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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549





FORM 10-Q





(Mark One)

|x | QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------

For the quarterly period ended March 31, 2009

or



| ̈ | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------

For the Transition Period from  to

Commission File No. 001-34052





DayStar Technologies, Inc.

(Exact
name of registrant as specified in its charter)







|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                       |  | 84-1390053                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)
|                                                               | 
|2972 Stender Way Santa Clara, California                       |  | 95054                               
|(Address of principal executive offices)                       |  | (Zip Code)                          

(408) 907-4600

(Registrants telephone number, including area code)





Indicate by check mark whether
the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No   ̈

Indicate by checkmark whether the registrant has submitted electronically and posted on its corporate Web-site, if any, every Interactive Data File
required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such
files).    Yes   ̈    No   ̈

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer,
accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.



|                           |  |                      |  |                                               |  |                             
|-------------------------- |  | -------------------- |  | --------------------------------------------- |  | ----------------------------
|Large accelerated filer   ̈ |  | Accelerated filer  x |  | Non-accelerated filer   ̈                      |  | Smaller reporting company   ̈
|                           |  |                      |  | (Do not check if a smaller reporting
company) |  |                             

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act).    Yes   ̈    No  x

Indicate the number of shares outstanding of each of the issuers classes of common stock, as of the latest practicable date.



|                                       |  |                           
|-------------------------------------- |  | --------------------------
|Title of Each Class                    |  | Outstanding at May 6, 2009
|Common Stock par value $0.01 per share |  | 33,488,862                









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DAYSTAR TECHNOLOGIES, INC.

Quarterly Report on Form 10-Q

Quarterly Period Ended March 31, 2009

Table of Contents



|                                                                                                                                                                                     |  |   
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | --
|Part I  Financial Information                                                                                                                                                       |  |   
|                                                                                                                                                                                     | 
|Item 1. Financial Statements                                                                                                                                                         |  |   
|                                                                                                                                                                                     | 
|Balance SheetsAs of March 31, 2009 (unaudited) and December 31, 2008                                                                                                                |  | 3 
|                                                                                                                                                                                     | 
|Statements of OperationsFor the Three Months Ended March 31, 2009 and 2008 and For the Period From July 
1, 2005 (Inception of the Development Stage) to March 31, 2009 (unaudited) |  | 4 
|                                                                                                                                                                                     | 
|Statement of Changes in Stockholders EquityFor the Period From July 
1, 2005 (Inception of the Development Stage) to March 31, 2009 (unaudited)                                    |  | 5 
|                                                                                                                                                                                     | 
|Statements of Cash Flows for the Three Months Ended March 31, 2009 and 2008 and For the Period From July 
1, 2005 (Inception of the Development Stage) to March 31, 2009 (unaudited) |  | 6 
|                                                                                                                                                                                     | 
|Notes to Financial Statements (unaudited)                                                                                                                                            |  | 7 
|                                                                                                                                                                                     | 
|Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations                                                                                        |  | 11
|                                                                                                                                                                                     | 
|Item 3. Quantitative and Qualitative Disclosures About Market Risk                                                                                                                   |  | 14
|                                                                                                                                                                                     | 
|Item 4. Controls and Procedures                                                                                                                                                      |  | 14
|                                                                                                                                                                                     | 
|PART II  Other Information                                                                                                                                                          |  |   
|                                                                                                                                                                                     | 
|Item 1A. Risk Factors                                                                                                                                                                |  | 15
|                                                                                                                                                                                     | 
|Item 5. Other Information                                                                                                                                                            |  | 16
|                                                                                                                                                                                     | 
|Item 6. Exhibits                                                                                                                                                                     |  | 16
|                                                                                                                                                                                     | 
|Signatures                                                                                                                                                                           |  | 17



2



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##### Table of Contents

PART 1. FINANCIAL INFORMATION



|Item 1. | Financial Statements
|------- | --------------------

DAYSTAR TECHNOLOGIES, INC.

(A DEVELOPMENT STAGE ENTERPRISE)

BALANCE SHEETS



|                                                                                                                                                                           |  |               |             |   |                  |   |             |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------- | ----------- | - | ---------------- | - | ----------- | -
|                                                                                                                                                                           |  | March 31,2009 |             |   | December 31,2008 |  
|                                                                                                                                                                           |  | (Unaudited)   |             |   |                  |  
|ASSETS                                                                                                                                                                     |  |               |             |   |                  |   |             |  
|Current Assets:                                                                                                                                                            |  |               |             |   |                  |   |             |  
|Cash and cash equivalents                                                                                                                                                  |  | $             | 6,491,434   |   |                  | $ | 17,120,401  |  
|Other current assets                                                                                                                                                       |  |               | 509,691     |   |                  |   | 543,357     |  
|                                                                                                                                                                           |  |               |             |   |                  |   |             |  
|Total current assets                                                                                                                                                       |  |               | 7,001,125   |   |                  |   | 17,663,758  |  
|                                                                                                                                                                           |  |               |             |   |                  |   |             |  
|Property and Equipment, at cost                                                                                                                                            |  |               | 55,647,590  |   |                  |   | 46,022,825  |  
|Less accumulated depreciation and amortization                                                                                                                             |  |               | (9,838,184  | ) |                  |   | (8,942,105  | )
|                                                                                                                                                                           |  |               |             |   |                  |   |             |  
|Net property and equipment                                                                                                                                                 |  |               | 45,809,406  |   |                  |   | 37,080,720  |  
|                                                                                                                                                                           |  |               |             |   |                  |   |             |  
|Other Assets:                                                                                                                                                              |  |               |             |   |                  |   |             |  
|Other assets                                                                                                                                                               |  |               | 203,725     |   |                  |   | 204,108     |  
|                                                                                                                                                                           |  |               |             |   |                  |   |             |  
|Total Assets                                                                                                                                                               |  | $             | 53,014,256  |   |                  | $ | 54,948,586  |  
|                                                                                                                                                                           |  |               |             |   |                  |   |             |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                       |  |               |             |   |                  |   |             |  
|Current Liabilities:                                                                                                                                                       |  |               |             |   |                  |   |             |  
|Accounts payable and accrued expenses                                                                                                                                      |  | $             | 11,767,740  |   |                  | $ | 7,554,814   |  
|Notes and capital leases payable, current portion                                                                                                                          |  |               | 125,731     |   |                  |   | 171,983     |  
|Deferred rent, current portion                                                                                                                                             |  |               | 140,464     |   |                  |   | 175,212     |  
|Deferred revenue                                                                                                                                                           |  |               | 420,000     |   |                  |   | 420,000     |  
|                                                                                                                                                                           |  |               |             |   |                  |   |             |  
|Total current liabilities                                                                                                                                                  |  |               | 12,453,935  |   |                  |   | 8,322,009   |  
|Long-Term Liabilities:                                                                                                                                                     |  |               |             |   |                  |   |             |  
|Deferred rent                                                                                                                                                              |  |               | 3,324,071   |   |                  |   | 2,951,557   |  
|Stock warrants                                                                                                                                                             |  |               | 239,551     |   |                  |   | 125,481     |  
|                                                                                                                                                                           |  |               |             |   |                  |   |             |  
|Total long-term liabilities                                                                                                                                                |  |               | 3,563,622   |   |                  |   | 3,077,038   |  
|Commitments and Contingencies                                                                                                                                              |  |               |            |   |                  |   |            |  
|Stockholders Equity:                                                                                                                                                      |  |               |             |   |                  |   |             |  
|Preferred stock, $.01 par value; 3,000,000 shares authorized; 0 shares issued and outstanding                                                                              |  |               |            |   |                  |   |            |  
|Common stock, $.01 par value; 120,000,000 shares authorized; 33,488,862 and 33,438,862 shares issued and outstanding at March 31, 2009
and December 31, 2008, respectively |  |               | 334,889     |   |                  |   | 334,389     |  
|Additional paid-in capital                                                                                                                                                 |  |               | 141,281,433 |   |                  |   | 140,179,025 |  
|Accumulated deficit                                                                                                                                                        |  |               | (10,145,391 | ) |                  |   | (10,145,391 | )
|Deficit accumulated during the development stage                                                                                                                           |  |               | (94,474,232 | ) |                  |   | (86,818,484 | )
|                                                                                                                                                                           |  |               |             |   |                  |   |             |  
|Total stockholders equity                                                                                                                                                 |  |               | 36,996,699  |   |                  |   | 43,549,539  |  
|                                                                                                                                                                           |  |               |             |   |                  |   |             |  
|Total Liabilities and Stockholders Equity                                                                                                                                 |  | $             | 53,014,256  |   |                  | $ | 54,948,586  |  
|                                                                                                                                                                           |  |               |             |   |                  |   |             |  

See accompanying notes to these financial statements.



3



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DAYSTAR TECHNOLOGIES, INC.

