Summary of SOLAR THIN FILMS, INC.

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Overview

The Company operates in Hungary through its wholly owned subsidiary, Kraft, a Hungarian corporation.

The Company through its subsidiary is presently engaged in the design, development and construction on behalf of its customers of both photovoltaic manufacturing equipment and through strategic partners "turnkey" manufacturing plants that produce photovoltaic thin film modules (though the Company retains the right to deliver turnkey plants on its own account). The Company expects the primary use of such photovoltaic thin film modules will be the construction of solar power plants by corporations and governments.

Solar Thin Films, 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 through its subsidiary formed in 2007, Solar Thin Power, installing and/or managing solar power plants.

Critical Accounting Estimates and Policies

The Company's discussion and analysis of its 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 operating results and financial position in a consistent manner. Management regularly assesses these policies in light of current and forecasted economic conditions. Accounting policies that management believes to be critical to understanding the results of operations and the effect of the more significant judgments and estimates used in the preparation of the consolidated financial statements are the same as those described in the Annual Report on Form 10-KSB of the Company for the year ended December 31, 2007 filed with SEC on April 4, 2008.

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.

Results of Operations

Three Months Ended June 30, 2008 compared to Three Months Ended June 30, 2007

Revenue

The following table summarizes our revenues for the three months ended June 30, 2008 and 2007:

Three months ended June 30, 2008 2007 Total Revenue $ 728,093 $ 1,642,096

For the three months ended June 30, 2008, revenue was decreased by $914,003 as compared to the similar period in 2007 due to fall in value of orders and delivered products.

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Cost of revenue

The following table summarizes our cost of revenue for the three months ended June 30, 2008 and 2007:

Three months ended June 30, 2008 2007 Total cost of revenue $ 649,336 $ 1,267,127

Our cost of revenue for three months ended June 30, 2008 were $649,336 or 89.0% of our sales as compared to $1,267,127, or 77.2% of our sales for the three months ended June 30, 2007. Our cost of revenue predominantly consists of the cost of labor, raw materials and absorbed indirect manufacturing cost.

General, selling and administrative expenses

The following table summarizes our general, selling and administrative expenses for the three months ended June 30, 2008 and 2007:

Three months ended June 30, 2008 2007 General, selling and administrative expenses $ 1,170,399 $ 950,235

For the three months ended June 30, 2008 general, selling and administrative expenses were $1,170,399 as compared to $950,235 for the three months ended June 30, 2007.

Research and development

The following table summarizes our research and development expenses for the three months ended June 30, 2008 and 2007:

Three months ended June 30, 2008 2007 Research and development expenses $ 90,000 $ 90,000

Our research and development for three months ended June 30, 2008 were $90,000 compared to $90,000 for the three months ended June 30, 2007. In late 2005, the Company suspended its research and development activity, while it signed a new contract with RESI in the middle of December 2006 for a new agreement representing a monthly charge of $30,000.

Depreciation and amortization

The following table summarizes our depreciation and amortization for the three months ended June 30, 2008 and 2007:

Three months ended June 30, 2008 2007 Depreciation and amortization $ 50,276 $ 25,006

Depreciation and amortization has increased by $25,270 in the three months ended June 30, 2008 compared to the same period in 2007. The increase can be attributed to the acquisition of new equipment purchased during 2007 and 2008.

Interest expense, net

The following table summarizes our interest expense, net for the three months ended June 30, 2008 and 2007:

Three months ended June 30, 2008 2007 Interest expense, net $ 266,955 $ 647,400

Interest expense, net has decreased by $380,445 in the quarter ended June 30, 2008 compared to the same period in 2007. The decrease is mainly due to the reduction in amortization of the debt discount caused by conversion convertible debentures into our common stock.

