company common stock issued and outstanding as at the date of closing of the share exchange, after giving pro-forma effect to the sale or issuance of any shares of common stock (a) that were issued at any time following the October 30, 2008 date of execution of the stock exchange agreement and prior to consummation of the Algatec acquisition, (b) that are issuable upon conversion of any Company convertible securities or upon the exercise of any warrants that were issued at any time between October 31, 2008 and consummation of the Algatec acquisition, and (c) that are issuable upon full conversion of the Series B-5 preferred stock. However, the Algatec stockholders shall be subject to pro-rata dilution resulting from the issuance of (i) approximately 19.6 million shares of Company common stock issuable upon conversion of convertible notes or the exercise of options and warrants that were outstanding as at October 30, 2008, (ii) any shares of Company common stock issued in connection with providing financing for Algatec (as described below), or (iii) any shares of Company common stock issued or issuable after completion of the Algatec acquisition. Consummation of the Algatec acquisition is subject to certain conditions, including Algatec obtaining up to $50.0 million of the Algatec Financing to enable it to construct the addition to its existing manufacturing facility and purchase the necessary equipment to expand its business and meet contractual obligations to Q-Cells and other customers, as described above.

On April 10, 2009, the parties agreed to extend the anticipated closing date of the transactions contemplated by the Stock Exchange Agreement to July 15, 2009.

There can be no assurance that the necessary Algatec Financing will be obtained or that the proposed Algatec acquisition will be consummated.

Under the terms of the Stock Exchange Agreement, each of Messrs. Ruschke, Malik, Jank and Freud will enter into five year employment agreements with Algatec pursuant to which Mr. Ruschke will receive an annual salary of €180,000 (approximately USD $246,600) and each of Messrs. Malik, Jank and Freud will receive annual salaries of €100,000 (approximately USD $137,000), subject to 5% annual cost-of-living increases. In addition, such executives shall be entitled to receive annual bonuses equal to 10% of the annual net income before interest and taxes of Algatec (“EBIT”) for each of the five years, subject to an annual “cap” on such bonuses that will not exceed 100% of their annual salaries if annual EBIT is €10.0 million or less in any of the five fiscal years, and 200% of their annual salaries if such annual EBIT is more than €10.0 million in any of the five fiscal years. Each of Messrs. Ruschke, Malik, Jank and Freud have also agreed, for a period equal to the greater of five years or the term of their individual employment with Algatec, not to compete with the “business” of the Company (defined as (i) the manufacture and sale of photovoltaic module equipment of all types, (ii) the installation of turn-key module manufacturing facilities of all types; (iii) the manufacture and sale of photovoltaic cells or modules of all types; and (iv) the installation and operation of power projects, including the supplying of solar power electricity to private industry, consumers or local or foreign governments and municipalities).

NOTE 18 – FAIR VALUE MEASUREMENT

The Company adopted the provisions of SFAS No. 157, “Fair Value Measurements” on January 1, 2008. SFAS No. 157 defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and considers assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions, and risk of nonperformance. SFAS No. 157 establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. SFAS No. 157 establishes three levels of inputs that may be used to measure fair value:

F-29

SOLAR THIN FILMS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2009

NOTE 18 – FAIR VALUE MEASUREMENT (continued)

Level 1 - Quoted prices in active markets for identical assets or liabilities.

Level 2 - Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which all significant inputs are observable or can be derived principally from or corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 - Unobservable inputs to the valuation methodology that are significant to the measurement of fair value of assets or liabilities.

To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement is disclosed and is determined based on the lowest level input that is significant to the fair value measurement.

Upon adoption of SFAS No. 157, there was no cumulative effect adjustment to the beginning retained earnings and no impact on the consolidated financial statements.

The carrying value of the Company’s cash and cash equivalents, accounts receivable, accounts payable, short-term borrowings (including convertible notes payable), and other current assets and liabilities approximate fair value because of their short-term maturity. All other significant financial assets, financial liabilities and equity instruments of the Company are either recognized or disclosed in the consolidated financial statements together with other information relevant for making a reasonable assessment of future cash flows, interest rate risk and credit risk. Where practicable the fair values of financial assets and financial liabilities have been determined and disclosed; otherwise only available information pertinent to fair value has been disclosed.

The following table sets forth the Company’s short and long-term investments as of March 31, 2009 which are measured at fair value on a recurring basis by level within the fair value hierarchy. As required by SFAS No. 157, these are classified based on the lowest level of input that is significant to the fair value measurement:

	Quoted Prices in Active Markets for Identical Instruments Level 1		Significant Other Observable Inputs Level 2		Significant Unobservable Inputs Level 3			Assets at fair Value
Assets:
Cash	$	1,909,936	$	-	$	-		$	1,909,936

Long-term investments	$	-	$	-	$	1,500,000		$	1,500,000

Liabilities:
Derivative liability	$		$		$	(8,867	)		(8,867	)

At March 31, 2009, the carrying amounts of the notes payable approximate fair value because the entire note had been classified to current maturity.

F-30

SOLAR THIN FILMS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2009

NOTE 19 – SEGMENT INFORMATION

The Company's operations fall into one single product segment, photovoltaic thin film modules: producing and/or installing and commissioning factory equipment that produces photovoltaic thin film modules. The Company manages its operations, and accordingly determines its operating segments, on a geographic basis. Consequently, the Company has one operating geographic location, Hungary. The performance of geographic operating segments is monitored based on net income or loss (after income taxes, interest, and foreign exchange gains/losses). The accounting policies of the segments are the same as those described in the summary of accounting policies in Note 1. There are no intersegment sales revenues. The following tables summarize financial information by geographic segment for the three month periods ended March 31, 2009 and 2008:

Geographic information for the three month period ended March 31, 2009:

	Hungary			(Corporate)			Total
Total Revenues	$	1,658,740		$	-		$	1,658,740

Depreciation and amortization		33,533			-			33,533

Interest Income		165			29,610			29,775
Interest expense		(1,882	)		(296,107	)		(297,989	)
Net interest expense		1,717			(266,497	)		(268,214	)

Debt acquisition cost		-			(14,455	)		(14,455	)
Research and development		-			( -	)		( -	)
Net income (loss)		250,378			(794,511	)		(544,133	)

Fixed assets, net		334,378			-			334,378
Fixed asset additions	$	34,672		$	-		$	34,672

Geographic information for three month period ended March 31, 2008:

	Hungary			(Corporate)			Total
Total Revenues	$	287,994		$	-		$	287,994

Depreciation and amortization		49,922			-			49,922

Interest Income		1,635			44,311			45,946
Interest expense		(1,131	)		(458,026	)		(459,157	)
Net interest expense		504			(413,715	)		(413,211	)

Debt acquisition cost		-			(25,563	)		(25,563	)
Research and development		-			(90,000	)		(90,000	)
Net loss		(350,733	)		(1,102,905	)		(1,453,638	)

Fixed assets, net		413,241			-			413,241
Fixed asset additions		39,815			-			39,815
Other assets	$	3,893		$	-		$	3,893

Geographic information of revenues by customers’ locations/countries for three months ended March 31, 2009 and 2008:

Customer Countries:	March 31, 2009		March 31, 2008
Spain	$	1,658,740	$	-
U.S.		-		287,994
Total	$	1,658,740	$	287,994

F-31

SOLAR THIN FILMS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2009

NOTE 20 – SUBSEQUENT EVENTS

Share exchange agreement

On April 3, 2009, the Company and Kraft Electronikai Zrt, a Hungarian corporation and wholly owned subsidiary of the Company (“ Kraft ”), entered into an amended stock exchange agreement (the “ Exchange Agreement ”) with BudaSolar Technologies Co. Ltd. (“ BudaSolar ”), New Palace Investments Ltd., a Cyprus corporation (“ NPI ”), Istvan Krafcsik (“ Krafcsik ”) and Attila Horvath (“ Horvath ”, and collectively with NPI and Krafcsik, the “ BudaSolar Stockholders ”).

