The following discussion of our financial condition and results of operations should be read in conjunction with our unaudited financial statements and the notes to those financial statements appearing elsewhere in this Form 10-Q. This discussion and analysis contains statements of a forward-looking nature relating to future events or our future financial performance. As a result of many factors, our actual results may differ materially from those anticipated in these forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements.

Overview
We are a development stage company formed in October 2005 to commercialize flexible photovoltaic modules using our proprietary technology. For the six months ended June 30, 2012, we generated $596,000 of revenue. Our revenue from government research and development contracts was $523,000 and our revenue from product sales was $73,000. As of June 30, 2012, we had an accumulated deficit of $194.4 million.
Following the appointment of our new President and CEO on February 2, 2012, we began to reposition our business model with an immediate focus into developing downstream consumer products. In June we launched our new EnerPlex™ brand line of consumer products, and introduced the first product under the EnerPlex™ brand with a solar-assisted charger for the iPhone® 4/4S smart phone featuring our ultra light CIGS thin film technology. The charger incorporates our ultra light and thin solar module into a sleek, protective iPhone® 4/4S case, along with a thin battery. The charger adds minimal weight and size to an iPhone® smart phone, yet provides significantly improved battery life by harnessing sunlight for electric power. This charger is the first product in our planned line of smart phone chargers, including the newly launched Samsung® Galaxy S® III. We have an initial order for 50,000 units from TFG Radiant, our distributor in Asia, which the Company expects to fulfill by August 2012. With this line of products we plan to move up the value chain with a much improved profit margin as products are developed and designed in-house and sold directly to end consumers or through distributors globally.
Currently we are in limited production based on demand for our products in emerging and specialty markets, particularly our Enerplex™ line of consumer products. In the near term we are focusing on emerging and specialty markets with higher average selling prices, however, we will continue to develop our customized rooftop applications, targeting meaningful revenue from this market in 2013. Under our current business plan, we expect losses to continue until we have fully implemented our new strategy. Although we plan to continue manufacturing at our current facilities, our plans are also to have significant future production capacity enabled through our relationship with TFG Radiant. We believe that there remains strong interest in renewable energy in general and solar in particular, but existing global political and financial conditions are significantly disrupting key solar markets. Over the past several years, the PV market has continued to experience a significant decline in average selling prices for PV modules. This was a result of many factors, most significantly the increased industry-wide manufacturing capacity, which has contributed to excess industry channel inventories, and a concurrent scaling back of government subsidies and incentives related to solar energy.
We believe that our lightweight, ultra thin, and flexible technology is transformational in nature, and will provide us advantages in serving specialty markets like consumer, defense, portable power, transportation, off grid and distributed power, as well as, customized building applied photovoltaic ("BAPV") and building integrated photovoltaic ("BIPV") markets.
We believe that our use of CIGS on a flexible, durable, lightweight, ultra thin, high-tech plastic substrate will allow for unique and seamless integration of our PV modules into a variety of electronic products, building materials, defense, transportation and space applications, as well as other products and applications that may emerge. We believe that the unique attributes of our materials and manufacturing process will enable a reduction in the overall system and installation cost-per-watt ratios. For markets that place a high premium on weight, such as rooftop, defense, space and near-space markets, we believe our materials should provide attractive increases in power-to-weight ratios, and we believe that our materials have higher power-to-area ratios and voltage-to-area ratios than competing flexible PV thin-film technologies. These metrics will be critical as we position ourselves to compete in high value-added markets, including; consumer, defense, transportation, space and rooftop applications.
Commercialization and Manufacturing Expansion Plan We intend to be the first company to commercialize the manufacture of roll-format, PV modules that use CIGS on a flexible, plastic substrate. Our manufacturing expansion plan entails the qualification, testing and operation of our production

