This section summarizes significant factors affecting the Company's consolidated operating results, financial condition and liquidity for the three and nine months ended March 31, 2009. This section should be read in conjunction with the Company's Consolidated Financial Statements and related notes appearing elsewhere in this report and the Company's filed Annual Report on Form 10-K for the year ended June 30, 2008. All amounts are in thousands.

Overview

We design, manufacture and sell photovoltaic ("PV") products, known as PV or solar laminates that generate clean, renewable energy by converting sunlight into electricity. Solar laminate sales represent more than 95% of our revenues. We also receive fees and royalties from licensees of our nickel metal hydride ("NiMH") battery technology and sell high performance nickel hydroxide used in NiMH batteries.

The following key factors should be considered when reviewing our results for the periods discussed:

• Our consolidated financial results are driven primarily by the performance of our United Solar segment. Our United Solar segment accounted for approximately 95% and 96% of our total revenue in the three and nine months ended March 31, 2009. Our United Solar segment generated operating income of $8,504 and $51,551 for the three and nine months ended March 31, 2009, respectively. Given the expected growth of this segment (as discussed below) relative to our other business activities, our overall success in the foreseeable future will be aligned primarily with the performance of our United Solar segment and subject to the risks of that business.

• Global economic, capital markets and credit disruptions have significantly impacted current market conditions in the solar market and created uncertainty, but we believe that growth opportunities will resume beginning in calendar year 2010. We believe that there remains strong interest in alternative energy in general and solar in particular, but existing global financial constraints are impacting the funding of solar projects that otherwise have strong strategic rationale and/or financial returns. These macroeconomic conditions are adversely impacting our customers, including some customers with take-or-pay agreements, and as a result our revenues. We are working with our customers to preserve relationships and maximize long term value by, among other things, reallocating product shipments to other customers and pursuing other remedies, as appropriate on a case by case basis. We also continue to be encouraged by the opportunities for large scale restructuring of the energy infrastructure to increase emphasis on renewable energy, such as our solar laminates. Recent government support in this direction includes renewable energy spending and incentive programs included in the American Recovery and Reinvestment Act, and the solar investment tax credit

initiatives enacted as part of the U.S. Emergency Economic Stabilization Act of 2008, including an 8-year extension of the 30%, uncapped investment tax credit for commercial and residential solar installations, and permitting utilities to benefit from these tax credits. Pending energy legislation would also adopt a national renewable portfolio standard. We believe that these programs will begin gaining substantial traction in the second half of calendar year 2009, and will provide meaningful stimulus for US growth beginning in calendar year 2010.

• Consistent with our demand driven expansion strategy, we are pausing our manufacturing capacity expansion in our United Solar segment to respond to existing uncertainties in the market. We presently have 178MW of nameplate capacity and recently announced that we are taking actions to delay further manufacturing capacity expansion until market demand and visibility improves. We have delayed expansion at our Greenville facility and planned Battle Creek facility, which will reduce our capital expenditures and allow us to preserve and, in strategic situations, redeploy our capital in other areas. When market conditions and visibility improves, we believe that we can quickly re-initiate our manufacturing capacity expansion, as a result of the operational improvements we have made with respect to the construction and ramp of new facilities. We do not presently believe that we will expand to 300MW of nameplate capacity by 2010 and have not concluded regarding our previously-announced plan to expand to 1GW by 2012.

• We are adjusting our production plans in our United Solar segment and reducing costs to respond to near-term market conditions and improve our overall competitiveness. During the third quarter, we implemented actions, including a temporary production hiatus that reduced third quarter production and a consolidation of certain production operations from our Auburn Hills 1 facility into our newer Auburn Hills 2 facility that will reduce the combined production capacity from these facilities until the project is completed in Fall 2009. This consolidation, which will lower overall costs and improve manufacturing efficiencies, is part of an overall program to reduce costs. Other activities focus on improvement in our operations to generate higher throughput and yield, reductions in administrative costs, and raw material cost reductions. We have incurred restructuring expenses as a result of certain of these activities and may incur additional restructuring expenses as we pursue further cost reduction activities in the future. At the same time, we intend to continue to invest strategically in our business, for example to bolster our sales and marketing functions and to add technical competencies related to application engineering and structured finance. We expect that these activities will improve our competitiveness and margins, both in the near-and long-term.

