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 to commercialize flexible Photovoltaics (PV) modules using our proprietary technology. For the nine months ended September 30, 2009, we generated approximately $1.2 million in revenues. Substantially all of our revenue was from government research and development contracts. Our planned principal operations are to commercialize flexible CIGS PV modules. As of September 30, 2009, we had an accumulated deficit of approximately $39.3 million. Currently our 30 megawatt (MW) production line (FAB2 (30 MW)) is being installed and commissioned. Under our current business plan, we expect losses to continue until production reaches an annual rated capacity of approximately 30 MW. To date, we have financed our operations primarily through public and private equity financings. On October 6, 2009, the Company completed a public offering of 4,615,385 shares of common stock and a private placement to our largest shareholder, Norsk Hydro Produksjon AS (Hydro), of 769,230 shares. The offering price was $6.50 per share resulting in total net proceeds of approximately $32.9 million. The proceeds from the stock sales are intended to be utilized to fund remaining equipment purchases for FAB2 (30 MW) in Thornton, Colorado, as well as the funding of negative operating cash flows as we ramp up production levels.

While focused on speed to market, we believe that product quality and consistency will be paramount to our success in the marketplace. Consequently, our path to commercialization is defined by a highly disciplined, staged progression based upon the achievement of key milestones and supported by over fourteen years of concerted research and development activity by our engineers. Our progression also takes into account market conditions, as well as financing options. In keeping with our philosophy, we completed construction of a 1.5 MW production line (FAB1) in December 2007. In March 2008, we demonstrated initial operating capability (IOC) of the FAB1 (1.5 MW) production line by initiating production trials as an end-to-end integrated process. In the fourth quarter 2008 the U.S. Department of Energy's National Renewable Energy Laboratory (NREL) independently verified that modules produced from FAB1 (1.5 MW) measured as high as 9.64% in conversion efficiency. The test modules were six inches wide and twelve inches long and served as our building block for development of both building integrated PV (BIPV) and portable power products. During 2008 we focused on testing and qualifying FAB1 (1.5 MW) in anticipation of commencing limited regular production. In the first quarter of 2009, we began regular production of monolithically integrated flexible CIGS modules (CIGS modules) from FAB1 (1.5 MW). In the second quarter of 2009, NREL independently verified that our CIGS modules produced from FAB1 (1.5 MW) measured as high as 10.4% in conversion efficiency. Also, during the second quarter 2009, we produced a CIGS module five meters long and weighing two kilograms that produced 123 watts (under standard test conditions) with an aperture area efficiency of 9.1%. We believe that the five meter long CIGS module is the largest monolithically interconnected CIGS module on polyimide ever produced, and possibly the largest CIGS module regardless of construction. We intend to use the five meter length module produced from FAB1 (1.5 MW) as a baseline for the company's development of large area, flexible, building integrated photovoltaic products with our strategic BIPV partners.

In October 2009, NREL independently measured cell efficiency of our CIGS material at 14.01%. Also in October 2009, the Company announced internally measured peak module efficiency of 11.7% for CIGS modules produced from FAB1 (1.5 MW). We expect that process optimization will be an ongoing effort as we continuously strive for improvements in production yield, production throughput, and product efficiency that have a direct bearing on our cost competitiveness in the marketplace.

In 2009, we have continued our prototype development with our BIPV, electronic integrated PV (EIPV) and defense customers by providing modules from FAB1 (1.5 MW) for use in their product development activities. On September 21, 2009, we entered into a multi-year supply agreement with TurtleEnergy, LLC, a BIPV system integrator (TurtleEnergy). Pursuant to the supply agreement, we intend to sell PV modules with an aggregate capacity of approximately 67 MW to TurtleEnergy over a period of five years. On September 18, 2009, we signed a supply agreement with Goal Zero LLC, a consumer products company (Goal Zero). Pursuant to the supply agreement, we intend to sell 30,700 of our PV modules to Goal Zero through 2010 for incorporation into custom electronic portable power applications.

During 2009 we began internal testing of our CIGS modules produced from FAB1 (1.5 MW). In August 2009, we announced successful completion of internal certification of a packaging solution for our CIGS modules. In internal qualification testing, this flexible packaging solution successfully passed the rigorous standard of one thousand hours of damp heat testing (85% relative humidity and 85° C temperature) guideline set forth by IEC 61646 standards for performance and long term reliability of thin-film solar modules. We continue to evaluate additional packaging solutions from multiple vendors. Since our production tools and process on FAB1 (1.5 MW) and FAB2 (30 MW) production line are similar, we plan to achieve concurrent certification of our CIGS modules from FAB1 (1.5 MW) and FAB2 (30 MW) from Underwriters Laboratory (UL) in the U.S. and Technischer Überwachungs-Verein (TÜV) in Europe.