(A DEVELOPMENT STAGE ENTERPRISE)

STATEMENTS OF OPERATIONS

(Unaudited)



|                                                               |  |                                     |            |   |                                                                                    |   |            |   |  |   |             |  
|-------------------------------------------------------------- |  | ----------------------------------- | ---------- | - | ---------------------------------------------------------------------------------- | - | ---------- | - |  | - | ----------- | -
|                                                               |  | For the Three Months EndedMarch 31, |            |   | For the Periodfrom
July 1,2005 (Inception of theDevelopment Stage) toMarch 31,2009 |  
|                                                               |  | 2009                                |            |   | 2008                                                                               |   |           
|Revenue:                                                       |  |                                     |            |   |                                                                                    |   |            |   |  |   |             |  
|Product revenue                                                |  | $                                   |           |   |                                                                                    | $ |           |   |  | $ | 3,528       |  
|Research and development contract revenue                      |  |                                     |           |   |                                                                                    |   |           |   |  |   | 615,000     |  
|                                                               |  |                                     |            |   |                                                                                    |   |            |   |  |   |             |  
|Total revenue                                                  |  |                                     |           |   |                                                                                    |   |           |   |  |   | 618,528     |  
|Costs and Expenses:                                            |  |                                     |            |   |                                                                                    |   |            |   |  |   |             |  
|Research and development                                       |  |                                     | 4,886,104  |   |                                                                                    |   | 2,980,223  |   |  |   | 45,144,019  |  
|Selling, general and administrative                            |  |                                     | 1,744,166  |   |                                                                                    |   | 2,737,286  |   |  |   | 25,162,556  |  
|Restructuring                                                  |  |                                     |           |   |                                                                                    |   |           |   |  |   | 3,280,051   |  
|Depreciation and amortization                                  |  |                                     | 896,461    |   |                                                                                    |   | 753,947    |   |  |   | 9,278,917   |  
|                                                               |  |                                     |            |   |                                                                                    |   |            |   |  |   |             |  
|Total costs and expenses                                       |  |                                     | 7,526,731  |   |                                                                                    |   | 6,471,456  |   |  |   | 82,865,543  |  
|Other Income (Expense):                                        |  |                                     |            |   |                                                                                    |   |            |   |  |   |             |  
|Other income                                                   |  |                                     | 5,781      |   |                                                                                    |   | 208,385    |   |  |   | 2,754,395   |  
|Interest expense                                               |  |                                     | (20,728    | ) |                                                                                    |   | (12,451    | ) |  |   | (2,361,715  | )
|Amortization of note discount and financing costs              |  |                                     |           |   |                                                                                    |   |           |   |  |   | (8,923,945  | )
|(Loss) gain on derivative liabilities                          |  |                                     | (114,070   | ) |                                                                                    |   | 1,791,025  |   |  |   | 2,395,517   |  
|Loss on extinguishment of debt                                 |  |                                     |           |   |                                                                                    |   |           |   |  |   | (6,091,469  | )
|                                                               |  |                                     |            |   |                                                                                    |   |            |   |  |   |             |  
|Total other income (expense)                                   |  |                                     | (129,017   | ) |                                                                                    |   | 1,986,959  |   |  |   | (12,227,217 | )
|                                                               |  |                                     |            |   |                                                                                    |   |            |   |  |   |             |  
|Net Loss                                                       |  | $                                   | (7,655,748 | ) |                                                                                    | $ | (4,484,497 | ) |  | $ | (94,474,232 | )
|                                                               |  |                                     |            |   |                                                                                    |   |            |   |  |   |             |  
|Weighted Average Common Shares Outstanding (Basic And Diluted) |  |                                     | 33,488,306 |   |                                                                                    |   | 32,760,465 |   |  |   |             |  
|                                                               |  |                                     |            |   |                                                                                    |   |            |   |  |   |             |  
|Net Loss Per Share (Basic and Diluted)                         |  | $                                   | (0.23      | ) |                                                                                    | $ | (0.14      | ) |  |   |             |  
|                                                               |  |                                     |            |   |                                                                                    |   |            |   |  |   |             |  

See accompanying notes to these financial statements.



4



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DAYSTAR TECHNOLOGIES, INC.

(A DEVELOPMENT STAGE ENTERPRISE)

STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY

FOR THE PERIOD FROM JULY 1, 2005 (INCEPTION OF THE DEVELOPMENT STAGE)
TO MARCH 31, 2009

(Unaudited)