• We are enhancing our revenues in our United Solar segment through a demand driven expansion strategy, which includes focusing on customers and markets where our solar laminates have a competitive advantage, particularly the rooftop market. As indicated above, there have been disruptions in the solar markets caused by global macro economic conditions. At the same time, competition within the solar market is increasing primarily as a result of declines in the pricing of polysilicon, a key raw material in traditional, rigid PV modules. We believe that polysilicon prices will continue to decline. We are continuing to concentrate on the rooftop market, particularly the building-integrated photovoltaic (BIPV) market,

which we believe represents the most attractive opportunity for our solar laminates. The physical flexibility, durability and lightweight nature of our solar laminates makes them an attractive value proposition for the BIPV market, particularly commercial rooftop applications, where our solar laminates can be integrated with roofing materials and other building products. Our strategy is to increase our sales in the rooftop market, which includes developing new channels for rooftop applications, such as the utilities channel, and designing new rooftop applications, such as residential applications. We are also developing new applications that leverage the unique characteristics of our laminates, such as landfill covers.

• We are commercializing our NiMH battery and Ovonic Unified Memory (OUM) technologies principally through unconsolidated joint ventures, and we account for our interests in these joint ventures under the accounting model based on the equity method of accounting. Our principal joint ventures - Cobasys and Ovonyx - were founded to further develop and commercialize technologies we pioneered. In each case, we participate in the business as equity holders but do not directly manage or have a controlling interest in the entity. We have not reported any earnings or losses from Cobasys because our share of Cobasys' cumulative losses exceeds our investment. We do record royalties from Ovonyx representing 0.5% of their total revenues.

• The members of Cobasys are continuing to explore strategic alternatives regarding Cobasys, including a potential sale or bankruptcy restructuring. In 2007, the members of Cobasys agreed to explore strategic alternatives regarding Cobasys. At the same time, as previously reported, certain disputes relating to Cobasys are the subject of pending arbitration, and Cobasys and its members have not agreed on an annual budget and/or business plan for 2008 or 2009. From February 2008 through March 2009 the parties operated under an interim settlement agreement providing for a suspension of the arbitration and a requirement of the parties to use their commercially reasonable best efforts to negotiate definitive agreements for the sale of Cobasys based on a non-binding proposal received from its largest customer, GM. Recently GM informed the members that it will not proceed with the purchase of Cobasys. GM, Cobasys and the members are in discussions regarding an agreement to wind down the GM customer relationship. There is no assurance that an agreement will be reached. The members have approved Cobasys' retention of bankruptcy counsel and a restructuring advisor to advise on bankruptcy-related alternatives. Meanwhile, the members are in active discussions with multiple other potential buyers, while also considering alternative, non-bankruptcy solutions. As a result of these developments, CTV, OBC and the Company are in discussions regarding an Amended and Restated Settlement Agreement that would provide for the parties to jointly dismiss the arbitration with prejudice and execute mutual releases upon either the completion of a Cobasys sale or a Cobasys bankruptcy proceeding. These activities are ongoing, but the ultimate outcome remains uncertain. If a solution is not found, without an agreed budget and business plan and resolution of pending disputes subject to the arbitration between us and OBC and CTV, Cobasys may not be able to continue as a going concern. See Part II, Item 1 - Legal Proceedings and Item 1A - Risk Factors.