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Six Months Ended June 30, 2008 compared to Six Months Ended June 30, 2007

Revenue

The following table summarizes our revenues for the six months ended June 30, 2008 and 2007:

Six months ended June 30, 2008 2007 Total Revenue $ 1,016,087 $ 3,545,059

For the six months ended June 30, 2008, revenue was decreased by $2,528,972 as compared to the similar period in 2007 due to fall in value of orders and delivered products.

Cost of revenue

The following table summarizes our cost of revenue for the six months ended June 30, 2008 and 2007:

Six months ended June 30, 2008 2007 Total cost of revenue $ 905,729 $ 2,947,257

Our cost of revenue for six months ended June 30, 2008 were $905,729 or 89.1% of our sales as compared to $2,947,257, or 83.1% of our sales for the six months ended June 30, 2007. Our cost of revenue predominantly consists of the cost of labor, raw materials and absorbed indirect manufacturing cost.

General, selling and administrative expenses

The following table summarizes our general, selling and administrative expenses for the six months ended June 30, 2008 and 2007:

Six months ended June 30, 2008 2007 General, selling and administrative expenses $ 2,112,039 $ 2,331,013

For the six months ended June 30, 2008 general, selling and administrative expenses were $2,112,039 as compared to $2,331,013 for the six months ended June 30, 2007.

Research and development

The following table summarizes our research and development expenses for the six months ended June 30, 2008 and 2007:

Six months ended June 30, 2008 2007 Research and development expenses $ 180,000 $ 180,000

Our research and development for six months ended June 30, 2008 were $180,000 compared to $180,000 for the six months ended June 30, 2007. In late 2005, the Company suspended its research and development activity, while it signed a new contract with RESI in the middle of December 2006 for a new agreement representing a monthly charge of $30,000.

Depreciation and amortization

The following table summarizes our depreciation and amortization for the six months ended June 30, 2008 and 2007:

Six months ended June 30, 2008 2007 Depreciation and amortization $ 100,198 $ 48,090

Depreciation and amortization has increased by $52,108 in the six months ended June 30, 2008 compared to the same period in 2007. The increase can be attributed to the acquisition of new equipment purchased during 2007 and 2008.

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Interest expense, net

The following table summarizes our interest expense, net for the six months ended June 30, 2008 and 2007:

Six months ended June 30, 2008 2007 Interest expense, net $ 680,166 $ 1,330,205

Interest expense, net has decreased by $650,039 in the six months ended June 30, 2008 compared to the same period in 2007. The decrease is mainly due to the reduction in amortization of the debt discount caused by conversion convertible debentures into our common stock.

Liquidity and Capital Resources

As of June 30, 2008, our cash, cash equivalents and marketable securities were $1,373,301, a decrease of $2,784,175 from December 31, 2007.

As of June 30, 2008, we had working capital deficit of $2,668,459. We generated a deficit in cash flow from operations of $1,529,234 for the six months ended June 30, 2008. This deficit is primary attributable to our net loss of $3,045,519, net with depreciation and amortization, amortization of debt discount and deferred financing costs of $807,143 as well as $381,905 fair value of vested options and warrants issued, minority interests of $13,013 and the changes in the balances of current assets and liabilities. Accounts payable and accrued expenses and advances received from customer increased by $1,265,268, and inventory, receivables, prepaid expenses and other current assets increased
(net) by $951,044.

Cash flow used by investing activities for the six month period ended June 30, 2008 was $1,620,963, due to the acquisition of 15% interest in CG Solar of $1,500,000 and the purchase of property and equipment of $120,963.

We met our cash requirements during the period through net proceeds from the sale of common stock of our subsidiary, Solar Thin Power, Inc of $150,000.

While we had raised capital to meet our working capital and financing needs in the past, additional financing is required in order to meet our current and projected cash flow requirements from operations and development. We anticipate that we will need to raise a minimum of $1 to $3 million to provide the cash requirements for the next twelve months to continue our current operations and or to commercialize our new products. We are actively seeking additional financing, which may take the form of debt, convertible debt or equity, in order to provide the additional working capital and funds for expansion. There can be no assurance that any additional financing will be available to the Company on satisfactory terms and conditions, if at all. We currently have no commitments for financing. In the event we are unable to continue as a going concern, we may elect or be required to seek protection from our 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.