Production tooling and equipment for FAB2 (30 MW) began arriving in the first quarter of 2009 and installation began in second quarter 2009 when we obtained beneficial occupancy for the Thornton facility. Production tooling and equipment installation is scheduled to be completed by the end of 2009 for the first 15 MW of annual capacity and by the end of first half of 2010 for the remaining 15 MW of annual capacity. We expect to begin production at FAB2 (30 MW) in 2010 and ramp up to full annual rated production capacity by the end of 2010. After completion of FAB2 (30 MW), we intend to expand our capacity in 100 MW to 200 MW increments based on manufacturing developments, market conditions, availability of financing and geographic considerations.

Commercialization and Manufacturing Expansion Plan

We intend to be the first company to manufacture large, flexible, PV modules in commercial quantities using CIGS on a flexible, plastic substrate. Our manufacturing expansion plan includes the design, installation, qualification, testing and operation of additional production tools to increase our rated production capacity. We intend to incrementally expand our aggregate production capacity by attaining the following milestones within the time frames indicated:

• Second half of 2009: complete internal testing for certification and begin external product certification in first quarter 2010.

• Fourth quarter of 2009: begin qualification of production tools for the first 15 MW of annual capacity at FAB2 (30 MW).

• First half of 2010: begin production and complete installation of remaining production tools for full 30 MW of annual capacity on FAB2 (30 MW).

• Second half of 2010: begin production at full capacity at FAB2 (30 MW).

Although we currently plan to expand our production capacity in accordance with the timeline above and further plan to expand our production capacity in 100 MW to 200 MW increments, the actual timing and extent of production capacity we install may significantly deviate from the above plan due to market conditions, availability of financing, timeliness of delivery of production tools, product performance and other factors. See "Significant Trends, Uncertainties and Challenges" below. We also recognize the importance of developing strategies and plans that may allow for the timely acceleration of our production beyond the current plan in order to meet market demand and the challenges from competitors who are presently expanding their operations.

Rated production capacity refers to our expected level of annual production upon optimization of our production process and is based on assumed production yields and module efficiencies. The actual production levels that we are able to realize at any point during our planned expansion will depend on a variety of factors, including our ability to optimize our production process to achieve targeted production yields and module efficiencies.

Delays in product certifications would significantly affect our ability to continue developing product applications with our customers. Delays that extend significantly beyond 2009 likely would impact our ability to develop demand for our PV modules, and would affect our planned sales and results of operations in 2010, when we expect to have commenced production at FAB2 (30 MW).

Using the FAB1 (1.5 MW) production line as a model, we have consummated the fixed price delivery contracts for the majority of the production tools for FAB2 (30 MW). The equipment delivery schedules within the supply agreements provide for the installation of the first half of the production tools by the end of the fourth quarter of 2009 and the second half of the production tools by the end of the second quarter of 2010. Significant delays in achieving desired production yields, module efficiencies or other performance metrics at FAB1 (1.5 MW) and/or delays in the delivery, installation and qualification of FAB2 (30 MW) production tools may impact our planned product sales in 2010.

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. We expect this trend to continue into the foreseeable future as we expand in 100 MW increments of rated capacity. We will require additional capital for equipment and facilities to achieve our manufacturing expansion plans. If we are unable to secure the necessary capital or to manage the disbursement of capital taking into consideration any unforeseen factors, such as cost increases from our equipment suppliers and the potential negative changes in the value of the U.S. dollar against foreign currencies, our ability to expand our manufacturing capacity as planned, as well as our financial performance and results of operations, may be adversely affected.

We currently expect the capital expenditures for FAB2 (30 MW) to total approximately $102 million to $107 million for manufacturing and development equipment and approximately $18 million (including capitalized interest) for the acquisition and renovation of our new manufacturing facility in Thornton, Colorado. We also expect capital expenditures of approximately $8 million for installation, qualification and other associated pre-operating expenses related to the first FAB2 (30 MW) expansion.

Our major equipment suppliers are located in Japan, the United Kingdom and Germany. To manage the uncertainties related to the procurement of capital equipment, we have continued to work closely with our equipment suppliers to complete the engineering of our new tools and refine the estimates of our planned capital outlays. To manage the fluctuations of foreign exchange rates, we have implemented forward pricing contracts for certain agreements denominated in foreign currencies.