On April 3, 2009, the Company, Kraft, BudaSolar and the BudaSolar Stockholders entered into an amended and restated stock exchange agreement (the “ Amended Exchange Agreement ”) dated as of April 2, 2009 under which Kraft agreed to acquire from the BudaSolar Stockholders 100% of the outstanding registered share equity capital of BudaSolar in exchange for the Company transferring to the BudaSolar Stockholders 49% of the outstanding capital stock or share capital (the “ Kraft Shares ”) of Kraft (the “ Share Exchange ”). As a result, the Company will own 51% of Kraft and its 51% owned Kraft subsidiary will, in turn, own 100% of the share capital of BudaSolar. In addition, the Amended Exchange Agreement deleted the put option of the BudaSolar Stockholders, and the call option of the Company and Kraft, each resulting in the Company and Kraft acquiring from the BudaSolar Stockholders 100% of Kraft Shares owned by the BudaSolar Stockholders or their affiliates after the closing of the Share Exchange. The Company accrued an estimated $500,000 costs incurred in connection with the Amended Exchange Agreement.

Kraft agreed to assume the obligation of the repayment of certain loans made by BudaSolar Stockholders to BudaSolar prior to the date of the Amended Exchange Agreement, to be evidenced by a five-year subordinated promissory note of Kraft bearing interest at an annual rate equal to LIBOR for twelve month United States dollars interbank deposits as fixed by BBA plus a margin of 3% (the “ Loan ”). Such Loan will be repaid by Kraft as follows: (i) on October 1, 2009, Kraft shall repay $250,000 provided that there’s a minimum amount of $1,600,000 available on the accounts of Kraft. In case such amount is not available on the accounts on October 1, 2009, repayment of this tranche is due whenever the amount is made available on the accounts; (ii) on January 1, 2010, $250,000 is repayable from the available excess cash; and (iii) the outstanding amount of the Loan is repayable on January 1, 2011. The parties further agreed that the condition of the repayment of the Loan (or any tranche of the Loan) shall be the availability of excess cash.

Under the Amended Exchange Agreement, the Company agreed to increase the capital of Kraft (the " Share Capital Increase ") by investing USD $750,000 equivalent in Hungarian Forints in Kraft calculated at the then current exchange rate.

The Amended Exchange Agreement contains customary representations, warranties and covenants of the Company, Kraft, BudaSolar and the BudaSolar Stockholders for similar transactions. All covenants survive until fulfilled in accordance with their respective terms. The Amended Exchange Agreement contains a mutual indemnification provision for breach of or inaccuracy in any representation or warranty and any breach or failure to fully perform any covenant by any party to the agreement. In addition, the BudaSolar Stockholders agreed that, for a period of five years from the Closing Date (as defined below), they will neither compete with the business, nor solicit the employees of, Kraft, the Company, BudaSolar, or any of their respective direct or indirect subsidiaries.

The consummation of the Share Exchange and other transactions set forth in the Amended Exchange Agreement is subject to certain closing conditions, including (i) the parties’ satisfaction with their respective due diligence investigations; (ii) the execution and delivery of five year employment agreements for each of Istvan Krafcsik and Attila Horvath as Chief Executive Officer and Chief Operating Officer of Kraft and its BudaSolar subsidiary, respectively; (iii) the execution and delivery of a shareholders agreement between the Company, Kraft and the BudaSolar Stockholders; (iv) the execution and delivery of a corporate services agreement and inter-company services agreement between Kraft and BudaSolar; and (v) BudaSolar’s delivery to the Company and Kraft of unaudited financial statements of BudaSolar from the period of inception through December 31, 2008.

The closing of the Share Exchange and the transactions contemplated pursuant to the Amended Exchange Agreement was revised to occur as soon as practicable, but in any event by April 30, 2009 (the “ Closing Date ”). Subsequently the two parties have agreed verbally (and will soon reduce to writing) to extend the date to June 30, 2009. However, there can be no assurances that the Share Exchange will be consummated.

F-32

SOLAR THIN FILMS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2009

NOTE 20 – SUBSEQUENT EVENTS (continued)

In the event that the Exchange Agreement terminates or the closing does not occur by the Closing Date, then BudaSolar shall thereafter continue to render certain technical services to Kraft under a cooperation agreement entered into on September 29, 2008 (the “ Cooperation Agreement ”). Pursuant to the terms of the Cooperation Agreement, the Company or Kraft has caused to be paid to BudaSolar the aggregate sum of $750,000. Such payment shall be deemed to be a loan by Kraft to BudaSolar and shall be repaid prior to closing of the Share Exchange.

On April 10, 2009, the Algatec Stockholders and Algatec agreed to extend the anticipated closing date of the transactions contemplated by the Stock Exchange Agreement to July 15, 2009.

On April 3, 2009, Solar Thin Power, Inc., a majority owned subsidiary of the Company (“ ST Power ”), Kraft and BudaSolar Limited entered into an Inter-Company Services Agreement dated as of April 2, 2009 (the “ Services Agreement ”) in respect of power projects undertaken by ST Power and the use of Kraft and BudaSolar Limited as a preferred supplier of amorphous silicon photovoltaic module manufacturing equipment (the “ PV Equipment ”). ST Power will have the right to integrate turnkey PV Equipment into its power project offering and will receive most favored nations pricing from Kraft and BudaSolar Limited on purchases of PV Equipment for integration in such power projects. Alternatively, ST Power may refer the PV Equipment customer to Kraft in exchange for a 5% commission. In addition, ST Power may elect, in its sole discretion, to structure one or more power projects with Kraft as the general contractor, or with ST Power as the general contractor and Kraft as the sub-contractor, for the manufacturing facility portion of the integrated offering.

Employment agreements

On April 3, 2009, Kraft entered into five year employment agreements with each of Istvan Krafcsik and Attila Horvath as Chief Executive Officer and Chief Operating Officer of Kraft and its BudaSolar subsidiary, respectively. Kraft and its shareholders also entered into a shareholders’ agreement which, among other things, (i) restricts a shareholder’s ability to sell, assign or otherwise transfer any of his or its shares of Kraft; (ii) provides for a right of first refusal and tag-along rights with respect to any permitted sale or other disposition of a shareholder’s shares of Kraft; and (iii) sets forth certain agreed upon procedures related to corporate governance, major decisions, competing business ventures and affiliated sales.

On April 3, 2009, the Company, Kraft and the BudaSolar Stockholders entered into a side letter bonus agreement to the Amended Exchange Agreement dated as of April 2, 2009 (the “ Bonus Agreement ”) under which the parties agreed to formulate a bonus agreement for key executives and employees within 30 days after the closing of the Share Exchange under specific guidelines set forth therein.

On April 7, 2009, the Company entered into an amendment to the employment agreement of Peter Lewis under which Mr. Lewis agreed to resign as the President, Chief Executive Officer and as a member of the board of directors of the Company, effective as of March 31, 2009. Effective as of April 1, 2009, Mr. Lewis was appointed as Group Vice President and General Manager of the Thin Film Group of the Company through June 1, 2010. The Thin Film Group will focus on the production of “turnkey ” thin film manufacturing systems and will include the activities of the Company’s wholly owned Kraft subsidiary . In this capacity, Mr. Lewis will be primarily responsible for generating orders and sales of PV Equipment and he will provide general oversight of the manufacturing operations of the Kraft and BudaSolar subsidiaries of the Company, and together with Messrs. Krafcsik and Horvath, will be responsible for generating profits for the Thin Film Equipment Group.