Recent accounting pronouncements

In February 2006, the FASB issued SFAS No. 155, "Accounting for certain Hybrid Financial Instruments an amendment of FASB Statements No. 133 and 140" ("SFAS No. 155") . SFAS No. 155 permits fair value remeasurement for any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation, clarifies which interest-only strips and principal-only strips are not subject to the requirements of SFAS No. 133, establishes a requirement to evaluate interests in securitized financial assets to identify interests that are freestanding derivatives or that are hybrid financial instruments that contain an embedded derivative requiring bifurcation, clarifies that concentrations of credit risk in the form of subordination are not embedded derivatives, and amends SFAS No. 140 to eliminate the prohibition on a qualifying special purpose entity from holding a derivative financial instrument that pertains to a beneficial interest other than another derivative financial instrument. SFAS No. 155 is effective for all financial instruments acquired or issued after the beginning of an entity's first fiscal year that begins after September 15, 2006. The SFAS No. 155 did not have a material impact on our consolidated financial position, results of operations or cash flows.

In March 2006, the FASB issued SFAS No. 156, "Accounting for Servicing of Financial Assets - an amendment to FASB Statement No. 140" ("SFAS No. 156"). SFAS No. 156 requires that an entity recognize a servicing asset or servicing liability each time it undertakes an obligation to service a financial asset by entering into a service contract under certain situations. The new standard is effective for fiscal years beginning after September 15, 2006. SFAS No.156 did not have a material impact on our consolidated financial position, results of operations or cash flows.

In July 2006, the FASB issued Interpretation No. 48, "Accounting for uncertainty in Income Taxes" ("FIN No. 48"). FIN No. 48 clarifies the accounting for Income Taxes by prescribing the minimum recognition threshold a tax position is required to meet before being recognized in the financial statements. It also provides guidance on derecognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition and clearly scopes income taxes out of SFAS No. 5, "Accounting for Contingencies". FIN No. 48 is effective for fiscal years beginning after December 15, 2006. FIN No. 48 did not have a material impact on our consolidated financial position, results of operations or cash flows.

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In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements". The objective of SFAS No. 157 is to increase consistency and comparability in fair value measurements and to expand disclosures about fair value measurements. SFAS No. 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS No. 157 applies under other accounting pronouncements that require or permit fair value measurements and does not require any new fair value measurements. The provisions of SFAS No. 157 are effective for fair value measurements made in fiscal years beginning after November 15, 2007. In February 2008, the FASB issued FASB Staff Position ("FSP") 157-2 ,"Effective Date of FASB Statement No. 157" ("FSP 157-2), which delayed the effective date of SFAS No. 157 for all non-financial assets and liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis, until fiscal years beginning after November 15, 2008. We have not yet determined the impact that the implementation of FSP 157-2 will have on our non-financial assets and liabilities which are not recognized on a recurring basis; however, we do not anticipate the adoption of this standard will have a material impact on our consolidated financial position, results of operations or cash flows.

In September 2006 the FASB issued its SFAS No. 158, "Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106 and 132(R)" ("SFAS No. 158"). SFAS No. 158 improves financial reporting by requiring an employer to recognize the overfunded or underfunded status of a defined benefit postretirement plan (other than a multiemployer plan) as an asset or liability in its statement of financial position and to recognize changes in that funded status in the year in which the changes occur through comprehensive income of a business entity or changes in unrestricted net assets of a not-for-profit organization. SFAS No. 158 also improves financial reporting by requiring an employer to measure the funded status of a plan as of the date of its year-end statement of financial position, with limited exceptions. The effective date for an employer with publicly traded equity securities is as of the end of the fiscal year ending after December 15, 2006. SFAS No. 158 did not have a material impact on our consolidated financial position, results of operations or cash flows.