|                                                                                                                            |  |              |  |                     |         |        |                          |   |        |                                  |      |   |                    |   |             |                                              |  |   |          |   |  |   |             |   |  |   |             |   |  |   |             |  
|--------------------------------------------------------------------------------------------------------------------------- |  | ------------ |  | ------------------- | ------- | ------ | ------------------------ | - | ------ | -------------------------------- | ---- | - | ------------------ | - | ----------- | -------------------------------------------- |  | - | -------- | - |  | - | ----------- | - |  | - | ----------- | - |  | - | ----------- | -
|                                                                                                                            |  | Common Stock |  | Class BCommon Stock |         |        | AdditionalPaid-InCapital |   |        | DeferredEquity BasedCompensation |      |   | AccumulatedDeficit |   |             | DeficitAccumulatedDuring theDevelopmentStage |  |   | Total    |  
|                                                                                                                            |  | Shares       |  | Amount              |         | Shares |                          |   | Amount |                                  |      |   |                    |   |            
|BALANCES, July 1, 2005                                                                                                      |  | 5,083,258    |  | $                   | 50,833  |        | 29,000                   |   |        | $                                | 290  |   |                    | $ | 22,443,181  |                                              |  | $ | (110,770 | ) |  | $ | (10,145,391 | ) |  | $ |            |   |  | $ | 12,238,143  |  
|Exercise of warrants and stock options, 7/05 -12/05 at $6.00 $8.25 per share                                               |  | 1,190,748    |  |                     | 11,907  |        |                         |   |        |                                  |     |   |                    |   | 7,208,295   |                                              |  |   |         |   |  |   |            |   |  |   |            |   |  |   | 7,220,202   |  
|Conversion of Class B common stock                                                                                          |  | 58,000       |  |                     | 580     |        | (29,000                  | ) |        |                                  | (290 | ) |                    |   | (290        | )                                            |  |   |         |   |  |   |            |   |  |   |            |   |  |   |            |  
|Share-based compensation                                                                                                    |  | 38,750       |  |                     | 388     |        |                         |   |        |                                  |     |   |                    |   | 411,912     |                                              |  |   | (292,940 | ) |  |   |            |   |  |   |            |   |  |   | 119,360     |  
|Net loss                                                                                                                    |  |             |  |                     |        |        |                         |   |        |                                  |     |   |                    |   |            |                                              |  |   |         |   |  |   |            |   |  |   | (3,904,151  | ) |  |   | (3,904,151  | )
|                                                                                                                            |  |              |  |                     |         |        |                          |   |        |                                  |      |   |                    |   |             |                                              |  |   |          |   |  |   |             |   |  |   |             |   |  |   |             |  
|BALANCES, December 31, 2005                                                                                                 |  | 6,370,756    |  |                     | 63,708  |        |                         |   |        |                                  |     |   |                    |   | 30,063,098  |                                              |  |   | (403,710 | ) |  |   | (10,145,391 | ) |  |   | (3,904,151  | ) |  |   | 15,673,554  |  
|Reclassification upon adoption of SFAS 123(R)                                                                               |  |             |  |                     |        |        |                         |   |        |                                  |     |   |                    |   | (403,710    | )                                            |  |   | 403,710  |   |  |   |            |   |  |   |            |   |  |   |            |  
|Exercise of warrants and stock options, 1/06, 3/06 & 9/06 at $2.06$7.50 per share                                          |  | 132,815      |  |                     | 1,328   |        |                         |   |        |                                  |     |   |                    |   | 670,544     |                                              |  |   |         |   |  |   |            |   |  |   |            |   |  |   | 671,872     |  
|Share-based compensation                                                                                                    |  | 177,062      |  |                     | 1,771   |        |                         |   |        |                                  |     |   |                    |   | 1,320,949   |                                              |  |   |         |   |  |   |            |   |  |   |            |   |  |   | 1,322,720   |  
|Beneficial conversion feature on convertible note                                                                           |  |             |  |                     |        |        |                         |   |        |                                  |     |   |                    |   | 1,223,842   |                                              |  |   |         |   |  |   |            |   |  |   |            |   |  |   | 1,223,842   |  
|Shares issued in payment of principal and interest on convertible note, 8/06 -12/06                                         |  | 1,143,036    |  |                     | 11,430  |        |                         |   |        |                                  |     |   |                    |   | 7,366,729   |                                              |  |   |         |   |  |   |            |   |  |   |            |   |  |   | 7,378,159   |  
|Warrants issued for placement of convertible note at $5.38 per share                                                        |  |             |  |                     |        |        |                         |   |        |                                  |     |   |                    |   | 140,419     |                                              |  |   |         |   |  |   |            |   |  |   |            |   |  |   | 140,419     |  
|Net loss                                                                                                                    |  |             |  |                     |        |        |                         |   |        |                                  |     |   |                    |   |            |                                              |  |   |         |   |  |   |            |   |  |   | (20,441,201 | ) |  |   | (20,441,201 | )
|                                                                                                                            |  |              |  |                     |         |        |                          |   |        |                                  |      |   |                    |   |             |                                              |  |   |          |   |  |   |             |   |  |   |             |   |  |   |             |  
|BALANCES, December 31, 2006                                                                                                 |  | 7,823,669    |  | $                   | 78,237  |        |                         |   |        | $                                |     |   |                    | $ | 40,381,871  |                                              |  | $ |         |   |  | $ | (10,145,391 | ) |  | $ | (24,345,352 | ) |  | $ | 5,969,365   |  
|Exercise of warrants and stock options, 1/07, 3/07, 6/07, 9/07 & 11/07 at $2.00$3.45 per share                             |  | 518,200      |  |                     | 5,182   |        |                         |   |        |                                  |     |   |                    |   | 3,169,135   |                                              |  |   |         |   |  |   |            |   |  |   |            |   |  |   | 3,174,317   |  
|Share-based compensation                                                                                                    |  | 196,438      |  |                     | 1,965   |        |                         |   |        |                                  |     |   |                    |   | 4,088,080   |                                              |  |   |         |   |  |   |            |   |  |   |            |   |  |   | 4,090,045   |  
|Issuance of shares pursuant to offering, 2/07 at $2.00 per share                                                            |  | 2,500,000    |  |                     | 25,000  |        |                         |   |        |                                  |     |   |                    |   | 4,975,000   |                                              |  |   |         |   |  |   |            |   |  |   |            |   |  |   | 5,000,000   |  
|Issuance of shares pursuant to secondary offering, 10/07 at $4.25 per share, net of offering costs                          |  | 17,250,000   |  |                     | 172,500 |        |                         |   |        |                                  |     |   |                    |   | 67,722,418  |                                              |  |   |         |   |  |   |            |   |  |   |            |   |  |   | 67,894,918  |  
|Shares issued in payment of principal and interest on convertible note, 1/07 at $1.49 per share and 2/07 at $2.00 per share |  | 3,875,384    |  |                     | 38,754  |        |                         |   |        |                                  |     |   |                    |   | 7,288,171   |                                              |  |   |         |   |  |   |            |   |  |   |            |   |  |   | 7,326,925   |  
|Loss on extinguishment due to excess of fair market value of shares issued over issuance price                              |  |             |  |                     |        |        |                         |   |        |                                  |     |   |                    |   | 5,369,278   |                                              |  |   |         |   |  |   |            |   |  |   |            |   |  |   | 5,369,278   |  
|Shares issued for placement of note and offering 3/07 at $2.00 per share                                                    |  | 457,571      |  |                     | 4,575   |        |                         |   |        |                                  |     |   |                    |   | 2,393,096   |                                              |  |   |         |   |  |   |            |   |  |   |            |   |  |   | 2,397,671   |  
|Net loss                                                                                                                    |  |             |  |                     |        |        |                         |   |        |                                  |     |   |                    |   |            |                                              |  |   |         |   |  |   |            |   |  |   | (36,142,861 | ) |  |   | (36,142,861 | )
|                                                                                                                            |  |              |  |                     |         |        |                          |   |        |                                  |      |   |                    |   |             |                                              |  |   |          |   |  |   |             |   |  |   |             |   |  |   |             |  
|BALANCES, December 31, 2007                                                                                                 |  | 32,621,262   |  | $                   | 326,213 |        |                         |   |        | $                                |     |   |                    | $ | 135,387,049 |                                              |  | $ |         |   |  | $ | (10,145,391 | ) |  | $ | (60,488,213 | ) |  | $ | 65,079,658  |  
|Exercise of stock options, 6/08 at $3.14 per share                                                                          |  | 1,600        |  |                     | 16      |        |                         |   |        |                                  |     |   |                    |   | 5,008       |                                              |  |   |         |   |  |   |            |   |  |   |            |   |  |   | 5,024       |  
|Share-based compensation                                                                                                    |  | 816,000      |  |                     | 8,160   |        |                         |   |        |                                  |     |   |                    |   | 4,786,968   |                                              |  |   |         |   |  |   |            |   |  |   |            |   |  |   | 4,795,128   |  
|Net loss                                                                                                                    |  |             |  |                     |        |        |                         |   |        |                                  |     |   |                    |   |            |                                              |  |   |         |   |  |   |            |   |  |   | (26,330,271 | ) |  |   | (26,330,271 | )
|                                                                                                                            |  |              |  |                     |         |        |                          |   |        |                                  |      |   |                    |   |             |                                              |  |   |          |   |  |   |             |   |  |   |             |   |  |   |             |  
|BALANCES, December 31, 2008                                                                                                 |  | 33,438,862   |  | $                   | 334,389 |        |                         |   |        | $                                |     |   |                    | $ | 140,179,025 |                                              |  | $ |         |   |  | $ | (10,145,391 | ) |  | $ | (86,818,484 | ) |  | $ | 43,549,539  |  
|Share-based compensation                                                                                                    |  | 50,000       |  |                     | 500     |        |                         |   |        |                                  |     |   |                    |   | 1,102,408   |                                              |  |   |         |   |  |   |            |   |  |   |            |   |  |   | 1,102,908   |  
|Net loss                                                                                                                    |  |             |  |                     |        |        |                         |   |        |                                  |     |   |                    |   |            |                                              |  |   |         |   |  |   |            |   |  |   | (7,655,748  | ) |  |   | (7,655,748  | )
|                                                                                                                            |  |              |  |                     |         |        |                          |   |        |                                  |      |   |                    |   |             |                                              |  |   |          |   |  |   |             |   |  |   |             |   |  |   |             |  
|BALANCES, March 31, 2009                                                                                                    |  | 33,488,862   |  | $                   | 334,889 |        |                         |   |        | $                                |     |   |                    | $ | 141,281,433 |                                              |  | $ |         |   |  | $ | (10,145,391 | ) |  | $ | (94,474,232 | ) |  | $ | 36,996,699  |  
|                                                                                                                            |  |              |  |                     |         |        |                          |   |        |                                  |      |   |                    |   |             |                                              |  |   |          |   |  |   |             |   |  |   |             |   |  |   |             |  

See accompanying notes to these financial statements.



5



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##### Table of Contents

DAYSTAR TECHNOLOGIES, INC.

(A DEVELOPMENT STAGE ENTERPRISE)

STATEMENTS OF CASH FLOWS

(Unaudited)