Effective April 1, 2009, Mr. Robert M. Rubin, the Company’s Chief Financial Officer and Chairman, was appointed as the Chief Executive Officer of the Company to fill the vacancy created by Mr. Lewis’ resignation.

F-33

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

WE URGE YOU TO READ THE FOLLOWING DISCUSSION IN CONJUNCTION WITH OUR FINANCIAL STATEMENTS AND THE NOTES THERETO BEGINNING ON PAGE F-1. THIS DISCUSSION MAY CONTAIN FORWARD-LOOKING STATEMENTS THAT INVOLVE SUBSTANTIAL RISKS AND UNCERTAINTIES. OUR ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS COULD DIFFER MATERIALLY FROM THOSE EXPRESSED OR IMPLIED BY THE FORWARD-LOOKING STATEMENTS AS A RESULT OF A NUMBER OF FACTORS, INCLUDING BUT NOT LIMITED TO THE RISKS AND UNCERTAINTIES DISCUSSED UNDER THE HEADING “RISK FACTORS” SET FORTH IN OUR ANNUAL REPORT ON FORM 10-K/A FOR THE FISCAL YEAR ENDED DECEMBER 31, 2008 FILED WITH THE SEC ON APRIL 23, 2009. IN ADDITION, SEE “ CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS ” SET FORTH IN THIS REPORT.

Overview

S olar Thin Films, Inc. (the “Company”) is a business focused on the solar energy industry. We engage in the design, manufacture, and marketing of “turnkey” systems and equipment for the manufature of low cost solar modules on a world-wide basis. The Company operates through its wholly owned subsidiary, Kraft Elektronikai Zrt (“Kraft”). The Company expects the primary use of such photovoltaic thin film modules will be the construction of solar power plants by corporations and governments .

On April 3, 2009, the Company and Kraft entered into a restated share exchange agreement with Buda Solar Technologies Co. Ltd. (“Buda Solar”) and its shareholders. Under the terms of such agreement, subject to the satisfaction of certain closing conditions, Kraft will acquire 100% of the share capital of Buda Solar and will issue to the stockholders of Buda Solar 49% of the share capital of Kraft. As a result, the Company will own 51% of Kraft and our 51% owned Kraft subsidiary will, in turn, own 100% of the share capital of Buda Solar. Buda Solar is engaged in the providing technical and installation services for the production and installation of thin film a-Si solar module manufacturing equipment. Consummation of the Buda Solar transaction is scheduled to occur in June 2009.

Effective as of October 30, 2008, the Company entered into a stock exchange agreement with Algatec Solar AG and its shareholders. Algatec produces, sells and distributes metallurgical and other types of crystalline silicon solar panels or modules. For a description of the terms of this agreement, see “ Description of our Business –Algatec-Potential manufacture of crystalline silicon solar modules” in our Form 10-K/A.

The Company, in the future, may further vertically integrate itself within this industry through activities in, but not limited to, investing in and/or operating the module manufacturing plants, selling thin film photovoltaic modules, and installing and/or managing solar power plants. The Company also intends, directly and through joint ventures or strategic alliances with other companies or governmental agencies, to sell equipment for and participate financially in solar power facilities using thin film a-Si solar modules or metallurgical and other crystalline solar modules as the power source to provide electricity to municipalities, businesses and consumers.

Consummation of both the Buda Solar and Algatec acquisitions as well as all other expansion plans of the Company are subject to its ability to solve its significant working capital shortages; make payment or other arrangements for the resolution of approximately $2.9 million of indebtedness (approximately $1.75 million of which became in default in March 2009) and other accrued accounts payable, all of which are overdue. In the event that the Company is unable to resolve these matters within the next 90 days, it may be unable to continue in business and/or may be required to seek protection from its creditors under the Federal Bankruptcy Act.

Kraft and Buda Solar are each Hungarian corporations and their headquarters are located in Budapest, Hungary. Algatec is a German corporation and its headquarters are located in Proesen, Germany. Solar Thin Films is a Delaware corporation and its headquarters are located at 25 Highland Boulevard, Dix Hills, New York 11746. Solar Thin Films website is located at www.solarthinfilms.com .

Company History

Solar Thin Films History

The Company was initially organized as a New York corporation on June 22, 1988 under the name Alrom Corp. ("Alrom"), and completed an initial public offering of securities in August 1990. Alrom effected a statutory merger in December 1991, pursuant to which Alrom was reincorporated in the State of Delaware under the name American United Global, Inc. Prior to the acquisition of Kraft, the Company intended to focus its business strategy on acquisitions of operating businesses in various sectors. On June 14, 2006, in connection with its business strategy, the Company closed on the acquisition of 95.5% of the outstanding securities of Kraft. In addition, the Company acquired the remaining 4.5% minority interest in August 2007 and, as a result, now conducts its operations via Kraft, the wholly-owned subsidiary.

Kraft History

Kraft was founded in 1993, shortly after the breakup of the communist economy in Hungary. Its founding members were associated with the Hungarian Central Research Institute for Physics. In 1996, Kraft was contracted to develop thin-film photovoltaic deposition equipment for production of amorphous silicon based thin-film modules, as well as complete turnkey facilities. Photovoltaics (PV) is the physical phenomenon, which allows certain semiconductor materials to directly convert sunlight into electricity.

In the subsequent years, Kraft has manufactured equipment for such facilities in New Jersey, Germany, Hungary, China, Taiwan, Greece and Portugal. In producing equipment for these facilities, Kraft developed substantial equipment manufacturing expertise. More recently as a supplier to RESI for the CG Solar project in Weihai, China Kraft developed additional process expertise required to allow it to become a leading manufacturer of “turnkey” plants, including the delivery of both equipment and services, that produce photovoltaics modules utilizing thin-film technology. Kraft is now using this expertise to deliver its first "turnkey" plant in Spain commencing in December 2008 and continuing through 2009.

Stock Exchange Agreement with BudaSolar Technologies Co. Ltd.

On April 3, 2009, the Company and Kraft entered into a restated share exchange agreement with BudaSolar Technologies Co. Ltd. (“BudaSolar”) and its shareholders. Under the terms of such agreement, subject to the satisfaction of certain closing conditions, Kraft will acquire 100% of the share capital of BudaSolar and will issue to the stockholders of BudaSolar 49% of the share capital of Kraft. As a result, the Company will own 51% of Kraft and our 51% owned Kraft subsidiary will, in turn, own 100% of the share capital of BudaSolar. BudaSolar is engaged in the providing technical and installation services for the production and installation of thin film a-Si solar module manufacturing equipment. Consummation of the BudaSolar transaction is scheduled to occur in June 2009.

Under the terms of a separate agreement with BudaSolar, Kraft has contracted to purchase from BudaSolar certain technical services on a consulting basis for a fee of $250,000 per month. A total of $750,000 has been paid as of March 31, 2009. This agreement was superseded by the Stock Exchange Agreement with no additional payments due.