In December 2006, the FASB issued FSP EITF 00-19-2, "Accounting for Registration Payment Arrangements" ("FSP 00-19 -2") which addresses accounting for registration payment arrangements. FSP 00-19 -2 specifies that the contingent obligation to make future payments or otherwise transfer consideration under a registration payment arrangement, whether issued as a separate agreement or included as a provision of a financial instrument or other agreement, should be separately recognized and measured in accordance with SFAS No. 5, "Accounting for Contingencies". FSP 00-19 -2 further clarifies that a financial instrument subject to a registration payment arrangement should be accounted for in accordance with other applicable generally accepted accounting principles without regard to the contingent obligation to transfer consideration pursuant to the registration payment arrangement. For registration payment arrangements and financial instruments subject to those arrangements that were entered into prior to the issuance of EITF 00-19-2, this guidance shall be effective for financial statements issued for fiscal years beginning after December 15, 2006 and interim periods within those fiscal years. FSP 00-19-2 did not have a material impact on our consolidated financial position, results of operations or cash flows

In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities - Including an Amendment of FASB Statement No. 115" ("SFAS No. 159"). SFAS No. 159 permits entities to choose to measure many financial instruments and certain other items at fair value. Most of the provisions of SFAS No. 159 apply only to entities that elect the fair value option. However, the amendment to SFAS No. 115 "Accounting for Certain Investments in Debt and Equity Securities" applies to all entities with available-for-sale and trading securities. SFAS No. 159 is effective as of the beginning of an entity's first fiscal year that begins after November 15, 2007. Early adoption is permitted as of the beginning of a fiscal year that begins on or before November 15, 2007, provided the entity also elects to apply the provision of SFAS No. 157, "Fair Value Measurements". The adoption of SFAS No. 159 is not expected to have a material impact on our consolidated financial position, results of operations or cash flows.

In June 2007, the Accounting Standards Executive Committee issued Statement of Position 07-1, "Clarification of the Scope of the Audit and Accounting Guide Investment Companies and Accounting by Parent Companies and Equity Method Investors for Investments in Investment Companies" ("SOP 07-1"). SOP 07-1 provides guidance for determining whether an entity is within the scope of the AICPA Audit and Accounting Guide Investment Companies (the "Audit Guide"). SOP 07-1 was originally determined to be effective for fiscal years beginning on or after December 15, 2007, however, on February 6, 2008, FASB issued a final Staff Position indefinitely deferring the effective date and prohibiting early adoption of SOP 07-1 while addressing implementation issues.

In June 2007, the FASB ratified the consensus in EITF Issue No. 07-3, "Accounting for Nonrefundable Advance Payments for Goods or Services to be Used in Future Research and Development Activities" (EITF 07-3), which requires that nonrefundable advance payments for goods or services that will be used or rendered for future research and development (R&D) activities be deferred and amortized over the period that the goods are delivered or the related services are performed, subject to an assessment of recoverability. EITF 07-3 will be effective for fiscal years beginning after December 15, 2007. We do not expect that the adoption of EITF 07-3 will have a material impact on our consolidated financial position, results of operations or cash flows.

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In December 2007, the FASB issued SFAS No. 141(R), "Business Combinations" ("SFAS No. 141(R)"), which establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in an acquiree, including the recognition and measurement of goodwill acquired in a business combination. SFAS No. 141R is effective as of the beginning of the first fiscal year beginning on or after December 15, 2008. Earlier adoption is prohibited and we are currently evaluating the effect, if any that the adoption will have on our consolidated financial position results of operations or cash flows.

In December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interest in Consolidated Financial Statements, an amendment of ARB No. 51" ("SFAS No. 160"), which will change the accounting and reporting for minority interests, which will be recharacterized as noncontrolling interests and classified as a component of equity within the consolidated balance sheets. SFAS No. 160 is effective as of the beginning of the first fiscal year beginning on or after December 15, 2008. Earlier adoption is prohibited and we are currently evaluating the effect, if any that the adoption will have on our consolidated financial position results of operations or cash flows.