|                                                                        |  |                                     |             |   |                                                                                    |   |             |   |  |   |             |  
|----------------------------------------------------------------------- |  | ----------------------------------- | ----------- | - | ---------------------------------------------------------------------------------- | - | ----------- | - |  | - | ----------- | -
|                                                                        |  | For the Three Months EndedMarch 31, |             |   | For the Periodfrom July 1, 2005(Inception of theDevelopment Stage)to
March 31,2009 |  
|                                                                        |  | 2009                                |             |   | 2008                                                                               |   |            
|Cash Flows from Operating Activities:                                   |  |                                     |             |   |                                                                                    |   |             |   |  |   |             |  
|Net loss                                                                |  | $                                   | (7,655,748  | ) |                                                                                    | $ | (4,484,497  | ) |  | $ | (94,474,232 | )
|Adjustments to reconcile net loss to cash used in operating activities: |  |                                     |             |   |                                                                                    |   |             |   |  |   |             |  
|Depreciation and amortization                                           |  |                                     | 896,461     |   |                                                                                    |   | 753,947     |   |  |   | 9,278,917   |  
|Share-based compensation                                                |  |                                     | 1,102,908   |   |                                                                                    |   | 1,502,877   |   |  |   | 11,568,215  |  
|Non-cash interest                                                       |  |                                     |            |   |                                                                                    |   |            |   |  |   | 1,605,084   |  
|Amortization of note discount and non-cash financing costs              |  |                                     |            |   |                                                                                    |   |            |   |  |   | 8,382,245   |  
|Loss (gain) on derivative liabilities                                   |  |                                     | 114,070     |   |                                                                                    |   | (1,791,025  | ) |  |   | (2,395,517  | )
|Shares issued for restructuring                                         |  |                                     |            |   |                                                                                    |   |            |   |  |   | 1,278,253   |  
|Loss on extinguishment of debt                                          |  |                                     |            |   |                                                                                    |   |            |   |  |   | 6,091,469   |  
|Changes in operating assets and liabilities:                            |  |                                     |             |   |                                                                                    |   |             |   |  |   |             |  
|Other assets                                                            |  |                                     | 33,668      |   |                                                                                    |   | 284,838     |   |  |   | (606,803    | )
|Accounts payable and accrued expenses                                   |  |                                     | (3,561,699  | ) |                                                                                    |   | (463,130    | ) |  |   | 2,076,730   |  
|Deferred rent                                                           |  |                                     | 337,766     |   |                                                                                    |   |            |   |  |   | 1,467,114   |  
|Deferred revenue                                                        |  |                                     |            |   |                                                                                    |   | (1,752      | ) |  |   | 217,618     |  
|                                                                        |  |                                     |             |   |                                                                                    |   |             |   |  |   |             |  
|Net cash used in operating activities                                   |  |                                     | (8,732,574  | ) |                                                                                    |   | (4,198,742  | ) |  |   | (55,510,907 | )
|Cash Flows from Investing Activities:                                   |  |                                     |             |   |                                                                                    |   |             |   |  |   |             |  
|Purchase of investments                                                 |  |                                     |            |   |                                                                                    |   | (18,177,076 | ) |  |   | (71,957,732 | )
|Proceeds from sale of investments                                       |  |                                     |            |   |                                                                                    |   | 3,150,000   |   |  |   | 72,662,973  |  
|Purchase of equipment and improvements                                  |  |                                     | (1,850,141  | ) |                                                                                    |   | (961,592    | ) |  |   | (41,488,010 | )
|Proceeds from sale of assets                                            |  |                                     |            |   |                                                                                    |   |            |   |  |   | 3,120       |  
|                                                                        |  |                                     |             |   |                                                                                    |   |             |   |  |   |             |  
|Net cash used in investing activities                                   |  |                                     | (1,850,141  | ) |                                                                                    |   | (15,988,668 | ) |  |   | (40,779,649 | )
|Cash Flows from Financing Activities:                                   |  |                                     |             |   |                                                                                    |   |             |   |  |   |             |  
|Proceeds from sale of stock                                             |  |                                     |            |   |                                                                                    |   |            |   |  |   | 78,312,500  |  
|Proceeds from issuance of notes                                         |  |                                     |            |   |                                                                                    |   |            |   |  |   | 24,000,000  |  
|Payments on notes and capital leases                                    |  |                                     | (46,252     | ) |                                                                                    |   | (45,673     | ) |  |   | (11,369,579 | )
|Cost of financing                                                       |  |                                     |            |   |                                                                                    |   |            |   |  |   | (6,342,379  | )
|Proceeds from exercise of warrants and stock options                    |  |                                     |            |   |                                                                                    |   |            |   |  |   | 8,810,120   |  
|                                                                        |  |                                     |             |   |                                                                                    |   |             |   |  |   |             |  
|Net cash (used in) provided by financing activities                     |  |                                     | (46,252     | ) |                                                                                    |   | (45,673     | ) |  |   | 93,410,662  |  
|                                                                        |  |                                     |             |   |                                                                                    |   |             |   |  |   |             |  
|(Decrease) increase in cash and cash equivalents                        |  |                                     | (10,628,967 | ) |                                                                                    |   | (20,233,083 | ) |  |   | (2,879,894  | )
|Cash and cash equivalents, beginning of period                          |  |                                     | 17,120,401  |   |                                                                                    |   | 61,365,559  |   |  |   | 9,371,328   |  
|                                                                        |  |                                     |             |   |                                                                                    |   |             |   |  |   |             |  
|Cash and cash equivalents, end of period                                |  | $                                   | 6,491,434   |   |                                                                                    | $ | 41,132,476  |   |  | $ | 6,491,434   |  
|                                                                        |  |                                     |             |   |                                                                                    |   |             |   |  |   |             |  
|Supplemental Cash Flow Information:                                     |  |                                     |             |   |                                                                                    |   |             |   |  |   |             |  
|Cash paid for interest                                                  |  | $                                   | 5,478       |   |                                                                                    | $ | 12,451      |   |  |   |             |  
|                                                                        |  |                                     |             |   |                                                                                    |   |             |   |  |   |             |  
|Non-Cash Transactions:                                                  |  |                                     |             |   |                                                                                    |   |             |   |  |   |             |  
|Construction in progress equipment accrual                              |  | $                                   | 7,774,624   |   |                                                                                    | $ |            |   |  |   |             |  
|                                                                        |  |                                     |             |   |                                                                                    |   |             |   |  |   |             |  

See accompanying notes to these financial statements.



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##### Table of Contents

DAYSTAR TECHNOLOGIES, INC.

(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

1. Organization and Nature of Operations:

DayStar Technologies, Inc. (the Company) is a
development stage enterprise that was formed in 1997 for the purpose of developing, manufacturing and marketing innovative products to the solar photovoltaic (PV) industry. From its inception, the Company has focused primarily on thin
film copper indium gallium diselenide (CIGS) solar products. The Company has developed a proprietary one-step sputter deposition process and manufactured a commercial scale deposition tool to apply high efficiency CIGS material over
large area glass substrates in a continuous fashion. The Company intends to integrate this tool with commercially available thin film manufacturing equipment which will provide a critically differentiated manufacturing process to produce
monolithically integrated, CIGS-on-glass modules that address the grid-tied, ground-based PV market.

Certain information and note
disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) have been omitted from these condensed unaudited financial statements.
These condensed unaudited financial statements should be read in conjunction with the financial statements and notes thereto included in the Companys Annual Report on Form 10-K for the year ended December 31, 2008. The condensed balance
sheet as of December 31, 2008 has been derived from audited financial statements. The results of operations for the three months ended March 31, 2009 and 2008 are not necessarily indicative of the operating results for the full year.

In the opinion of management, all adjustments, consisting only of normal recurring accruals, have been made to present fairly the
Companys financial position at March 31, 2009 and the results of its operations and its cash flows for the three months ended March 31, 2009 and 2008 and for the period from July 1, 2005 (Inception of the Development Stage) to
March 31, 2009.

2. Liquidity and Future Operations:

The Companys financial statements for the year ended December 31, 2008 and for the three months ended March 31, 2009 have been prepared on a going concern basis, which contemplates the realization of
assets and the settlement of liabilities and commitments in the normal course of business. The Company is in the development stage, and as such, has historically reported net losses, including a net loss of $7.7 million for the three months ended
March 31, 2009. The Company anticipates it will continue to incur losses in the future as it commercializes its product. As noted herein, as a result of the Companys current liquidity, there is substantial doubt as to its ability to
continue as a going concern.

Commercialization efforts, including the completion and ramp-up of the Companys initial module
production line requires significant additional capital expenditures as well as associated continued development and administrative costs. In order to continue operations, including its development efforts utilizing its pre-production line, fully
build-out its initial manufacturing line and commence commercial shipments of its product, the Company requires immediate and substantial additional capital beyond its current cash on hand. In order to address its financing needs, the Company has
engaged a financial advisor to assist in securing a relationship with appropriate strategic investors or partners that can provide the funding necessary to continue the Companys operations. To date, the Company has been unable to raise
additional capital or complete an agreement with an investor or strategic partner. Although the Company continues to seek strategic investors or partners, in light of its current cash position, the Company may in the near term be forced to
substantially curtail operations, file a voluntary petition for reorganization under the United States Bankruptcy Code, liquidate assets, and/or pursue other such actions that could adversely affect future operations. Given current market conditions
and available opportunities, there is substantial doubt as to the Companys ability to complete a financing in the time frame required to remain in operation. A wide variety of factors relating to the Company and external conditions could
adversely affect its ability to secure additional funding and the terms of any funding that it secures.

3. Significant Accounting Policies:

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s cash and cash equivalents are maintained with major financial institutions within the United States and at times the balances with these institutions exceed the amount of federal insurance
coverage on such deposits.

Property and EquipmentProperty and equipment is stated at cost. Depreciation is computed using
straight-line and an accelerated method over estimated useful lives of 3 to 10 years. Expenditures for maintenance and repairs, which do not materially extend the useful lives of property and equipment, are charged to operations as incurred. When
property or equipment is retired or otherwise disposed of, the property accounts are relieved of costs and accumulated depreciation and any resulting gain or loss is recognized.



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##### Table of Contents

Revenue RecognitionThe Company recognizes revenue in accordance with the Securities and
Exchange Commissions Staff Accounting Bulletin No. 104, Revenue Recognition (SAB 104). SAB 104 requires that four basic criteria must be met before revenue can be recognized: (1) persuasive evidence of an
arrangement exists; (2) delivery has occurred or services rendered; (3) the sellers price to the buyer is fixed and determinable; and (4) collectability is reasonably assured. Since inception of the development stage on
July 1, 2005, the Company has earned minimal amounts of product revenue.