Agreements with Algatec Solar AG

In addition to its equity investment, the Partnership has agreed under the terms of a loan agreement entered into at the same time as the Algatec Share Purchase Agreement, to lend to Algatec on or about November 30, 2008 (the “Second Closing”), an additional $2,600,000 or approximately €2,000,000. The proceeds of the loan was to be used to assist Algatec in paying the balance of the purchase price for all of the assets and equity of the Trend Capital limited partnership. Upon funding of the loan, the Partnership would purchase for €9,250 an additional 9,250 shares, representing 21.5% of the outstanding share capital of Algatec, thereby increasing its ownership to an aggregate of 49% of the outstanding share capital of Algatec. The loan, together with interest at the rate of 6% per annum, is repayable on the earlier of December 31, 2012 or the completion of a financing providing Algatec with up to $50.0 million of proceeds for expansion (the “Algatec Financing”). Upon the Partnership funding the entire €2,000,000 loan at the Second Closing, the Management Group would own the remaining 51% of the share capital of Algatec. If the Partnership funds less than the full €2,000,000 loan, the additional 21.5% equity to be issued to the Partnership at the Second Closing was to have been appropriately pro-rated. On December 29, 2008, the Partnership consummated the Second Closing with Algatec and funded a loan of €2,000,000 ($2.6 million) as a result of which the Partnership’s total equity ownership in Algatec was fixed at 49% of the total number of outstanding Algatec shares.

On April 10, 2009, the parties agreed to extend the anticipated closing date of the transactions contemplated by the Stock Exchange Agreement to July 15, 2009.

There can be no assurance that the necessary Algatec Financing will be obtained or that the proposed Algatec acquisition will be consummated.

If the Algatec acquisition is consummated, the board of directors of our Company will be expanded to seven persons, of which three members of the board of directors shall be represented by the Management Stockholders. Messrs. Ruschke, Malik and Jank have agreed to serve on our board of directors.

Solar Thin Power

In 2007, the Company formed Solar Thin Power, Inc. under the laws of the State of Delaware. Solar Thin Power was to engage in power projects. It currently owns a 15% interest in CG Solar Company Limited, the Company’s joint venture in China (and has agreed to purchase another 5%), and is in preliminary discussions with other prospective joint venture partners with respect to marketing and financing of various power projects.

In 2007 and 2008, Solar Thin Power received an aggregate of $3,498,396 of financing from ten unaffiliated investors who purchased common stock of Solar Thin Power at $0.50 per share. Approximately $1,500,000 of the proceeds of such financing used by Solar Thin Power to acquire a 20% minority interest in a thin film a-Si solar module manufacturing facility in China and the balance of such proceeds were loaned to Solar Thin Films for working capital. Under the terms of the transaction, if Solar Thin Power was not a publicly traded corporation by June 2009, the investors in Solar Power have the right to require Solar Thin Films to repurchase half of their portion of their minority equity in Solar Power for $1,767,500.

As of March 31, 2009, an aggregate of 67,570,000 shares of Solar Thin Power were issued and outstanding, of which Solar Thin Film owned 44,000,000 or 65.12% the outstanding shares of Solar Thin Power common stock. In April 2009, Solar Thin Films agreed to transfer 2,000,000 of its Solar Thin Power shares to Strategic Growth International Inc. in lieu of cash compensation payable under a one year investor relations agreement expiring March 31, 2010. In addition, Solar Thin Power agreed to issue three year warrants to purchase an additional 2,000,000 shares of Solar Thin Power to Strategic Growth International at an exercise price of $0.20 per share.

As a result of the foregoing transactions, as of May 14, 2009, Solar Thin Films owns an aggregate of 33,900,000 shares of Solar Thin Power common stock, and stockholders of Solar Thin Power, other than Solar Thin Films, currently own an aggregate of 25,570,000 shares of the 59,470,000 outstanding shares of Solar Thin Power common stock, and Strategic Growth International holds warrants to purchase an additional 2,000,000 shares of Solar Thin Power. Peter C. Lewis, Group Vice President and General Manager of the Thin Film Group and former Chief Executive Officer and President of Solar Thin Films owns 3,000,000 shares of Solar Thin Power and The Rubin Family Stock Trust owns 3,000,000 shares of Solar Thin Power.

Critical Accounting Policies

The Company's discussion and analysis of its consolidated financial condition and results of operations are based upon its consolidated financial statements that have been prepared in accordance with generally accepted accounting principles in the United States of America ("US GAAP"). This preparation requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities. US GAAP provides the framework from which to make these estimates, assumption and disclosures. The Company chooses accounting policies within US GAAP that management believes are appropriate to accurately and fairly report the Company's consolidated operating results and financial position in a consistent manner. Management regularly assesses these policies in light of current and forecasted economic conditions. While there are a number of significant accounting policies affecting our consolidated financial statements, we believe the following critical accounting policies involve the most complex, difficult and subjective estimates and judgments:

·	Revenue Recognition;

·	Cost of Sales;

·	General, Selling and Administrative Expenses;

·	Allowance for doubtful accounts;

·	Research and development;

·	Derivative liability;

·	Product warranty reserve;

·	Stock Based Compensation;

·	Use of Estimates; and

·	Acquisition - Kraft.

Revenue Recognition

Determination of criteria (3) and (4) are based on management’s judgments regarding the fixed nature of the selling prices of the products delivered and the collectibility of those amounts. Provisions for discounts and rebates to customers, estimated returns and allowances, and other adjustments are provided for in the same period the related sales are recorded. The Company defers any revenue for which the product has not been delivered or is subject to refund until such time that the Company and the customer jointly determine that the product has been delivered or no refund will be required. Deferred revenues as of March 31, 2009 and 2008 amounted to $434,079 and $33,452, respectively. SAB 104 incorporates Emerging Issues Task Force 00-21 (“EITF 00-21"), Multiple-Deliverable Revenue Arrangements. EITF 00-21 addresses accounting for arrangements that may involve the delivery or performance of multiple products, services and/or rights to use assets.

·	Title and risk of ownership have passed to the customer;

·	The Company has obtained a written fixed purchase commitment;

·	The customer has requested the transaction be on a bill and hold basis;

·	The customer has provided a delivery schedule;

·	All performance obligations related to the sale have been completed;

·	The product has been processed to the customer’s specifications, accepted by the customer and made ready for shipment; and

·	The product is segregated and is not available to fill other orders.

The remittance terms for these “bill and hold” transactions are consistent with all other sale by the Company. There were no bill and hold transactions at March 31, 2009 and December 31, 2008.

For Complete Factory sales, which include sale of equipment, installation and commissioning, the Company recognizes revenues from the product portion (pieces of equipment) on shipment and services portion (installation and commissioning process) upon completion of the installation and commissioning process. The commissioning includes a range of consulting services necessary to successfully complete a performance test, such as training of management, engineering and production personnel, debugging and resolving problems, initial oversight or support for vendor relations and purchasing, documentation and transfer of process knowledge and potential co-management of the production line during performance testing or completion of the training process. The Company has started its shipment of the factory sales, product portion (pieces of equipment) in December 2008, and the service portion (installation and commissioning) is expected to be completed during the fiscal year 2009.

The Company has accounted for its Equipment Sales and Factory Sales arrangements as separate units of accounting as a) the shipped equipment (both Equipment Sales and Factory Sales) has value to the customer on a standalone basis, b) there is an objective and reliable evidence of the fair value of the service portion of the revenue (installation and commissioning) as such approximate the fair value that a third party would charge the Company’s customer for the installation and commissioning fees if the customer so desire not to use the Company’s services, or the customer could complete the process using the information in the owner’s manual, although it would probably take significantly longer than it would take the Company’s technicians and or a third party to perform the installation and commissioning process, and c) there is no right of return for the shipped equipment and all equipments are inspected and approved by the customer before shipment.