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:

• Our ability to achieve desired production yields, module efficiencies and other performance targets, and to obtain necessary or desired certifications for our PV modules;

• Our ability to expand production in accordance with our plans set forth above under "Commercialization and Manufacturing Expansion Plan";

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

• Our ability to consummate strategic relationships with key partners, including original equipment manufacturer (OEM) customers, system integrators, and distributors who deal directly with end-users in the BIPV, EIPV, portable power, and government/military solar panel markets;

• The effect that currency fluctuations may have on our capital equipment purchases, manufacturing costs and the price of our planned PV modules;

• 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; and

• Our ability and the ability of our distributors, suppliers and customers to manage operations and orders during the global financial crisis

Basis of Presentation: The Company's activities to date have substantially consisted of raising capital, research and development, establishment of our FAB1 (1.5 MW) production plant and the development of our FAB2 (30 MW) expansion plant. Revenues to date have been generated from the Company's governmental research and development (R&D) contracts and have not been significant. The Company's planned principal operations to commercialize flexible PV modules have not yet commenced. Accordingly, the Company is considered to be in the development stage and has presented its financial statements in accordance with the accounting guidance for development stage companies that consists of additional disclosure of inception to date activity in our Condensed Statements of Operations, Condensed Statements of Stockholder's Equity and Comprehensive Income (Loss) and Condensed Statements of Cash Flows.

Cash Equivalents:The Company considers all highly liquid debt securities purchased with an original maturity of three months or less to be cash equivalents. The Company maintains cash balances which may exceed federally insured limits. The Company does not believe that this results in significant credit risk.

Investments: The Company has classified its investments as "available-for-sale." Such investments are carried at fair value, based on quoted market prices with the unrealized holding gains and losses reported as Accumulated other comprehensive income (loss) in the stockholders' equity section of the balance sheet. Realized gains and losses on sales of securities are computed using the specific identification method. The Company evaluates declines in market value for potential impairment. If the decline results in a value below cost and is determined to be other than temporary, the investment is written down to its impaired value and a new cost basis is established.

Fair Value estimates: The fair value of an asset or liability is the amount at which it could be exchanged or settled in a current transaction between willing parties. The carrying value for cash and cash equivalents, investments, restricted cash, accounts receivable, accounts payable, accrued property and equipment, accrued expenses and other assets and liabilities approximate their fair values due to their short maturities.

Foreign Currency translation: Bank account balances related to our forward contracts are translated to U.S. dollars utilizing the period end exchange rate. Gains or losses on foreign currency translation adjustments in connection with our forward contracts are recorded within realized gain (loss) on forward contracts in Other Income/expense on the Condensed Statement of Operations.

Revenue Recognition: Revenue to date is from governmental research and development contracts under terms that are cost plus fee or firm fixed price. Revenue from cost plus fee contracts is recognized as costs are incurred on the basis of direct costs plus allowable indirect costs and an allocable portion of the firm fixed fee. Revenue from firm fixed price contracts is recognized under the percentage-of-completion method of accounting, with costs and estimated profits included in contract revenue as work is performed. If actual and estimated costs to complete a contract indicate a loss, provision is made currently for the loss anticipated on the contract.

Patents: At such time as the Company is awarded patents, patent costs are amortized on a straight-line basis over the legal life, or over their estimated useful lives, whichever is shorter. As of September 30, 2009, the Company had $150,252 of net patent costs of which $25,580 represent costs net of amortization incurred for an awarded patent, and the remaining $124,672 represents costs incurred for patent applications filed. Amortization expense for the three months ended September 30, 2009 and 2008 was $1,279 and for the nine months ended September 30, 2009 and 2008 was $3,837.

Property and Equipment: Property and equipment are recorded at the original cost to the Company. Assets are being depreciated over estimated useful lives of three to ten years using the straight-line method, commencing when the asset is placed in service. Leasehold improvements are depreciated over the shorter of the remainder of the lease term or the life of the improvements. Upon retirement or disposal, the cost of the asset disposed of and the related accumulated depreciation are removed from the accounts and any gain or loss is reflected in income. Expenditures for repairs and maintenance are expensed as incurred.

The Company computes depreciation expense using the straight-line method over the estimated useful lives of the assets, as presented in the table below. We amortize leasehold improvements over the shorter of their estimated useful lives or the remaining term of the lease.

                                                           Useful Lives
                                                             in Years
         Buildings                                              40
         Manufacturing machinery and equipment                5 - 10
         Furniture, fixtures, computer hardware/software       3 - 7
         Leasehold improvements                            life of lease

Long-lived assets: We analyze our long-lived tangible assets (property and equipment) and definitive-lived intangible assets (patents) for impairment by assessing if the asset cost will be recoverable. Events that might cause impairment would include significant current period operating or cash flow losses associated with the use of a long-lived asset or group of assets combined with a history of such losses, significant changes in the manner of use of assets and significant negative industry or economic trends.