• We are operating our Ovonic Materials segment at sustainable levels and are continuing to realize value from our technology portfolio. We have developed proprietary technologies in our Ovonic Materials segment that we believe have substantial value, including technologies for NiMH batteries, solid hydrogen storage, metal hydride fuel cells, and biofuel reformation. The development activities for these technologies have been substantially balanced with external sources of revenues, such as royalties and development agreements (principally government contracts), to align our development commercialization efforts at sustainable levels. We are continually evaluating commercialization opportunities and strategic alternatives to maximize value for these technologies, which may include licenses, joint ventures and sales.

Key Indicators of Financial Condition and Operating Performance. In evaluating our business, we use product sales, gross profit, net income, earnings per share, operating income, cash flow from operations and other key performance metrics. We also use production, measured in megawatts ("MW") per annum, and gross margins on product sales as key performance metrics for our United Solar segment, particularly in connection with the manufacturing expansion in this segment.

In March 2009, we began implementing an organizational restructuring to consolidate certain production operations from our Auburn Hills 1 facility into our newer Auburn Hills 2 facility that will reduce the combined production capacity from these facilities until the project is completed in Fall 2009. This consolidation, which will lower overall costs and improve manufacturing efficiencies, is part of an overall program to reduce costs. We have incurred total restructuring costs of $139 through March 31, 2009 as a result of certain of these activities and may incur additional restructuring expenses as we pursue further cost reduction activities in the future. We are continuing to evaluate our facilities infrastructure requirements based on our consolidated and realigned business activities to identify additional cost savings opportunities and may undertake additional restructuring activities, and record additional restructuring charges, as a result.

Results of Operations

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

The following table summarizes each of our business segment's operating results
(in thousands) for the three months ended March 31, 2009 and 2008, together with
the revenue and expenses related to Corporate Activities that are not allocated
to the business segments during these periods:

                                    Revenues                 Income (Loss) from Operations
                               2009          2008               2009                 2008
     United Solar Ovonic     $ 63,006       $ 66,736        $       8,504          $  13,735
     Ovonic Materials           2,948          3,178                  948                940
     Corporate Activities          52            253               (5,531 )           (9,175 )
     Consolidating entries       -              (185 )                 62                 72
     Consolidated            $ 66,006       $ 69,982        $       3,983          $   5,572


United Solar Ovonic Segment

                                                           Three Months Ended
                                                               March 31,
                                                            2009         2008
                                                             (in thousands)
    REVENUES
    Product sales                                        $    59,654   $ 64,941
    Revenues from product development agreements               3,352      1,795
    TOTAL REVENUES                                       $    63,006   $ 66,736
    EXPENSES
    Cost of product sales                                $    42,246   $ 45,021
    Cost of revenues from product development agreements       1,992      1,254
    Product development and research                           1,592        689
    Preproduction costs                                        1,325        751
    Selling, general and administrative expenses               6,531      5,286
    Loss on disposal of assets                                   677       -
    Restructuring charges                                        139       -
    TOTAL EXPENSES                                       $    54,502   $ 53,001
    INCOME FROM OPERATIONS                               $     8,504   $ 13,735

Our United Solar Ovonic segment's revenues decreased $3,730 and operating income decreased $5,231 in 2009 as compared to 2008. United Solar Ovonic produced 33.3 and 21.6 megawatts (MWs) of solar laminates during the quarters ended March 31, 2009 and 2008, respectively.

The decrease in revenues in 2009 was attributable to decreased sales volumes ($3,349) and unfavorable product and price mix ($1,938) offset in part by increased revenues from product development agreements ($1,557).

Cost of product sales decreased $2,775, of which approximately $3,763 was a direct result of favorable operating efficiencies and $1,071 from the reversal of amounts accrued under the annual incentive plan. The decreases in cost of product sales were partially offset by $2,059 of unallocated overhead caused by the production hiatus.