tools to increase production. During the six months ended June 30, 2012, we had product sales of approximately $73,000 which we do not consider sufficient for exiting development stage.
Substantially all equipment necessary for production has been delivered as of June 30, 2012. Our current production volumes are based primarily on market demand for our products in emerging and specialty markets. In March 2011, based on market conditions, we revised our near-term strategy to focus on applications for emerging and specialty markets, including off-grid, military and defense and consumer oriented products, which we believe will better leverage the unique characteristics of our product and carry higher average selling prices. We plan to continue to develop our customized rooftop applications and we will re-enter this market when the economics are favorable to us.
The manufacture of photovoltaic modules is a capital-intensive business. Our unique technology enables the manufacture of differentiated PV products with high power density which are lightweight and flexible. We believe markets of substantial size, particularly the customized BIPV and BAPV markets will exist long term, requiring significant additional production capacity. We plan to continue the development of our current PV technology to increase module efficiency, improve our manufacturing tooling and process capabilities and reduce manufacturing costs. We also plan to continue to take advantage of research and development contracts to fund a portion of this development. On January 4, 2012, we announced that TFG Radiant had agreed to purchase 8,067,390 shares of our common stock owned by Norsk Hydro for $4 million, or approximately $0.50 per share. On March 30, 2012, TFG Radiant completed the purchase of these shares and TFG Radiant's ownership became approximately 39 percent of our outstanding common stock. As a result of that transaction, on April 16, 2012, the Company appointed Mr. Winston Xu (aka Xu Biao) as a member of its Board of Directors. Mr. Xu currently serves as Chairman of Radiant Group which he founded in 1997, and as the Chairman of TFG Radiant.
On February 1, 2012, we announced the appointment of Victor Lee as President and Chief Executive Officer. Mr. Lee has served on our Board since November 2011. Mr. Lee is the managing director of Tertius Financial Group Pte Ltd, the joint venture partner with Radiant Group in TFG Radiant. As President and Chief Executive Officer, Mr. Lee will not receive any cash, equity or other compensation from the Company.
Capital Equipment Expenditures and Manufacturing Costs Since our formation in October 2005, the majority of our cash outlays have gone toward the investment in capital equipment necessary to develop our manufacturing capabilities for producing the commercial products we envision and for research and development.
As of June 30, 2012, we have remaining obligations for equipment purchases in the approximate amount of $1.1 million, of which approximately $0.3 million is recorded in "Accrued property, plant and equipment." The timing and amount of our production capacity and actual output will depend on customer demand as well as a number of technical factors such as module efficiency, production yield and throughput. Future production will depend on our continuing efforts to successfully ramp up the production equipment.
We are continuing the process of qualifying the production tools that have been delivered. We have additional tools on order that have not been delivered. We intend to continue to optimize our manufacturing processes including throughput, efficiency and yield to improve product performance and reduce manufacturing costs within the context of our new market focus. Significant Trends, Uncertainties and Challenges We believe that the significant trends, uncertainties and challenges that directly or indirectly affect our financial performance and results of operations include:
• Customer acceptance of and demand for our products;

• Our ability to raise additional capital on terms favorable to us;

• Our ability to qualify production tools to achieve desired production yields, throughput, module efficiencies and other performance targets, and to obtain in a timely manner necessary or desired certifications for our PV modules, in a timely manner;

• Our ability to maintain the listing of our common stock on the NASDAQ Global Market or Capital Market and the potential impact of a delisting on the market liquidity and price volatility of our common stock;

• Our ability to achieve projected operational performance and cost metrics;

• Our ability to consummate strategic relationships with key partners, including OEMs, customers, system integrators, value-added resellers and distributors who deal directly with manufacturers and end-users in the BIPV/BAPV, portable power, EIPV and government/defense solar panel markets;

• The availability of, or changes to, governmental policies, subsidies and incentives that effect the use or cost of renewable energy;

• Changes in the supply and demand for PV modules as well as fluctuations in selling prices for PV modules worldwide;

• Our ability to manage the planned expansion of our manufacturing facilities, operations and personnel;

• Our ability to enter into commercially viable licensing, joint venture, or other commercial arrangements;

• Our ability and the ability of our distributors, suppliers and customers to manage operations and orders and timely delivery of production tools; and

• Availability of raw materials.