Since inception of the development stage on July 1,
2005, the principal source of revenue for the Company has been from government funded research and development contracts and grants. Grant revenue is recognized when the Company fulfills obligations as set forth under the grant. Terms of the grant
reflected in the accompanying financial statements require the Company to maintain specified employment criteria over a five year period. If the Company fails to meet the specified criteria, it must repay the unearned portion of the grant. As a
result, the Company reported deferred revenue of $420,000 as of March 31, 2009 and December 31, 2008.

Research and
Development CostsResearch and development costs are expensed as incurred. Funds obtained from government agencies that represent a cost reimbursement activity are reflected as reductions of Research and Development expenses.

Use of EstimatesThe preparation of the Companys financial statements in conformity with generally accepted accounting principles
requires the Companys management to make estimates and assumptions that affect the amounts reported in these financial statements and accompanying notes. Significant estimates include the useful lives of the Companys property and
equipment, the life and realization of the Companys capitalized costs associated with its patents and the Companys valuation allowance associated with its deferred tax asset. Actual results could differ from those estimates.

Share-Based CompensationThe Company follows the provisions of Statement of Financial Accounting Standards No. 123 (revised 2004),
Share-Based Payment (SFAS 123(R)), which requires the measurement and recognition of compensation expense for all share-based payment awards to employees and directors based on estimated fair values. Additionally, the Company
follows the Securities and Exchange Commission (the SEC)s Staff Accounting Bulletin No. 107 Share-Based Payment (SAB 107), as amended by Staff Accounting Bulletin No. 110 (SAB 110),
which provides supplemental SFAS 123(R) application guidance based on the views of the SEC. The Company estimates the expected term, which represents the period of time from the grant date that the Company expects its stock options to remain
outstanding, using the simplified method as permitted by SAB 107 and SAB 110. Under this method, the expected term is estimated as the mid-point between the time the options vest and their contractual terms. The Company continues to apply the
simplified method because it does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate the expected terms due to the limited period of time its equity shares have been publicly traded and the limited
number of its options which have so far vested and become eligible for exercise.

The Company adopted SFAS 123(R) on January 1,
2006 using the modified prospective transition method. Under this transition method, share-based compensation expense recognized in the Companys Statements of Operations for the three months ended March 31, 2009 and 2008 included:
(a) compensation expense for all share-based awards granted prior to, but not yet vested, as of January 1, 2006, based on the grant date fair value estimated in accordance with the original provisions of SFAS 123, and (b) compensation
expense for all share-based awards granted beginning January 1, 2006, based on the grant date fair value estimated in accordance with the provisions of SFAS 123(R). Share-based compensation expense for the three months ended March 31, 2009
and 2008 was as follows:



|                                    |  |                                     |           |      |   |          
|----------------------------------- |  | ----------------------------------- | --------- | ---- | - | ---------
|                                    |  | For the Three MonthsEnded March 31,
|                                    |  | 2009                                |           | 2008
|Share-based compensation:           |  |                                     |           |      |   |          
|Selling, general and administrative |  | $                                   | 567,809   |      | $ | 1,125,262
|Research and development            |  |                                     | 535,099   |      |   | 377,615  
|                                    |  |                                     |           |      |   |          
|Total share-based compensation      |  | $                                   | 1,102,908 |      | $ | 1,502,877
|                                    |  |                                     |           |      |   |          

During the three months ended March 31, 2009, the Company granted options to purchase 50,000
shares of common stock at a price of $1.00 per share, all with a contractual life of ten years. Options to purchase 104,200 shares of common stock were forfeited during the three months ended March 31, 2009. Additionally, there were
50,000 shares of restricted stock granted and no shares of restricted stock forfeited during the three months ended March 31, 2009.

Subsequent to March 31, 2009 and through the date of this filing, the Company has issued to employees 3,200 options to purchase common stock.



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##### Table of Contents

Derivative Stock WarrantsCertain terms in a convertible note and related documents issued on
May 25, 2006 as well as subsequent agreements entered into on January 19, 2007, namely the potential for cash settlement, require that the warrants issued in conjunction with these documents be treated as a derivative instrument and,
therefore, classified as a liability on the balance sheet. As such, the liability must be adjusted to fair value at the end of each reporting period, in accordance with SFAS No. 157 Fair Value Measurements (SFAS 157), and any
changes in fair value reported as a gain or loss on derivative liabilities in the statement of operations. In the event of a change in control of the Company, the warrant holders have the option of either exercising their warrants or requesting a
cash settlement at the fair value of the warrants. The Black-Scholes option-pricing model is used to estimate the warrant fair values. The liability on the balance sheets of $239,551 and $125,481 at March 31, 2009 and December 31, 2008,
respectively, represents the amount of potential cash settlement due to the warrant holders in the event of a change in control.

ReclassificationsCertain reclassifications have been made to the 2008 financial statements to conform to the 2009 presentation. Such reclassifications had no impact on net loss.

Impact of Recently Issued Accounting Pronouncements 

SFAS No. 141 (revised 2007), Business Combinations.In December 2007, the FASB issued SFAS No. 141(revised 2007), Business Combinations (SFAS 141R). SFAS 141R
significantly changes the accounting for business combinations in a number of areas including the treatment of contingent consideration, contingencies, acquisition costs, intellectual property research and development, and restructuring costs. In
addition, under SFAS 141R, changes in deferred tax asset valuation allowances and acquired income tax uncertainties in a business combination after the measurement period will impact income tax expense. The Company adopted SFAS 141R effective
January 1, 2009. SFAS 141R will apply to any future business combinations that the Company might enter into.

SFAS No. 157,
Fair Value Measurements. Effective January 1, 2008, the Company adopted SFAS 157. In February 2008, the FASB issued FASB Staff Position No. FAS 157-2, Effective Date of FASB Statement No. 157, which provides a
one year deferral of the effective date of SFAS 157 for non-financial assets and non-financial liabilities, except those that are recognized or disclosed in the financial statements at fair value at least annually. SFAS 157 defines fair value,
establishes a framework for measuring fair value under generally accepted accounting principles and enhances disclosures about fair value measurements. Fair value is defined under SFAS 157 as the exchange price that would be received for an asset or
paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value under
SFAS 157 must maximize the use of observable inputs and minimize the use of unobservable inputs. The standard describes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last
unobservable, that may be used to measure fair value as follows:



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



| |  |  | Level 2Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities;
quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Level 3Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or
liabilities.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------

The adoption of this statement for financial assets and liabilities, effective January 1, 2008, did
not have a material impact on the Companys financial statements. The Company adopted SFAS 157 on January 1, 2009 for its nonfinancial assets and nonfinancial liabilities, which did not have a material impact on its financial statements.
See Note 4 in these Notes to Financial Statements below.

SFAS No. 160, Noncontrolling Interests in Consolidated Financial
Statements, an amendment of ARB No. 51.In December 2007, the FASB issued Statement of Financial Accounting Standards No. 160, Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51
(SFAS 160). SFAS 160 will change the accounting and reporting for minority interests, which will be recharacterized as noncontrolling interests and classified as a component of equity. This new consolidation method will
significantly change the accounting for transactions with minority interest holders. SFAS 160 was adopted by the Company on January 1, 2009. The adoption of SFAS 160 did not have a material impact on the Companys financial statements.

SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities.In March 2008, The FASB issued SFAS
No. 161, Disclosures about Derivative Instruments and Hedging Activities (SFAS 161). SFAS 161 is intended to improve financial reporting of 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. The Company adopted SFAS 161 on January 1, 2009. The implementation of SFAS 161did not have a material impact
on the financial statements of the Company. As a result of the adoption of this statement, we have expanded our disclosures regarding derivative instruments.



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##### Table of Contents

SFAS No. 162,The Hierarchy of Generally Accepted Accounting Principles.
In May 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted Accounting Principles (SFAS 162). SFAS 162 is intended to improve financial reporting by identifying a consistent framework, or
hierarchy, for selecting accounting principles to be used in preparing financial statements that are presented in conformity with generally accepted accounting principles in the United States for non-governmental entities. SFAS 162 was
effective 60 days following the SECs approval on September 16, 2008 of the Public Company Oversight Board amendments to remove the U.S. GAAP hierarchy from the auditing standards. As a result, the Company adopted SFAS 162
during the fourth quarter of 2008. The adoption of SFAS 162 did not have a material impact on the Companys financial statements.

4.
Derivative Liabilities

The Company currently does not use hedging contracts to manage the risk of its overall exposure to interest rate
and foreign currency changes. The derivative liability described below is not a hedging instrument.