The majority of our combined product development and research expenses are funded by government programs under contracts from the U.S. Air Force and the Department of Energy's Solar America Initiative. We continue to invest in product development and research to improve the throughput of our PV cell manufacturing equipment, reduce the cost of production and increase the sunlight-to-electricity conversion efficiency of our PV laminates.

We will incur preproduction costs (consisting of new employee training, facilities preparation, set-up materials and supplies) with each new manufacturing facility until we commence production and the majority of the employee training is complete. These costs are expected to be substantial as we continue to expand our manufacturing capacity from the current 178MW per annum.

Our selling, general and administrative expenses increased due to increased support services ($2,161) and an increase to the allowance for doubtful accounts receivable ($1,501). Those increases were offset in part by the reversal of amounts accrued under the annual incentive plan ($1,552). We expect selling, general and administrative expenses to increase as we continue to enhance our demand-creation activities and develop the strategic infrastructure to achieve and support those activities.

Ovonic Materials Segment

                                                       Three Months Ended
                                                           March 31,
                                                        2009         2008
                                                         (in thousands)
        REVENUES
        Product sales                                $      537    $    425
        Royalties                                         1,477       1,537
        Revenues from product development agreements        615         896
        Other revenues                                      319         320
        TOTAL REVENUES                               $    2,948    $  3,178
        EXPENSES
        Cost of product sales                        $      509    $    356
        Cost of revenues from product development
        agreements                                          459         609
        Product development and research                    833         964
        Selling, general and administrative expenses        199         309
        TOTAL EXPENSES                               $    2,000    $  2,238
        INCOME FROM OPERATIONS                       $      948    $    940

Product sales for our Ovonic Materials segment represent sales of our high performance nickel hydroxide materials. Although sales volumes increased from 2008 to 2009, product sales did not increase at a comparable rate. The sales price is largely dependent upon the cost of the raw materials used to produce it. The price of nickel, a major component of our nickel hydroxide, was 64% lower during the three months ended March 31, 2009 compared to the same period in 2008.

Combined product development and research expenses decreased substantially to $1,292 in 2009 from $1,573 in 2008, reflecting the savings associated with the restructuring plan initiated in late fiscal 2007 and reduced unfunded product development.

Corporate Activities

                                                       Three Months Ended
                                                           March 31,
                                                        2009         2008
                                                         (in thousands)
        TOTAL REVENUES                               $        52   $    253
        EXPENSES
        Selling, general and administrative expenses $     5,583   $  7,042
        Restructuring costs                                -          2,386
        TOTAL EXPENSES                               $     5,583   $  9,428
        LOSS FROM OPERATIONS                         $    (5,531 ) $ (9,175 )

Revenues in the Corporate Activities segment consist primarily of facilities and miscellaneous administrative and laboratory services provided to certain affiliates.

In fiscal 2007, we began implementing an organizational restructuring to consolidate and realign our business activities and reduce costs, principally in the Ovonic Materials segment and in Corporate Activities. The initial phase of this plan was substantially completed during fiscal 2007, and we incurred restructuring costs in fiscal 2008 in connection with this phase. As a result, restructuring charges significantly decreased ($2,386) during the three months ended March 31, 2009. Selling, general and administrative expenses decreased as a result of the reversal of amounts accrued under the annual incentive plan ($964).

Other Income/Expense

We had other expense of $2,108 in 2009, as compared to other income of $1,439 in 2008, principally due to interest incurred on our convertible senior notes ($2,372) and decreased interest income due to lower prevailing interest rates.