Critical Accounting Policies and Estimates Critical accounting policies used in reporting our financial results are reviewed by management on a regular basis. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. Processes used to develop these estimates are evaluated on an ongoing basis. Estimates are based on historical experience and various other assumptions that are believed to be reasonable for making judgments about the carrying value of assets and liabilities. Actual results may differ as outcomes from assumptions may change.
Our significant accounting policies were described in Note 3 to our audited financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2011. There have been no changes to these policies that are of potential significance to us during the six months ended June 30, 2012. Recent Accounting Pronouncements
See Note 3, "Summary of Significant Accounting Policies," in the Notes to Condensed Financial Statements.

Results of Operations
Comparison of the Three and Six Months Ended June 30, 2012 and 2011 Our activities to date have substantially consisted of raising capital, business and product development, research and development and the development of our production lines.
Revenues. Our revenues were $155,000 for the three months ended June 30, 2012 compared to $1,027,000 for the three months ended June 30, 2011, a decrease of $872,000. Revenues for the three months ended June 30, 2012 include $63,000 of product sales compared to $83,000 for the three months ended June 30, 2011, a decrease of $20,000.
Our revenues were $596,000 for the six months ended June 30, 2012 compared to $2,211,000 for the six months ended June 30, 2011, a decrease of $1,615,000. Revenues for the six months ended June 30, 2012 include $73,000 of product sales compared to $301,000 for the six months ended June 30, 2011, a decrease of $228,000. Revenues earned on our government research and development contracts decreased by $852,000 and $1,387,000 during the three and six months ended June 30, 2012, respectively, due to the winding down of two government contracts.
Research and development. Research and development costs were $4,830,000 for the three months ended June 30, 2012 compared to $6,701,000 for the three months ended June 30, 2011, a decrease of $1,871,000. Research and development costs include the costs incurred for pre-production and production activities in our manufacturing facility and facility and equipment infrastructure costs. Research and development costs also include costs related to our governmental contracts. Costs related to pre-production and production activities decreased by $1,347,000. The pre-production and production cost decrease was comprised of materials and equipment related costs of $1,029,000 and depreciation and amortization of $696,000, partially offset by increases in personnel related costs of $177,000, consulting and contract services costs of $135,000, stock option expense of $37,000 and other administrative costs of $25,000. Governmental research and development expenditures decreased by $524,000 in the three months ended June 30, 2012. The majority of the this decrease is the result of reductions in consulting and contract service costs of $501,000.

Research and development costs were $9,220,000 for the six months ended June 30, 2012 compared to $15,296,000 for the six months ended June 30, 2011, a decrease of $6,076,000. Costs related to pre-production and production activities decreased by $5,336,000. The pre-production and production cost decrease was comprised of materials and equipment related costs of $2,667,000, depreciation and amortization of $1,454,000, consulting and contract services costs of $404,000, personnel related costs of $403,000 and facility related costs of $365,000. Governmental research and development expenditures decreased by $739,000 in the six months ended June 30, 2012. This decrease is the result of reductions in consulting and contract services costs of $755,000, partially offset by an increase in depreciation and amortization of $18,000. Selling, general and administrative. Selling, general and administrative expenses were $1,186,000 for the three months ended June 30, 2012 compared to $1,642,000 for the three months ended June 30, 2011, a decrease of $456,000. This decrease is comprised of personnel related costs of $348,000, depreciation expense of $131,000 and stock compensation expense of $115,000, partially offset by increases in general supply expenses of $159,000.
Selling, general and administrative expenses were $2,680,000 for the six months ended June 30, 2012 compared to $4,096,000 for the six months ended June 30, 2011, a decrease of $1,416,000. This decrease is comprised of personnel related costs of $891,000, stock compensation expense of $493,000 and consulting and contract services costs of $180,000, partially offset by increases in facility and IT related expenses of $180,000.
Impairment loss. As a result of significant changes in market conditions, particularly the decreases in current and expected average selling prices for PV modules, an impairment charge was taken against Property, Plant and Equipment during the second quarter of 2011. Impairment loss incurred on the write-down of Property, Plant and Equipment and Deposits on manufacturing equipment was $78,000,000 for the three and six months ended June 30, 2011.
Other Income / (Expense), net. Other Income / (Expense) was $44,000 net expense for the three months ended June 30, 2012 compared to $147,000 net income for the three months ended June 30, 2011, a net change of $191,000. The net change was the result of a decrease in foreign currency transaction gain of $69,000, a decrease in realized gain on forward contracts of $64,000 and an increase in interest expense of $51,000.
Other Income / (Expense) was $112,000 net expense for the six months ended June 30, 2012 compared to $357,000 net income for the six months ended June 30, 2011, a net change of $469,000. The net change was the result of a decrease in foreign currency transaction gain of $269,000, a decrease in realized gain on forward contracts of $64,000, a decrease in interest income of $17,000 and an increase in interest expense of $119,000.
Net Loss. Our Net Loss was $5,906,000 for the three months ended June 30, 2012 compared to a Net Loss of $85,169,000 for the three months ended June 30, 2011, a decrease of $79,263,000. Our Net Loss was $11,416,000 for the six months ended June 30, 2012 compared to a Net Loss of $94,824,000 for the six months ended June 30, 2011, a decrease of $83,408,000.