Derivative Stock
WarrantsThe Company is accounting for free-standing warrants issued in May 2006 and February 2007 in connection with a convertible note, as derivative liabilities in accordance with SFAS No. 133 Accounting for Derivative
Instruments and Hedging Activities (SFAS 133), SFAS 157, SFAS 161, EITF 00-19, Accounting for Derivative Financial Instruments Indexed to and Potentially Settled in a Companys Own Stock and EITF
No. 05-2, The Meaning of Conventional Convertible Debt Instrument in Issue No. 00-19, due to the potential for cash settlement. In the event of a change in control of the Company, warrant holders having the right to
purchase 600,003 shares of the Companys common stock would have the option of either exercising their warrants or requesting a cash settlement at the fair value of the warrants. Therefore, in accordance with SFAS 157, the warrant liabilities
are adjusted to their fair value at the end of each reporting period. The Black-Scholes model is used to estimate the fair value of the warrants and the change in fair value each period is reported as gain or loss on derivative liabilities.
Generally, this accounting treatment will result in a reported loss during any accounting period in which there is a reported increase in the value of the Companys common stock on the NASDAQ Capital Market. Conversely, this accounting
treatment generally will result in a reported gain during any accounting period in which there is reported decrease in the value of the Companys common stock on the NASDAQ Capital Market.

The liability on the balance sheet at March 31, 2009 represents the amount of potential cash settlement due to the warrant holders in the event of a
change in control, and the change in the liability since December 31, 2007 is summarized as follows:



|                           |  |                        |            |  
|-------------------------- |  | ---------------------- | ---------- | -
|                           |  | Stock WarrantLiability |           
|Balance, December 31, 2007 |  | $                      | 2,771,090  |  
|Change in fair value       |  |                        | (2,645,609 | )
|                           |  |                        |            |  
|Balance, December 31, 2008 |  | $                      | 125,481    |  
|Change in fair value       |  |                        | 114,070    |  
|                           |  |                        |            |  
|Balance, March 31, 2009    |  | $                      | 239,551    |  
|                           |  |                        |            |  

In accordance with SFAS 157, the following table represents the Companys fair value
hierarchy for its financial liabilities measured at fair value on a recurring basis as of March 31, 2009 and December 31, 2008. There were no financial assets subject to the provisions of SFAS 157 as of March 31, 2009 and
December 31, 2008:



|                                                  |  |         |   |         |   |         |  |       |         |  |   |        
|------------------------------------------------- |  | ------- | - | ------- | - | ------- |  | ----- | ------- |  | - | -------
|                                                  |  | Level 1 |   | Level 2 |   | Level 3 |  | Total
|Financial liabilities:                            |  |         |   |         |   |         |  |       |         |  |   |        
|Derivative stock warrants as of March 31, 2009    |  | $       |  |         | $ |        |  | $     | 239,551 |  | $ | 239,551
|                                                  |  |         |   |         |   |         |  |       |         |  |   |        
|Derivative stock warrants as of December 31, 2008 |  | $       |  |         | $ |        |  | $     | 125,481 |  | $ | 125,481
|                                                  |  |         |   |         |   |         |  |       |         |  |   |        



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|Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations
|------- | -------------------------------------------------------------------------------------

The following discussion and analysis provides information that we believe is relevant to an assessment and understanding of our results of operation
and financial condition. You should read this analysis in conjunction with our audited financial statements and related footnotes. This discussion and analysis contains statements of a forward-looking nature relating to future events or our future
financial performance. 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, including those set forth in our Annual Report on Form 10-K filed on March 16, 2009 as well as Part II, Item 1A below.

Overview

We have developed a proprietary thin film
deposition technology for solar photovoltaic (PV) products. We utilize a proprietary one-step sputter deposition process and have manufactured a commercial scale deposition tool to apply high-efficiency copper indium gallium diselenide
(CIGS) material over large area glass substrates in a continuous fashion. We intend to integrate this tool with commercially available thin film manufacturing equipment, which will provide us with a critically differentiated
manufacturing process to produce low-cost monolithically integrated, CIGS-on-glass modules that address the grid-tied, ground-based PV market.

We believe this proprietary deposition process, when operated at an annual capacity of approximately 100 megawatts, will enable us to achieve a total module manufacturing cost of less than $1.00 per watt. This cost would be competitive with
the lowest in the solar PV industry. Using this approach, we have achieved greater than 14% cell efficiencies over large areas on CIGS PV devices, and we believe that this approach will enable us to reach module efficiencies greater than 13%.

We have initiated construction of our first module production line. To facilitate our entry into the addressable solar PV market, we have
entered into a contract with Blitzstrom GmbH, one of the worlds leading thin film solar PV integrators that commits Blitzstrom to purchase a minimum of 50% of our production through 2011, subject to these products meeting defined performance
criteria. We have also signed a Letter of Intent with juwi Solar, who is interested in purchasing up to 25% of our production through 2011.

We will require immediate and substantial additional funds beyond our current cash on hand in order to continue operations and to build-out our first production line, to commence and support commercial production as currently planned, and
to expand our capacity beyond our first production line.

In November 2008, we engaged a financial advisor to assist us in exploring select
strategic transactions that can provide the funding necessary to continue our operations. Although we continue to seek strategic investors or partners, in light of our current cash position, we will in the near term be forced to curtail operations
in order to conserve our remaining capital resources. An inability to raise additional funding in the very near term may cause us to file a voluntary petition for reorganization under the United States Bankruptcy Code, liquidate assets, and/or
pursue other such actions that could adversely affect future operations. A wide variety of factors relating to the Company and external conditions could adversely affect our ability to secure additional funding necessary to continue operations and
the terms of any funding that we secure.

Critical Accounting Policies and Estimates

The preparation of our financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue
and expenses, and the related disclosures. A summary of those accounting policies can be found in the notes to the financial statements set forth in our Annual Report on Form 10-K. Certain of our accounting policies are considered critical as they
are both important to the portrayal of our financial condition and results of operations and require judgments on the part of management about matters that are uncertain. We have identified the following accounting policies that are important to the
presentation of our financial condition and results of operations.

Revenue Recognition. We recognize revenue in accordance with SEC
Staff Accounting Bulletin No. 104, Revenue Recognition (SAB 104). SAB 104 requires that four basic criteria must be met before revenue can be recognized: (1) persuasive evidence of an arrangement exists; (2) delivery
has occurred or services rendered; (3) the sellers price to the buyer is fixed and determinable; and (4) collectability is reasonably assured. Since inception of the development stage on July 1, 2005, we have earned minimal
amounts of product revenue.

Since inception of the development stage on July 1, 2005, our principal source of revenue has been from
government funded research and development contracts and grants. Grant revenue is recognized when we fulfill obligations as set forth under the grant. Terms of the grant reflected in the accompanying financial statements require us to maintain
specified employment criteria over a five year period. If we fail to meet the specified criteria, we must repay the unearned portion of the grant. As a result, we recorded deferred revenue of $420,000 as of March 31, 2009.



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Property and Equipment.Property and equipment is stated at cost. Depreciation is computed using
straight-line and an accelerated method over estimated useful lives of three to ten years. Expenditures for maintenance and repairs, which do not materially extend the useful lives of property and equipment, are charged to operations as incurred.
When property or equipment is retired or otherwise disposed of, the property accounts are relieved of costs and accumulated depreciation and any resulting gain or loss is recognized.

Share-Based Compensation. We follow the provisions of Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based
Payment(SFAS 123(R)), which requires the measurement and recognition of compensation expense for all share-based payment awards to employees and directors based on estimated fair values. Additionally, we follow the SECs Staff Accounting
Bulletin No. 107 Share-Based Payment (SAB 107), as amended by SAB 110, which provide supplemental SFAS 123(R) application guidance based on the views of the SEC. We adopted SFAS 123(R) on January 1, 2006 using the
modified prospective transition method. Under this transition method, share-based compensation expense recognized in our statements of operations for the three months ended March 31, 2009 and 2008 included (a) compensation expense for all
share-based awards granted prior to, but not yet vested, as of January 1, 2006, based on the grant date fair value estimated in accordance with the original provisions of SFAS 123, and (b) compensation expense for all share-based awards
granted beginning January 1, 2006, based on the grant date fair value estimated in accordance with the provisions of SFAS 123(R).

Derivative Stock Warrants. Certain terms in the convertible note (Note) and related documents issued and entered into on May 25, 2006, as well as subsequent agreements entered into on January 19, 2007, namely
the potential for cash settlement require that the warrants issued in conjunction with these documents be treated as a derivative instrument and, therefore, classified as a liability on the balance sheet in accordance with SFAS 133 Accounting
for Derivative Instruments and Hedging Activities. As such, the liability must be adjusted to fair value at the end of each reporting period, and any changes in fair value reported as a gain or loss on derivative liabilities in our statement
of operations. In accordance with SFAS 157 Fair Value Measurements, the Black-Scholes option-pricing model is used to estimate the warrant fair values. Upon a change in control of our company, warrant holders having the right to purchase
600,003 shares of common stock would have the right to require us to repurchase the warrants from them at a purchase price equal to the Black-Scholes value of the unexercised portion of the warrants. Generally, this accounting treatment will result
in a reported loss during any accounting period in which there is a reported increase in the sales price of our common stock on the NASDAQ Capital Market. Conversely, this accounting treatment generally will result in a reported gain during any
accounting period in which there is reported decrease in the sales price of our common stock on the NASDAQ Capital Market.