Nine Months ended March 31, 2009 Compared to Nine Months ended March 31, 2008

The following table summarizes each of our segment's operating results (in
thousands) for the nine months ended March 31, 2009 and 2008, together with the
revenue and expenses related to Corporate Activities that are not allocated to
the business segments during these periods:

                                    Revenues                  Income (Loss) from Operations
                              2009           2008                2009                 2008
    United Solar Ovonic     $ 254,461       $ 160,343        $      51,551          $  15,352
    Ovonic Materials           10,258          12,840                2,427                639
    Corporate Activities          160             797              (20,642 )          (27,983 )
    Consolidating entries        -               (507 )                182                154
    Consolidated            $ 264,879       $ 173,473        $      33,518          $ (11,838 )


United Solar Ovonic Segment

                                                        Nine Months Ended
                                                            March 31,
                                                        2009        2008
                                                         (in thousands)
         REVENUES
         Product sales                                $ 246,419   $ 154,538
         Revenues from product development agreements     8,042       5,805
         TOTAL REVENUES                               $ 254,461   $ 160,343
         EXPENSES
         Cost of product sales                        $ 164,911   $ 117,846
         Cost of revenues from product development
         agreements                                       5,434       3,591
         Product development and research                 3,714       2,723
         Preproduction costs                              5,133       5,574
         Selling, general and administrative expenses    22,655      15,257
         Loss on disposal of assets                         924        -
         Restructuring charges                              139        -
         TOTAL EXPENSES                               $ 202,910   $ 144,991
         INCOME FROM OPERATIONS                       $  51,551   $  15,352

Our United Solar Ovonic segment's revenues increased $94,118 and operating income increased $36,199 in 2009 as compared to 2008, as we continued to rapidly expand our manufacturing capacity and product sales.

The increase in revenues in 2009 was primarily attributable to a significant volume increase in PV product sales ($92,659), offset by unfavorable product and price mix ($778). United Solar Ovonic produced 98.1 and 47.4 MWs of solar laminates during the nine months ended March 31, 2009 and 2008, respectively.

Cost of product sales increased $47,065, of which approximately $55,252 was a direct result of the increased sales volume and $2,059 was the result of unallocated overhead caused by the production hiatus. These increases were partially offset by $6,128 of favorable operating efficiencies. The effect of operating efficiencies resulted in an improvement of gross profit margins on product sales from 23.7% in 2008 to 33.1% in 2009.

The majority of our combined product development and research expenses are funded by government programs under contracts from the U.S. Air Force and the Department of Energy's Solar America Initiative. We continue to invest in product development and research to improve the throughput of our PV cell manufacturing equipment, reduce the cost of production and increase the sunlight-to-electricity conversion efficiency of our PV laminates.

Preproduction costs (consisting of new employee training, facilities preparation, set-up materials and supplies) decreased as we neared completion on the expansions at our Greenville and Tijuana, Mexico facilities. We will incur preproduction costs with each new manufacturing facility until we commence production and the majority of the employee training is complete. These costs are expected to be substantial as we continue to expand our manufacturing capacity from the current 178MW per annum.

Consistent with our sales growth, our selling, general and administrative expenses increased due to increased support services ($4,251), sales and marketing ($2,135) and an increase in the allowance for doubtful accounts receivable ($2,361). We expect selling, general and administrative expenses to increase as we continue to enhance our demand-creation activities and develop the strategic infrastructure to achieve and support those activities.

Ovonic Materials Segment



                                                        Nine Months Ended
                                                            March 31,
                                                         2009        2008
                                                         (in thousands)
         REVENUES
         Product sales                                $    2,559   $  4,872
         Royalties                                         4,365      4,044
         Revenues from product development agreements      2,274      2,684
         Other revenues                                    1,060      1,240
         TOTAL REVENUES                               $   10,258   $ 12,840
         EXPENSES
         Cost of product sales                        $    2,555   $  4,519
         Cost of revenues from product development
         agreements                                        1,540      1,801
         Product development and research                  2,854      4,975
         Selling, general and administrative expenses        882        906
         TOTAL EXPENSES                               $    7,831   $ 12,201
         INCOME FROM OPERATIONS                       $    2,427   $    639

Our Ovonic Materials results improved due principally to increased royalties and the restructuring plan implemented in late fiscal 2007 that substantially reduced our product development expenses. . . .