The decrease in Net Loss can be summarized in variances in significant account activity as follows:

                                                      Decrease (increase)          Decrease (increase)
                                                          to Net Loss                  to Net Loss
                                                         For the Three                 For the Six
                                                         Months  Ended                Months  Ended
                                                   June 30, 2012 Compared to    June 30, 2012 Compared to
                                                     the Three Months Ended        the Six Months Ended
                                                         June 30, 2011                June 30, 2011
Revenues                                           $            (872,433 )      $          (1,614,522 )
Research and development costs
Manufacturing research and development                         1,383,822                    5,279,594
Government research and development                              514,146                      738,850
Non-cash stock based compensation                                (27,061 )                     56,865
Selling, general and administrative expenses
Corporate selling, general and administrative                    340,464                      922,515
Non-cash stock based compensation                                115,033                      492,739
Impairment loss                                               78,000,000                   78,000,000
Other Income / (Expense), net                                   (190,903 )                   (468,891 )
 Decrease to Net Loss                              $          79,263,068        $          83,407,150

Liquidity and Capital Resources

As of June 30, 2012, we had approximately $13.4 million in cash and cash equivalents. We also had approximately $0.5 million in restricted cash securing equipment purchases which is included in "Other Assets" on the Condensed Balance Sheets. We have remaining obligations for equipment purchases in the approximate amount of $1.1 million, of which approximately $0.3 million is recorded in "Accrued property, plant and equipment." We have commenced limited production at our manufacturing facility. We do not expect that sales revenue and cash flows will be sufficient to support operations and cash requirements until we have fully implemented our new strategy. Changes in the level of expected operating losses, the timing of planned capital expenditures or other factors may negatively impact cash flows and reduce current cash and investments faster than anticipated. We will need to raise additional capital in the future. There is no assurance that we will be able to raise additional capital on acceptable terms or at all.
On April 11, 2012, we received notice from The NASDAQ Stock Market ("Nasdaq") stating that because we had not regained compliance with the $1.00 minimum bid price requirement for continued listing, our common stock (listed on The Nasdaq Global Market) would be subject to delisting. We presented our plan to regain compliance before a Nasdaq Hearings Panel in May 2012. As a result of this hearing, we were granted a stay on any delisting action until October 8, 2012. Although our stock recently traded above $1.00 per share, we may if ultimately necessary, seek shareholder approval to implement a reverse stock split to remain in compliance with the $1.00 bid price requirement prior to October 8, 2012.
The use of cash for operational expenses averaged approximately $1.3 million per month during the six months ended June 30, 2012 compared to approximately $2.1 million per month during the six months ended June 30, 2011, a decrease of approximately $0.8 million per month. Cash used for operational expenses is related to manufacturing and engineering activities, research and development, business development and general corporate expenses. As of July 31, 2012, we had 83 employees. Additionally we had 42 contractors provided through an employment services provider. We expect our current cash balance to be sufficient to cover our planned capital and operational expenditures into the first quarter of 2013 based on currently known factors and limited projected revenues, absent new cost reduction initiatives. We will need to raise additional capital to cover our operating losses and future manufacturing capacity expansion. The capital markets are currently volatile and there is no assurance that we will be able to raise additional capital on acceptable terms or at all. We currently are pursuing various avenues to obtain additional capital for further expansion. The total net change in cash and cash equivalents for the six months ended June 30, 2012 was an increase of approximately $2.1 million. The increase in cash and cash equivalents was primarily the result of the maturity of available-for-sale securities and proceeds received from issuance of stock. This increase was partially offset by net loss (adjusted for non-cash expenses and other items such as depreciation and amortization. non-cash based stock based compensation and impairment), purchases of property, plant and equipment and repayment of debt.
For the six months ended June 30, 2012, our cash used in operations was approximately $7.8 million compared to approximately $12.6 million for the six months ended June 30, 2011, a decrease of $4.8 million. The decrease in cash used in operating activities for the year ended June 30, 2012 as compared to the same period in 2011 was primarily due to a decrease in net loss (after deducting non-cash adjustments) and a decrease in inventory purchases.