Cost of Sales

Cost of sales includes cost of raw materials, labor, production depreciation and amortization, subcontractor work, inbound freight charges, purchasing and receiving costs, inspection costs, internal transfer costs and absorbed indirect manufacturing cost, as well as installation related travel costs and warranty costs.

General, Selling and Administrative Expenses

General, selling and administrative expenses primarily include indirect labor costs, rental fees, accounting, legal and consulting fees.

Allowance For Doubtful Accounts

We are required to estimate the collectibility of our trade receivables. A considerable amount of judgment is required in assessing the realization of these receivables including the current creditworthiness of each customer and related aging of the past due balances. In order to assess the collectibility of these receivables, we perform ongoing credit evaluations of our customers' financial condition. Through these evaluations we may become aware of a situation where a customer may not be able to meet its financial obligations due to deterioration of its financial viability, credit ratings or bankruptcy. The reserve requirements are based on the best facts available to us and are reevaluated and adjusted as additional information is received. Our reserves are also based on amounts determined by using percentages applied to certain aged receivable categories. These percentages are determined by a variety of factors including, but are not limited to, current economic trends, historical payment and bad debt write-off experience. We are not able to predict changes in the financial condition of our customers and if circumstances related to our customers deteriorate, our estimates of the recoverability of our receivables could be materially affected and we may be required to record additional allowances. Alternatively, if we provided more allowances than are ultimately required, we may reverse a portion of such provisions in future periods based on our actual collection experience.

Research and development

Solar Thin Film’s accounts for research and development costs in accordance with the Financial Accounting Standards Board’s Statement of Financial Accounting Standards No. 2 (“SFAS 2”), “Accounting for Research and Development Costs.” Under SFAS 2, all research and development cost must be charged to expense as incurred. Accordingly, internal research and development cost are expensed as incurred. Third-party research and developments costs are expensed when the contracted work has been performed or as milestone results have been achieved. Company-sponsored research and development costs related to both present and future products are expensed in the period incurred.

Derivative Liability

In June 2008, the FASB ratified EITF No. 07-5, “Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entity’s Own Stock” (“EITF 07-5”). EITF 07-5 provides that an entity should use a two-step approach to evaluate whether an equity-linked financial instrument (or embedded feature) is indexed to its own stock, including evaluating the instrument’s contingent exercise and settlement provisions. It also clarifies the impact of foreign currency denominated strike prices and market-based employee stock option valuation instruments on the evaluation. EITF 07-5 is effective for fiscal years beginning after December 15, 2008. We adopted EITF 07-5 effective January 1, 2009 and the adoption resulted in our warrants with anti-dilutive provisions being classified as derivatives in accordance with FASB Statement No. 133.

Product Warranty Reserves

Stock Based Compensation

Effective for the year beginning January 1, 2006, the Company has adopted SFAS 123 (R) “Share-Based Payment” which supersedes APB Opinion No. 25, “Accounting for Stock Issued to Employees” and eliminates the intrinsic value method that was provided in SFAS 123 for accounting of stock-based compensation to employees. The Company made no employee stock-based compensation grants before December 31, 2005 and therefore has no unrecognized stock compensation related liabilities or expense unvested or vested prior to 2006. Stock-based compensation expense recognized under SFAS 123(R) for the three months ended March 31, 2009 and 2008 was $329,836 and $161,362, respectively (Note 16).

Use of Estimates

The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, expenses, and the disclosure of contingent assets and liabilities, if any, at the date of the financial statements. The Company analyzes its estimates, including those related to future contingencies and litigation. The Company bases its estimates on assumptions that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.

Acquisition - Kraft

Commencing in March 2006 through June 2006, the Company entered into Securities Purchase Agreements with shareholders of Kraft that together owned 95.5% of the equity interest in Kraft to acquire their interests. On June 14, 2006, the Company closed on the acquisition of 95.5% of the outstanding securities of Kraft and, as a result, Kraft became a majority-owned subsidiary of the Company. In consideration for the shares of Kraft, the Company issued the sellers an aggregate of 95,500 shares of Series B-4 Preferred Stock of the Company (the “Preferred Shares”). Each Preferred Share is automatically converted into 350 shares of common stock or an aggregate of 33,425,000 shares of common stock upon us increasing our authorized shares of common stock and, prior to such conversion, the Preferred Shares had the same voting rights of the shares of common stock and voted together with the shares of common stock on all matters.

As a result of the Securities Purchase Agreement, there was a change in control of STF, the public entity. In accordance with SFAS No. 141, Kraft was the acquiring entity. While the transaction is accounted for using the purchase method of accounting, in substance the Agreement is a recapitalization of Kraft's capital structure. For accounting purposes, the Company accounted for the transaction as a reverse acquisition and Kraft is the surviving entity. The total purchase price and carrying value of net assets acquired was $6,681,891. Additionally, on August 3, 2007, the Company acquired the remaining 4.5% minority interest of Kraft in exchange for 1,575,000 shares of common stock value at $1,181,250, and as a result, Kraft is now a wholly-owned subsidiary of the Company. The Company did not recognize goodwill or any intangible assets in connection with the transaction. Prior to the Agreement, the Company was an inactive corporation with no significant assets and liabilities.

Commitments and Contingencies

The Company’s subsidiaries have entered into non-cancelable operational agreements for office premises.

In connection with the acquisition of Kraft, the Company entered into consulting agreements with Robert Rubin and Zoltan Kiss pursuant to which each consultant would receive an annual salary of $160,000 per annum, reimbursement for up to $5,000 in expenses associated with company activities and major medical benefits in consideration for services performed on behalf of the company. Each of these agreements was for a term of three years and has been supplanted by subsequent events. Mr. Rubin’s salary was increased to $225,000 per annum when he assumed the duties of Chief Financial Officer. In December 2007, Mr. Kiss resigned as director of the Company and subsequently agreed to waive his rights to such payments pursuant to a pending settlement agreement with the Company as described elsewhere in this report.

On June 20, 2007, Peter Lewis and the Company entered into an Employment Agreement pursuant to which Mr. Lewis has agreed to serve as the Chief Executive Officer of the Company. The Employment Agreement contains the following terms:

·	base salary of $225,000 per year;

·	the issuance of 187,617 shares of common stock per year;

·	a bonus paid pursuant to the Executive Officer Incentive Plan as determined by the Board of Directors;

·	a ten year option to purchase 3,000,000 shares of common stock at an exercise price of $0.533 per share on a cashless basis vesting on a pro-rata basis over a period of two years;

·	participation in all employee benefit plans and programs; and

·	reimbursement of reasonable expenses.

On April 7, 2009, the Company entered into an amendment to the employment agreement of Peter Lewis under which Mr. Lewis agreed to resign as the President, Chief Executive Officer and as a member of the board of directors of the Company, effective as of March 31, 2009. There was no disagreement or dispute between Mr. Lewis and the Company which led to his resignation. Effective as of April 1, 2009, Mr. Lewis was appointed as Group Vice President and General Manager of the Thin Film Group of the Company through June 1, 2010. The Thin Film Group shall consist of the manufacture and sale of PV Equipment. In this capacity, Mr. Lewis will be primarily responsible for generating orders and sales of PV Equipment and he will provide general oversight of the manufacturing operations of the Kraft and BudaSolar subsidiaries of the Company, and together with Messrs. Krafcsik and Horvath, will be responsible for generating profits for the Thin Film Equipment Group.