Results of Operations

Comparison of the Three Months Ended March 31, 2009 and 2008

Certain reclassifications have been made to the 2008 financial information to conform to the 2009 presentation. Such reclassifications had no impact on net loss.

Research and development expenses. Research and development expenses were $4,886,104 for the three months ended March 31, 2009 compared to
$2,980,223 for the three months ended March 31, 2008, an increase of $1,905,881 or 64%. The increase is primarily due to the ramp up of development efforts for our monolithically integrated CIGS-on-glass modules and the manufacturing processes
we will utilize for this product. Throughout the year in 2008, we hired several key individuals required for such development efforts and are currently in the process of constructing our initial manufacturing line in order to commercialize our
products. As such, we experienced an increase in personnel-related costs during the first quarter of 2009 as compared with the same period in 2008, as well as an overall increase in operational expenses for materials and supplies in this area.
Additionally, we experienced an increase of $157,484 in share-based compensation provided to research and development personnel.

Selling, general and administrative expenses. Selling, general and administrative expenses were $1,744,166 for the three months ended March 31, 2009 compared to $2,737,286 for the three months ended March 31, 2008, a
decrease of $993,120 or 36%. The decrease in selling, general and administrative expenses was primarily due to a reduction in personnel costs during the first quarter of 2009 as compared with the same period in 2008, including a decrease of
approximately $557,453 in share-based compensation provided to selling, general and administrative personnel.

Depreciation and
amortization expenses. Depreciation and amortization expenses were $896,461 for the three months ended March 31, 2009 compared to $753,947 for the three months ended March 31, 2008, an increase of $142,514 or 19%. Depreciation and
amortization expense increased primarily due to an increase in equipment utilized in the development of our CIGS PV products and manufacturing processes.

Other income.Other income was $5,781 for the three months ended March 31, 2009 compared to $208,385 for the three months ended March 31, 2008, a decrease of $202,604. This decrease was primarily due
to a reduction in interest income during the first quarter of 2009 as compared with the first quarter of 2008.



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Interest expense.Interest expense was $20,728 for the three months ended March 31, 2009
compared to $12,451 for the three months ended March 31, 2008, an increase of $8,277. The increase in interest expense was primarily due to the recording of interest on tenant improvements financed by the landlord in our Newark, CA facility,
partially offset by a decrease in interest related to notes and capital leases payable.

(Loss) gain on derivative liabilities. The
loss on derivative liabilities was $114,070 for the three months ended March 31, 2009 compared to a gain on derivative liabilities of $1,791,025 for the three months ended March 31, 2008. The warrants issued in 2006 in conjunction with a
convertible note are considered derivative liabilities and are therefore required to be adjusted to fair value each quarter. A decrease in our stock price during the period results in a decrease in the warrant liability and a gain on derivative
liabilities. Conversely, an increase in our stock price during the period would result in an increase in the warrant liability and a loss on derivative liabilities. During the three months ended March 31, 2009, our common stock price increased
which caused an increase in the fair value of the warrant liability. This resulted in a loss on derivative liabilities of $114,070. Our stock price decreased during the three months ended March 31, 2008, which resulted in a gain on derivative
liabilities of $1,791,025.

Liquidity and Capital Resources

At March 31, 2009, our cash and cash equivalents totaled $6.5 million compared to $17.1 million at December 31, 2008. The decrease in cash was primarily due to the payment of our quarterly operating
expenses, payment for certain equipment on order for our initial production line and continued development, as well as leasehold improvements completed in our initial manufacturing facility in Newark, California during the first quarter of 2009. We
are in the development stage, and as such, have historically reported net losses, including net losses of $7.7 million and $4.5 million for the three months ended March 31, 2009 and 2008, respectively. We anticipate incurring losses in the
future, as we complete the build-out of our initial module manufacturing line and enter commercialization of our products, invest in research and development, and incur associated administrative and operating costs. Our financial statements for the
three months ended March 31, 2009 and for the year ended December 31, 2008 have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of
business. As noted herein, as a result of our current liquidity, there is substantial doubt as to our ability to continue as a going concern.

We have historically financed our operations primarily from proceeds of the sale of equity securities. We presently do not have any bank lines of credit that provide us with an additional source of debt financing. In order to fund the costs
associated with our continued development and commercialization efforts, we completed a registered public offering during the fourth quarter of 2007 in which we sold 17,250,000 shares of our common stock at $4.25 per share and generated net proceeds
of approximately $68 million after deducting underwriting discounts and the fees and expenses of the offering. Upon receipt of the proceeds from the offering, we re-paid in full $9.2 million of existing indebtedness. We have used these proceeds to
develop our proprietary deposition process, to build our prototype and commercial scale deposition tools, and to begin installation of our first production line. Commercialization efforts, including the completion and ramp-up of our initial module
production line will require significant additional capital expenditures as well as associated continued development and administrative costs.

During 2008 and the first quarter of 2009, we achieved several key milestones as we completed the development of our proprietary one step sputter deposition process, built our prototype and commercial scale deposition tools, completed our
first full size (2 x 4) monolithically integrated CIGS-on-glass modules, and began installation of our first production line. In order to continue operations and build-out our initial manufacturing line and commence commercial shipments
of our product, we will require substantial funds in the near term beyond our current cash on hand. We engaged a financial advisor to assist in securing a relationship with appropriate strategic investors or partners that can provide the funding
necessary to continue our operations. Although we continue to seek strategic investors or partners, in light of our current cash position, we will in the near term be forced to curtail operations in order to conserve our remaining capital resources.
An inability to raise additional funding in the very near term may cause us to file a voluntary petition for reorganization under the United States Bankruptcy Code, liquidate assets, and/or pursue other such actions that could adversely affect
future operations. A wide variety of factors relating to the Company including those described in the section entitled Risk Factors in Part I Item 1A in our Annual Report on Form 10-K and section 1A of Part II of this report, as
well as external conditions, could adversely affect our ability to secure additional funding necessary to continue operations and the terms of any funding that we secure.

Commitments.At March 31, 2009, we had outstanding approximately $10.0 million of purchase orders for equipment and improvements. Other material commitments include rental payments under operating leases
for manufacturing and office space and equipment, and commitments under employment contracts with our executive officers. These commitments are discussed further in the Commitments and Contingenciesfootnote to our financial statements
included in our Annual Report on Form 10-K.

Off-Balance Sheet Arrangements.The only off-balance sheet obligations are for
operating leases and certain other commitments entered into in the ordinary course of business.



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We lease approximately 144,000 square feet of manufacturing and office space in Newark, California.
The lease commenced on September 15, 2008 and the initial term of the lease expires on September 14, 2018. We have two options to extend the lease by five years each at the completion of the initial term. This facility is the primary
location for our initial manufacturing line.

We lease 50,000 square feet of factory and office space in Santa Clara, California under a
fifty-one month lease that commenced June 2006, for $13,608 per month. We also lease approximately 26,500 square feet of office and manufacturing space in Halfmoon, New York. We lease 18,000 square feet in one location under a five year lease that
commenced July 1, 2004 for $9,750 per month. In a second location in the same corporate park, we lease 8,500 square feet of manufacturing and office space under a sixty month lease that commenced June 1, 2006 for $5,590 per month. This
lease may be terminated at our option after the completion of the eighteenth month. We also maintain leases for certain office equipment.

As discussed under Commitments, at March 31, 2009, we had approximately $10.0 million in commitments under outstanding purchase orders for equipment and improvements. Such commitments are primarily related to manufacturing
equipment which we expect to be delivered throughout 2009. Generally we are required to remit any balances due to the suppliers upon delivery and acceptance of the equipment.



|Item 3. | Quantitative and Qualitative Disclosures about Market Risk
|------- | ----------------------------------------------------------

Our exposure to market risk for a change in interest rates relates primarily to interest earned on our cash and cash equivalents balance. We maintain our portfolio in high credit quality cash deposits and money market funds that invest in
Treasury instruments with carrying values that approximate market value. Due to the short duration of our investment portfolio, we do not expect that a 10% change in interest rates would have a material effect on the fair market value of our cash
and cash equivalents.

We also have market risk arising from changes in foreign currency exchange rates related to expenses and/or
equipment we purchase from foreign businesses. Our payments related to these purchases may be denominated in foreign currency. We believe that such exposure does not present a significant risk due to the limited number of transactions and/or
accounts payable denominated in foreign currency. Consequently, we do not believe that a 10% change in foreign currency exchange rates would have a significant effect on our future net income or cash flows.



|Item 4. | Controls and Procedures
|------- | -----------------------

Evaluation of Disclosure Controls and
Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our
reports pursuant to the Securities Exchange Act of 1934, as amended (the Exchange Act), is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commissions rules and forms,
and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the
disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and utilized, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily is
required to apply its judgment in evaluating disclosure controls and procedures.