On August 12, 2011, we completed a strategic alliance with TFG Radiant. As part of this strategic alliance, TFG Radiant acquired 6,400,000 shares of our common stock at a price of $1.15 per share or $7,360,000 in the aggregate. The closing price of our common stock on August 12, 2011 was $0.73 per share. In addition, TFG Radiant received an option to acquire an additional 9,500,000 shares of our common stock at an exercise price of $1.55 per share. The option was approved by our shareholders on October 27, 2011, as well as an increase in the number of authorized shares of common stock to 125,000,000. TFG Radiant may not exercise this option unless and until TFG Radiant meets a specified milestone associated with the construction of the first East Asia FAB. This option expires on February 12, 2014.
On December 29, 2011, we filed a "shelf" Registration Statement on Form S-3 with the SEC, which replaced our previously effective shelf registration. With the shelf registration, we may from time to time sell common stock, preferred stock, warrants or some combination in one or more offerings for up to $25.0 million. The registration became effective February 14, 2012.
On January 5, 2012, we entered into an At-the-Market Offering Sales Agreement pursuant to which we may issue and sell such number of shares of our common stock having an aggregate offering price of up to $5,000,000. Sales of common stock, if any, will be made at market prices by any method that is deemed an "at-the-market" offering as defined in Rule 415 under the Securities Act, including sales made directly on the NASDAQ stock exchange and any other trading market for our common stock, and sales to or through a market maker other than on an exchange. There is no assurance we will be able to sell shares of our common stock under this agreement at acceptable prices or at all. The aggregate compensation payable to the sales agent shall be equal to 3% of the gross sales price of the shares sold. As of March 31, 2012, 1,594,395 shares had been sold under this facility with net proceeds of $1,234,391. There were no share sales during the quarter ended June 30, 2012.

Contractual Obligations
The following table presents our contractual obligations as of June 30, 2012.
Our long-term debt obligation is related to our building loan reflecting both
principal and interest. Our purchase obligations include orders for equipment,
inventory and operating expenses.

                                                            Payments Due by Year (in thousands)
                                               Less Than 1                                       More Than 5
Contractual Obligations          Total            Year           1-3 Years       3-5 Years          Years
Long-term debt obligations    $   10,808     $         693     $     2,081     $     2,081     $       5,953
Operating lease obligations          184               184               -               -                 -
Purchase obligations               1,898             1,898               -               -                 -
Total                         $   12,890     $       2,775     $     2,081     $     2,081     $       5,953

Off Balance Sheet Transactions
As of June 30, 2012, we did not have any off balance sheet arrangements as defined in Item 303(a)(4)(ii) of SEC Regulation S-K.