For the period commencing April 1, 2009 and ending September 30, 2009, Mr. Lewis’ base salary shall be fixed at the rate of $225,000, payable in monthly installments of $18,750 each. For the period commencing October 1, 2009, Mr. Lewis’ salary shall be reduced to the rate of $180,000 per annum, payable in monthly installments of $15,000 each. On the earlier of June 30, 2009 or completion of an equity financing for the Company in excess of $3.0 million, the Company will pay to Mr. Lewis in one payment all accrued and unpaid salary that is owed under the original employment agreement for all periods through and including the date of payment of such accrued and unpaid salary. In addition, Mr. Lewis shall be entitled to receive a sales commission on all PV Equipment that is sold or on which firm orders are received by the Company during the term of employment in an amount equal to: (i) a percentage to be determined by mutual agreement on or before April 30, 2009, of the “net sales price” (defined as gross selling price, less returns, discounts and allowances) of such PV Equipment, as and when paid in cash by the customer to the Company less (ii) the amount of all other finders fees, commissions and other payments made or payable by the Company to any other person, firm or corporation who participates in or assists Mr. Lewis in the sale of such PV Equipment; or such other bonus arrangement as may be made with Kraft management.

All 3,000,000 shares of common stock of ST Power owned by Mr. Lewis shall immediately and irrevocably vest. Moreover, with respect to the stock options entitling Mr. Lewis to purchase up to 3,600,000 shares of Company common stock (the “Option Shares”), the parties agreed as follows (i) options for 3,000,000 Options Shares shall be deemed to have fully vested as of March 31, 2009 and the remaining 600,000 Option Shares that have not vested will be forfeited as of March 31, 2009; (ii) the exercise price of all stock options were reduced from $0.533 per share to $0.18 per share, representing 100% of the closing price of Company common stock as at March 27, 2009, the effective date of the amendment to the employment agreement; (iii) all stock options for vested Option Shares may be exercised on a “cashless exercise” basis; and (iv) Mr. Lewis agreed to waive any rights to receive the 187,617 shares of Company common stock previously granted to him annually under the original employment agreement.

In November 2005, the Company entered into a three year fixed term lease agreement for our corporate offices and facilities in Budapest, Hungary at a rate ranging from $4,543 to $15,433 per month as the lease has provisions for additional space for the period calendar year of 2006 and beyond. The lease agreement provides for moderate increases in rent after the first year in accordance with the inflationary index published by the Central Statistical Office. In November 2007, the Company signed the modification of lease agreement resulted a charge of $20,800 per months from January 1, 2008 for three years period of time through December 31, 2010. The minimum future cash flow for the leases at March 31, 2009 is as follows:

	Amount:


Nine months ending December 31, 2009	$	187,200
Year ending December 31, 2010	$	249,600
Total	$	436,800

In 1996, the Company issued an unsecured 8%, $1.5 million note to an unrelated party that was due and payable April 30, 1999. The note was governed by the laws of the State of New York. The New York statute of limitations for seeking to collect on a note is six years from the maturity date. The creditor has never sought to collect the note since its maturity date and in or about 2001 orally advised a representative of the Company that it had "written off the debt." Although the Company has previously and currently listed the note as a liability on its balance sheet, it does not believe that it has any further liability under this note.

Results of Operations

Three months ended March 31, 2009 as compared to the three months ended March 31, 2008

Revenues

The following table summarizes our revenues for the three months ended March 31, 2009 and 2008:

Three months ended March 31 ,		2009				2008
Total Revenues		$	1,658,740			$	287,994

For the three months ended March 31, 2009, revenues increased by 476% or $1,370,746 as compared to the similar period in 2008. The 476% increased revenue for the three months ended March 31, 2009 as compared to three months ended March 31, 2008 is primarily due to continued deliveries on a large Factory Sale contract to Grupo Unisolar, S.A. of Spain. Since the Company did not deliver any Equipment Sales in first quarter ended March 31, 2009, revenues transitioned during the quarter from 100% Equipment Sales in 2008 to 100% Factory Sales in 2009.

During 2007 and 2008, the Company began to shift its marketing focus from Equipment Sales to Factory Sales (delivered on a “turnkey” basis, which by definition include a full set of equipment plus installation and training services or commissioning process). The Company signed its first deal in June of 2008 (and received the balance of its deposit in September 2009), for which it completed its first minor equipment portion of the Factory Sales delivery in December of 2008 valued at $147,262. The Company began shipping the balance of the equipment in March of 2009 and expects to deliver substantially all of the equipment for this 7.9 million euro order during fiscal year 2009. During 2009, the Company also expects that a majority of its revenue will come from Factory sales rather than Equipment sales, and does not expect to derive any substantial revenue from related parties. Commencing in 2008, the Company has decided to further break out its revenue into Equipment Sales and Factory Sales and to continue to do so in the future in both annual and quarterly filings.

While the Company is pursuing additional business opportunities - both Factory Sales and Equipment Sales, given the limited amount of historical business volume we cannot provide assurance regarding future sales. As the Company shifts primarily from Equipment Sales secured by purchase orders to Factory Sales secured by contracts, management expects that it may become easier to forecast future volume based upon long-term contracts and then established trends. In either case, the Company produces individual pieces of equipment (standard not generally custom) based on individual customer orders. Comparison of different financial reporting periods will show significant fluctuations, primarily due to the value of outstanding and completed contracts or orders during the period. Therefore, historical figures (whether on a comparative period over period percentage analysis in a linear fashion or otherwise) may not have much meaning with respect to future changes in revenue and should not be used to make predictions about future revenue performance. For example, revenue could increase 400% period over period if the Company booked and invoiced one or more complete factory orders or it could decrease 100% or more if the Company failed to successfully deliver on a Factory Sale order or only managed to book and invoice orders for production of selected equipment, i.e. an Equipment Sale. Therefore, management is not in the position to predict future revenue flow or make conclusions based on actual historical figures. For example, recent increases and decreases in revenue are not dramatic as compared to our existing 7.9 million euro contract with Grupo Unisolar, which is expected to be completed during 2009 and which commenced shipping in December 2008. However, we can not provide absolute assurance that signed contracts, Grupo Unisolar or other, will be completed as expected or predicted. One complete factory may exceed $12 million in value but with unexpected financial or technical problems, production may slow down the completion of the contract. In conclusion, revenue prediction by management is difficult as of the date of this report.

Cost of sales

The following table summarizes our cost of sales for the three months ended March 31, 2009 and 2008:

Three months ended March 31 ,		2009				2008
Total cost of sales		$	828,676			$	270,584

F or the three months ended March 31, 2009, our cost of sales was $828,676, or 50.0% of revenue as compared to $270,584, or 94.0% of our revenue for the three months ended March 31, 2008. The increase in cost of sales of $558,092 from the first quarter ended March 31, 2008 to the same period in 2009 was primarily a result of an increase in sales of 476%. The margin improvement was a function of i) improved margins due to the transition from Equipment Sales to Factory Sales and ii) swings in the US dollar as compared to the Hungarian Forint. Specifically, the Cost of Sales in local currency increased by the equivalent of $812,583 and together with reduction in cost of $254,491 due to appreciation in the US Dollar versus the Hungarian Forint netted an increase in Cost of Sales in US currency of $558,092. Absent appreciation of the US dollar, the Cost of Sales would have been $1,083,167 and margins would have been 34.7% as opposed to 50.04% in US dollars in first quarter ended March 31, 2009 and 6.05% in US dollars in the same period in 2008 .

Our cost of revenue predominantly consists of the cost of labor, raw materials, depreciation and absorbed indirect manufacturing cost.