Risks and Uncertainties: The Company's operations are subject to certain risks and uncertainties, including those associated with: the ability to meet obligations; continuing losses; fluctuation in operating results; funding expansions; strategic alliances; financing arrangement terms that may restrict operations; regulatory issues; and competition. The recent financial crisis and the resulting tightening in the credit markets have made it more difficult to raise additional capital to fulfill our expansion business plan. Additionally, U.S. government contracts may be terminated prior to completion of full funding by the U.S. government.

Net loss per Common Share: Basic earnings per share include no dilution and are computed by dividing income available to common stockholders by the weighted-average number of shares outstanding during the period. Diluted earnings per share reflect the potential of securities that could share in the earnings of the Company, similar to fully diluted earnings per share. Common stock equivalents consisting of Class B warrants, IPO warrants (representative warrants), stock options and restricted stock units outstanding as of September 30, 2009 and 2008 of approximately 12.2 million and 11.6 million shares, respectively, have been omitted from loss per share because they are anti-dilutive. Basic and diluted loss per share were the same in each of the periods ended September 30, 2009 and 2008.

Research and Development Costs: Research and development costs are incurred during the process of researching and developing new products and enhancing our manufacturing processes and consist primarily of compensation and related costs for personnel, materials, supplies and equipment depreciation. We expense these costs as incurred until the resulting product has been completed and tested and is ready for commercial manufacturing. We also incur research and development expenses on our federal government research and development contracts and expense as incurred.

Income Taxes: Deferred income taxes are provided using the liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carry forwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of the changes in tax laws and rates as of the date of enactment. Interest and penalties, if applicable, would be recorded in operations.

The Company has analyzed filing positions in all of the federal and state jurisdictions where it is required to file income tax returns, as well as all open tax years (2005-2008) in these jurisdictions. The Company believes that its income tax filing positions and deductions will be sustained on audit and does not anticipate any adjustments that will result in a material adverse effect on the Company's financial condition, results of operations, or cash flows. Therefore, no reserves for uncertain income tax positions have been recorded.

Stock Based Compensation: The Company measures and recognizes compensation expense for all share-based payment awards made to employees, officers, directors, and consultants based on estimated fair values. The company estimates the fair value of share-based payment awards on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service period in the Company's Condensed Statements of Operations. Stock based compensation is based on awards ultimately expected to vest and is reduced for estimated forfeitures. Forfeitures are estimated at the time of grant and revised, as necessary, in subsequent periods if actual forfeitures differ from those estimates.

For purposes of determining estimated fair value of share-based payment awards on the date of grant the Company uses the Black-Scholes option-pricing model (Black-Scholes Model). The Black-Scholes Model requires the input of highly subjective assumptions. Because the Company's employee stock options may have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models may not provide a reliable single measure of the fair value of the Company's employee stock options. Management will continue to assess the assumptions and methodologies used to calculate estimated fair value of share-based compensation. Circumstances may change and additional data may become available over time, which result in changes to these assumptions and methodologies, which could materially impact the Company's fair value determination.

The accounting guidance for stock based compensation may be subject to further interpretation and refinement over time. There are significant differences among option valuation models, and this may result in a lack of comparability with other companies that use different models, methods and assumptions. If factors change and the Company employs different assumptions in the accounting for stock based compensation in future periods, or if the Company decides to use a different valuation model, the compensation expense that the Company records in the future may differ significantly from what it has recorded in the current period and could materially affect its loss from operations, net loss and net loss per share.

Comprehensive income (loss): Our comprehensive income (loss) consists of our net income (loss) and changes in unrealized gains or losses on available-for-sale investments, the impact of which has been excluded from net loss. We present our comprehensive income (loss) in the Condensed Statements of Stockholders' Equity and Comprehensive Income and (Loss). Our accumulated other comprehensive income
(loss) is presented as a component of equity in our Condensed Balance Sheets and consists of the cumulative amount of unrealized gains or losses on available-for-sale investments that we have incurred since the inception of our business.

Reclassifications: Certain reclassifications have been made to the 2008 financial information to conform to the 2009 presentation. Such reclassifications had no effect on net loss and are primarily related to reclassifying costs between Research and development costs and General and administrative expenses in the Condensed Statements of Operations.

Use of Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Unaudited Information: The accompanying interim financial information as of September 30, 2009 and for the nine months ended September 30, 2009 and 2008 and the period from inception (October 18, 2005) through September 30, 2009 was taken from the Company's books and records without audit. However, in the opinion of management, such information includes all adjustments (consisting only of results of normal recurring accruals) that are necessary to properly reflect the financial position of the Company as of September 30, 2009 and the results of operations for the nine months ended September 30, 2009 and 2008 and the period from inception (October 18, 2005) through September 30, 2009 so that the financial statements are not misleading.

Results of Operations

Comparison of the Three and Nine Months Ended September 30, 2009 and 2008

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