In December 2007, the FASB ratified the consensus in EITF Issue No. 07-1, "Accounting for Collaborative Arrangements" (EITF 07-1). EITF 07-1 defines collaborative arrangements and requires collaborators to present the result of activities for which they act as the principal on a gross basis and report any payments received from (made to) the other collaborators based on other applicable authoritative accounting literature, and in the absence of other applicable authoritative literature, on a reasonable, rational and consistent accounting policy is to be elected. EITF 07-1 also provides for disclosures regarding the nature and purpose of the arrangement, the entity's rights and obligations, the accounting policy for the arrangement and the income statement classification and amounts arising from the agreement. EITF 07-1 will be effective for fiscal years beginning after December 15, 2008, which will be the Company's fiscal year 2009, and will be applied as a change in accounting principle retrospectively for all collaborative arrangements existing as of the effective date. We have not yet evaluated the potential impact of adopting EITF 07-1 on our consolidated financial position, results of operations or cash flows.

In March 2008, the FASB" issued SFAS No. 161, "Disclosures about Derivative Instruments and Hedging Activities - an amendment to FASB Statement No. 133" ("SFAS No. 161"). SFAS No. 161 is intended to improve financial standards for derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity's financial position, financial performance, and cash flows. Entities are required to provide enhanced disclosures about: (a) how and why an entity uses derivative instruments; (b) how derivative instruments and related hedged items are accounted for under SFAS No. 133 and its related interpretations; and (c) how derivative instruments and related hedged items affect an entity's financial position, financial performance, and cash flows. It is effective for financial statements issued for fiscal years beginning after November 15, 2008, with early adoption encouraged. We are currently evaluating the impact of SFAS No. 161, if any, will have on our consolidated financial position, results of operations or cash flows.

In April 2008, the FASB issued FSP No. FAS 142-3,"Determination of the Useful Life of Intangible Assets". This FSP amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142,"Goodwill and Other Intangible Assets". We are required to adopt FSP 142-3 on September 1, 2009, earlier adoption is prohibited. The guidance in FSP 142-3 for determining the useful life of a recognized intangible asset shall be applied prospectively to intangible assets acquired after adoption, and the disclosure requirements shall be applied prospectively to all intangible assets recognized as of, and subsequent to, adoption. We are currently evaluating the impact of FSP 142-3 on our consolidated financial position, results of operations or cash flows.

In May 2008, the FASB issued SFAS No. 162, "The Hierarchy of Generally Accepted Accounting Principles" ("SFAS No. 162"). SFAS No. 162 identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles (the GAAP hierarchy). SFAS No. 162 will become effective 60 days following the SEC's approval of the Public Company Accounting Oversight Board amendments to AU Section 411, "The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles." We do not expect the adoption of SFAS No. 162 will have a material effect on our consolidated financial position, results of operations or cash flows.

In May 2008, the FASB issued FSP Accounting Principles Board ("APB") 14-1 "Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement) " ("FSP APB 14-1"). FSP APB 14-1 requires the issuer of certain convertible debt instruments that may be settled in cash (or other assets) on conversion to separately account for the liability
(debt) and equity (conversion option) components of the instrument in a manner that reflects the issuer's non-convertible debt borrowing rate. FSP APB 14-1 is effective for fiscal years beginning after December 15, 2008 on a retroactive basis. We are currently evaluating the potential impact, if any, of the adoption of FSP APB 14-1 on our consolidated financial position, results of operations or cash flows.

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.

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OFF-BALANCE SHEET ARRANGEMENTS

We do not maintain off-balance sheet arrangements nor does it participate in non-exchange traded contracts requiring fair value accounting treatment.

TRENDS, RISKS AND UNCERTAINTIES

We have sought to identify what we believe to be the most significant risks to . . .