Selling, General and Administration Expenses

The following table summarizes our selling, general and administration expense for the three months ended March 31, 2009 and 2008:

Three months ended March 31 ,		2009				2008
Total selling, general and administration expense		$	1,169,787			$	941,640

For the three months ended March 31, 2009, selling, general and administrative expenses were $1,169,787 as compared to $941,640 for the three months ended March 31, 2008. The increase in selling, general and administrative expenses of $228,147 is attributable to additional staff, consultants, legal and audit related, an increase in stock based compensation incurred in 2009 of $329,836 as compared with $161,362 in 2008.

Research and development

The following table summarizes our research and development expenses for the three months ended March 31, 2009 and 2008:

Three months ended March 31 ,		2009				2008
Research and development expenses		$	-			$	90,000

Our research and development for the three months ended March 31, 2009 were $-0- compared to $90,000 for the three months ended March 31, 2008. In late 2005, the Company suspended its internal research and development activity and in December 2006 signed a contract for certain research and development activities with Renewable Energy Solutions, Inc. (RESI). This contract - at a rate of $30,000 per month - remained in force through the first four months of 2008. Subsequently the Company suspended the research and development contract with RESI in anticipation of its planned acquisition of Buda Solar, a company with its own internal research and development activity.

Depreciation and amortization

The following table summarizes our depreciation and amortization for the three months ended March 31, 2009 and 2008:

Three months ended March 31 ,		2009				2008
Depreciation and amortization		$	24,050			$	35,731

Depreciation and amortization has decreased by $11,681 in the three months ended March 31, 2009 compared to the same period in 2008. The decrease is mainly due to the aging of equipment purchased in previous years, and the company’s ability to increase production incrementally with minimal capital investment.

Interest expense, net

The following table summarizes our interest expense, net for the three months ended March 31, 2009 and 2008:

Three months ended March 31 ,		2009				2008
Interest expense, net		$	268,214			$	413,211

Interest expense, net has decreased by $144,997 in the three months ended March 31, 2009 compared to the same period in 2008. The decrease is mainly due to the issuance of shares of common stock in exchange for convertible notes payable in 2008 resulting in the write down of the related debt discount. The decrease is primarily due to (i) an accelerated recognition of the associated debt discount relating to our convertible debt due to conversions resulting an additional $98,236 in interest expense.

Liquidity and Capital Resources

During the year ended December 31, 2008, Solar Thin Power, Inc., a majority owned subsidiary of the Company, acquired a 15% interest in CG Solar, formerly WeiHai Blue Star Terra Photovoltaic Co., Ltd, a Sino-Foreign Joint Venture Company organized under the laws of the People’s Republic of China for $1,500,000. The investment of $1,500,000 is carried at cost under the cost method of accounting for investment.

As of March 31, 2009, our cash and cash equivalents were $1,909,936, an increase of $1,290,679 from December 31, 2008. As described below, the increase in cash and cash equivalents was principally from (i) $1,481,087 operating activities, net with (ii) $34,672 investment in equipment and loss on foreign currency translation of $155,736.

As of March 31, 2009, we had working capital deficit of $7,422,244. We generated cash flows from operations of $1,481,087 for the three months ended March 31, 2009. This cash flow is primary attributable to our increases in our accounts payable and accrued liabilities of $851,582; an increase advances from customers of $340,783; increase in deferred revenue of $412,251, decrease in accounts receivable of $161,280, decrease in deposits and other current assets of $173,389 along with an increase in inventory of $549,671. Offset to the increases was a net loss of $544,133, a gain on change in fair value of derivative liability of $12,909, net with depreciation and amortization, amortization of debt discount, deferred compensation and deferred financing costs of $319,028 as well as $329,836 fair value of vested stock options, common stock and warrants issued and loss attributable to non-controlling interests of $349.

Cash flow used by investing activities for the three months ended March 31, 2009 was $34,672, due to the purchase of property and equipment.

Exploitation of potential revenue sources will be financed primarily through the sale of securities and convertible debt, issuance of notes payable and other debt or a combination thereof, depending upon the transaction size, market conditions and other factors.

While we have raised capital to meet our working capital and financing needs in the past, additional financing is required within the next 3 months in order to meet our current and projected cash flow deficits from operations and development. There can be no assurance that financing will be available in amounts or on terms acceptable to us, if at all.

By adjusting our operations and development to the level of capitalization, we believe we have sufficient capital resources to meet projected cash flow deficits. However, if during that period or thereafter, we are not successful in generating sufficient liquidity from operations or in raising sufficient capital resources, on terms acceptable to us, this could have a material adverse effect on our business, results of operations liquidity and financial condition.

As at March 31, 2009, the Company’s consolidated current liabilities exceeded its consolidated current assets by $7,422,244. The Company is currently in default in the payment of certain notes payable aggregating $1.75 million which became due in March 2009, and outstanding accounts payable of approximately $4.8 million are also past due. Unless the Company is able to obtain additional capital or other financing within the next 60 to 90 days, or sooner, its creditors may sue to collect on their notes and accounts, which action may accelerate the due date of the Company’s other indebtedness aggregating approximately $1.2 million that is not currently in default. In such event, the Company may be required to seek protection from its creditors under the Federal Bankruptcy Act. Although the Company is actively pursuing such financing, there is no assurance that it will be obtained on commercially reasonable terms, if at all. Even if such financing is obtainable, it may be expected that the terms thereof will significantly dilute the equity interests of existing stockholders of the Company.

Trends, Risks and Uncertainties

We have sought to identify what we believe to be the most significant risks to our business, but we cannot predict whether, or to what extent, any of such risks may be realized nor can we guarantee that we have identified all possible risks that might arise. Investors should carefully consider all of such risk factors before making an investment decision with respect to our common stock.

Inflation and Foreign Currency

We maintain our books in local currency: US Dollars for the parent holding Company and Solar Thin Film Power, Inc. in the United States of America and Hungarian Forint for Kraft in Hungary.

We operate primarily outside of the United States through its wholly owned subsidiary. As a result, fluctuations in currency exchange rates may significantly affect our sales, profitability and financial position when the foreign currencies, primarily the Hungarian Forint, of its international operations are translated into U.S. dollars for financial reporting. In additional, we are also subject to currency fluctuation risk with respect to certain foreign currency denominated receivables and payables. Although we cannot predict the extent to which currency fluctuations may or will affect our business and financial position, there is a risk that such fluctuations will have an adverse impact on the sales, profits and financial position. Because differing portions of our revenues and costs are denominated in foreign currency, movements could impact our margins by, for example, decreasing our foreign revenues when the dollar strengthens and not correspondingly decreasing our expenses. The Company does not currently hedge its currency exposure. In the future, we may engage in hedging transactions to mitigate foreign exchange risk.

The translation of the Company’s subsidiaries forint denominated balance sheets into U.S. dollars, as of March 31, 2009, has not been affected by the U.S. dollar against the Hungarian forint due to recent strengthening of the U.S. dollar. The currency has changed from 163.9 as of March 31, 2008 to 233.0 as of March 31, 2009, an approximate 42.2% depreciation in value. The average Hungarian forint/U.S. dollar exchange rates used for the translation of the subsidiaries forint denominated statements of operations into U.S. dollars, for the three months ended March 31, 2009 and 2008 were 226.43 and 173.23, respectively.

N ew Accounting Pronouncements Effective January 1, 2009

SFAS No. 161

SFAS No. 160

EITF No. 07-1

EITF No. 07-5

Recently Issued Accounting Standards

In January 2009, the FASB issued Financial Statement of Position (“FSP”) Issue No. EITF No. 99-20-1, “Amendments to the Impairment Guidance of EITF Issue No. 99-20” (“FSP EITF No. 99-20-1”). FSP EITF No. 99-20-1 amends the impairment guidance in EITF Issue No. 99-20, “Recognition of Interest Income and Impairment on Purchased Beneficial Interests and Beneficial Interests that Continue to be Held by a Transferor in Securitized Financial Assets” to achieve more consistent determination of whether an other-than-temporary impairment has occurred. The Company adopted FSP EITF No. 99-20-1 and it did not have a material impact on the consolidated financial statements.

In April 2009, the Financial Accounting Standards Board (“FASB”) issued the following new accounting standards:

FASB Staff Positions FAS No. 115-2, FAS No. 124-2, and EITF No. 99-20-2, Recognition and Presentation of Other-Than-Temporary Impairments , (“FSP FAS No. 115-2, FAS No. 124-2, and EITF No. 99-20-2”) provides additional guidance to provide greater clarity about the credit and noncredit component of an other-than-temporary impairment event and to more effectively communicate when an other-than-temporary impairment event has occurred. This FSP applies to debt securities.

These standards are effective for periods ending after June 15, 2009. We are evaluating the impact that these standards will have on our consolidated financial statements.

Off-Balance Sheet Arrangements

We do not have any off balance sheet arrangements that are reasonably likely to have a current or future effect on our financial condition, revenues, results of operations, liquidity or capital expenditures.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

ITEM 4T. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that material information required to be disclosed in our periodic reports filed under the Securities Exchange Act of 1934, as amended, or 1934 Act, is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and to ensure that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer (principal financial officer) as appropriate, to allow timely decisions regarding required disclosure. During the quarter ended March 31, 2009 we carried out an evaluation, under the supervision and with the participation of our management, including the principal executive officer and the principal financial officer (principal financial officer), of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rule 13(a)-15(e) under the 1934 Act. Based on this evaluation, because of the Company’s limited resources and limited number of employees, management concluded that our disclosure controls and procedures were ineffective as of March 31, 2009.

Limitations on Effectiveness of Controls and Procedures

Our management, including our Chief Executive Officer and Chief Financial Officer (principal financial officer), does not expect that our disclosure controls and procedures or our internal controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include, but are not limited to, the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

Changes in Internal Controls

During the fiscal quarter ended March 31, 2009, there have been no changes in our internal control over financial reporting that have materially affected or are reasonably likely to materially affect our internal controls over financial reporting.

PART II

ITEM 1. LEGAL PROCEEDINGS

New York Medical, Inc. and Redwood Investment Associates, L.P. vs. American United Global, Inc., et al. (Supreme Court, New York State, New York County). In this suit, filed on December 12, 2003, plaintiffs seek a declaration that a series of transactions by which we allegedly acquired Lifetime Healthcare Services, Inc. ("Lifetime") and Lifetime acquired an interest in NY Medical from Redwood (collectively "Transactions") were properly rescinded or, alternatively, that because the Transactions were induced by fraudulent conduct of our company and others, that the Transactions should be judicially rescinded. In addition to the requests for equitable relief, plaintiffs also seek monitory damages in excess of $5 million and exemplary damages in the amount of $15 million.

Currently, the suit has not proceeded past the filing and service of the complaint. We have obtained an open-ended extension of time in which to answer and/or move with regard to the complaint. We are attempting to resolve the matter amicably. However, in the event litigation proceeds, it will be aggressively defended. Management believes that the plaintiff’s suit is without merit, and further believes the ultimate outcome of this matter will not have a material adverse effect on the Company’s consolidated financial position, results of operations or liquidity.

From time to time, we are a party to litigation or other legal proceedings that we consider to be a part of the ordinary course of our business. We are not involved currently in legal proceedings that could reasonably be expected to have a material adverse effect on our business, prospects, financial condition or results of operations. We may become involved in material legal proceedings in the future .

ITEM 1A. RISK FACTORS

There have been no material changes to the risks to our business described in our Annual Report on Form-10-K/A for the year ended December 31, 2008 filed with the SEC on April 23, 2009.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

On January 15, 2009, we issued 325,000 shares of common stock to David Salomon pursuant to an Employment Agreement which we entered into with Mr. Salomon dated as of January 15, 2009. Such shares were issued to Mr. Salomon as compensation for services to be performed by him on our behalf in his capacity as our Director of Real Estate Development.

On February 2, 2009, we issued 512 shares of common stock upon conversion by a holder of 16 shares of our Series B-3 preferred stock at a conversion ratio of 32 shares of common stock for each 1 share of Series B-3 preferred stock owned by the holder.

All of the above offerings and sales were deemed to be exempt under rule 506 of Regulation D and Section 4(2) of the Securities Act of 1933, as amended. No advertising or general solicitation was employed in offering the securities. The offerings and sales were made to a limited number of persons, all of whom were accredited investors, business associates of Solar Thin Films, Inc. or executive officers of Solar Thin Films, Inc., and transfer was restricted by Solar Thin Films, Inc. in accordance with the requirements of the Securities Act of 1933. In addition to representations by the above-referenced persons, we have made independent determinations that all of the above-referenced persons were accredited or sophisticated investors, and that they were capable of analyzing the merits and risks of their investment, and that they understood the speculative nature of their investment. Furthermore, all of the above-referenced persons were provided with access to our Securities and Exchange Commission filings.

ITEM 3. DEFAULTS ON SENIOR SECURITIES

The Company is currently in default in the payment of notes aggregating $1.75 million which became due in March 2009, and outstanding accounts payable of approximately $4.8 million are also past due, unless the Company is able to obtain additional capital or other financing within the next 60 to 90 days, or sooner, its creditors may sue to collect on their notes and accounts, which action may accelerate the due date of the Company’s other indebtedness aggregating approximately $1.2 million that is not currently in default. In such event, the Company may be required to seek protection from its creditors under the Federal Bankruptcy Act. Although the Company is actively pursuing such financing, there is no assurance that it will be obtained on commercially reasonable terms, if at all. Even if such financing is obtainable, it may be expected that the terms thereof will significantly dilute the equity interests of existing stockholders of the Company.

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

None.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

The exhibits listed below are required by Item 601 of Regulation S-K. Each management contract or compensatory plan or arrangement required to be filed as an exhibit to this Form 10-Q has been identified.

Exhibit No.

Exhibit Name

31.1	Certification of Chief Executive Officer, pursuant to Rule 13a-14(a) of the Exchange Act, as enacted by Section 302 of the Sarbanes-Oxley Act of 2002.

31.2	Certification of Chief Financial Officer, pursuant to Rule 13a-14(a) of the Exchange Act, as enacted by Section 302 of the Sarbanes-Oxley Act of 2002.

32.1	Certification of Chief Executive Officer pursuant to 18 United States Code Section 1350, as enacted by Section 906 of the Sarbanes-Oxley Act of 2002.

32.2	Certification of Chief Financial Officer pursuant to 18 United States Code Section 1350, as enacted by Section 906 of the Sarbanes-Oxley Act of 2002.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: May 15, 2009	SOLAR THIN FILMS , INC.

	By:	/s/ Robert M. Rubin
		Robert M. Rubin Chief Executive Officer
		(Principal Executive Officer) and Chief Financial Officer (Principal Accounting and Financial Officer)

Silverton Energy (PK) (USOTC:SLTN)
Historical Stock Chart
From May 2024 to Jun 2024

Click Here for more Silverton Energy (PK) Charts.

Silverton Energy (PK) (USOTC:SLTN)
Historical Stock Chart
From Jun 2023 to Jun 2024

SOLAR THIN FILMS, INC.

CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT

TWELVE MONTHS ENDED DECEMBER 31, 2008 AND THREE MONTHS ENDED MARCH 31, 2009

(UNAUDITED)