As required by Rule 13a-15(b) or Rule 15d-15(b) under the
Exchange Act, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures, as
defined in Rule 13a-15(e) or Rule 15d-15(e) under the Exchange Act, as of the end of the period covered by this report. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and
procedures were effective as of March 31, 2009.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting during the quarter ended March 31, 2009 that have materially affected, or are
reasonably likely to materially affect, our internal control over financial reporting.



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PART II. OTHER INFORMATION



|Item 1A. | Risk Factors
|-------- | ------------

Item 1A, (Risk
Factors) of our annual report on Form 10-K for our fiscal year ended December 31, 2008 (Annual Report) sets forth information relating to important risks and uncertainties that could materially adversely affect our business,
financial condition or operating results. Set forth below are certain risk factors that have been substantively expanded or updated from the Annual Report. The risks and uncertainties described in the Annual Report, as expanded or updated below do
not constitute all the risk factors that pertain to our business but we do believe that they reflect the more important ones. Accordingly, you should review and consider such Risk Factors in making any investment decision with respect to our
securities. An investment in our securities continues to involve a high degree of risk.

In order to continue operations, we require
immediate and substantial additional capital beyond our current cash on hand.

In order to continue operations, including development
efforts utilizing our pre-production line, fully build-out our initial manufacturing line and commence commercial shipments of our product, we require immediate and substantial additional capital beyond our current cash on hand. In order to address
our financing needs, we have engaged a financial advisor to assist in securing a relationship with appropriate strategic investors or partners that can provide the funding necessary to continue our operations. To date, we have been unable to raise
additional capital or complete an agreement with an investor or strategic partner. Although we continue to seek strategic investors or partners, in light of our current cash position, we will in the near term be forced to curtail operations in order
to conserve our remaining capital resources. An inability to raise additional funding in the very near term may cause us to file a voluntary petition for reorganization under the United States Bankruptcy Code, liquidate assets, and/or pursue other
such actions that could adversely affect future operations.

Our independent auditors report expresses doubt about our ability to
continue as a going concern, which may make it more difficult and expensive for us to raise additional capital.

The report of our
independent registered public accounting firm relating to our financial statements as of December 31, 2008 and for the year then ended, stated that there is substantial doubt about our ability to continue as a going concern. Our ability to
continue as a going concern is dependent upon our ability to take advantage of raising capital through securities offerings, debt financing, or partnerships. Management is focusing on raising capital through any one or more of these options. Such
opinion from our outside auditors may make it more difficult and expensive to for us to raise additional capital. If we are unable to obtain such financing we may not be able to continue our operations, which would have an adverse effect on our
stock price and significantly impair our prospects. There can be no assurance that any of managements plans will be successfully implemented.

We have incurred net losses since our inception and anticipate continued net losses as we execute our commercialization plan.

Since our inception, we have incurred net losses, including net losses of $26.3 million and $36.1 million for the years ended December 31, 2008 and 2007, respectively, and $7.7 million for the first quarter ended March 31, 2009,
and have incurred negative cash flows from operations. As a result of ongoing losses, we had an accumulated deficit of approximately $104.6 million as of March 31, 2009. We expect to continue to incur significant losses as we enter
commercialization and expand our manufacturing capacity and may never achieve or maintain profitability. We expect to continue to make significant capital expenditures and anticipate that our expenses will increase to the extent we continue to
develop our manufacturing technologies, build manufacturing lines, establish our sales and distribution network, implement internal systems and infrastructure and hire additional personnel.

As we do not expect to become profitable until after we expand capacity beyond our initial manufacturing line, if ever, we will be unable to satisfy our
obligations solely from cash generated from operations. If, for any reason, we are unable to make required payments under our obligations, one or more of our creditors may take action to collect their debts. If we continue to incur substantial
losses and are unable to secure additional financing, we could be forced to discontinue or curtail our business operations; sell assets at unfavorable prices; refinance existing debt obligations on terms unfavorable to us; or merge, consolidate or
combine with a company with greater financial resources in a transaction that may be unfavorable to us.



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|Item 5. | Other Information
|------- | -----------------

None.



|Item 6. | Exhibits
|------- | --------



|(a) | The following exhibits are filed as part of this report:
|--- | --------------------------------------------------------



|            |  |                                                                                                                                                                             
|----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                                                 
|            | 
|3.1(1)      |  | Amended and Restated Certificate of Incorporation.                                                                                                                          
|            | 
|3.2(2)      |  | Certificate of Amendment of Amended and Restated Certificate of Incorporation.                                                                                              
|            | 
|3.3(3)      |  | Amended and Restated Bylaws.                                                                                                                                                
|            | 
|3.4(4)      |  | Certificate of Designations, Preferences and Rights of a Series of Preferred Stock classifying and designating the Series A Junior Participating Cumulative Preferred Stock.
|            | 
|4.1(4)      |  | Stockholder Rights Agreement, dated as of May 6, 2008 between the Company and Computershare Trust Company, N.A., as Rights Agent.                                           
|            | 
|4.2(5)      |  | Form of Common Stock Certificate.                                                                                                                                           
|            | 
|4.3(5)      |  | Form of Class A Public Warrant.                                                                                                                                             
|            | 
|4.4(5)      |  | Form of Class B Public Warrant.                                                                                                                                             
|            | 
|4.5(5)      |  | Form of Unit Certificate.                                                                                                                                                   
|            | 
|4.6(5)      |  | Form of Warrant Agent Agreement.                                                                                                                                            
|            | 
|4.7(5)      |  | Form of Representatives Warrant.                                                                                                                                           
|            | 
|31.1        |  | Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.                                                              
|            | 
|31.2        |  | Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.                                                              
|            | 
|32.1        |  | Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                      
|            | 
|32.2        |  | Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                      



|(1) | Incorporated by reference to our Quarterly Report on Form 10-QSB filed with the SEC on August 11, 2006.
|--- | -------------------------------------------------------------------------------------------------------



|(2) | Incorporated by reference to our Quarterly Report on Form 10-Q filed with the SEC on November 14, 2008.
|--- | -------------------------------------------------------------------------------------------------------



|(3) | Incorporated by reference to our Quarterly Report on Form 10-Q filed with the SEC on August 7, 2008.
|--- | ----------------------------------------------------------------------------------------------------



|(4) | Incorporated by reference to our Registration Statement on Form 8-A filed with the SEC on May 8, 2008.
|--- | ------------------------------------------------------------------------------------------------------



|(5) | Incorporated by reference to our Registration Statement on Form SB-2 filed with the SEC on November 7, 2003.
|--- | ------------------------------------------------------------------------------------------------------------



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SIGNATURES

In accordance with the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

DAYSTAR TECHNOLOGIES, INC.



|                   |  |  |  |     |  |                                                                     
|------------------ |  |  |  | --- |  | --------------------------------------------------------------------
|Date: May 11, 2009 |  |  |  | By: |  | /s/ STEPHAN J. DELUCA                                               
|                   |  |  |  |     |  | Stephan J. DeLuca                                                   
|                   |  |  |  |     |  | Chief Executive Officer                                             
|                   |  |  |  |     |  | (Principal Executive Officer)                                       
|                   |  |  | 
|Date: May 11, 2009 |  |  |  | By: |  | /s/ WILLIAM S. STECKEL                                              
|                   |  |  |  |     |  | William S. Steckel                                                  
|                   |  |  |  |     |  | Chief Financial Officer (Principal Financial and Accounting Officer)



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EXHIBIT INDEX



|            |  |                                                                                                                                                                             
|----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                                                 
|            | 
|3.1(1)      |  | Amended and Restated Certificate of Incorporation.                                                                                                                          
|            | 
|3.2(2)      |  | Certificate of Amendment of Amended and Restated Certificate of Incorporation.                                                                                              
|            | 
|3.3(3)      |  | Amended and Restated Bylaws.                                                                                                                                                
|            | 
|3.4(4)      |  | Certificate of Designations, Preferences and Rights of a Series of Preferred Stock classifying and designating the Series A Junior Participating Cumulative Preferred Stock.
|            | 
|4.1(4)      |  | Stockholder Rights Agreement, dated as of May 6, 2008 between the Company and Computershare Trust Company, N.A., as Rights Agent.                                           
|            | 
|4.2(5)      |  | Form of Common Stock Certificate.                                                                                                                                           
|            | 
|4.3(5)      |  | Form of Class A Public Warrant.                                                                                                                                             
|            | 
|4.4(5)      |  | Form of Class B Public Warrant.                                                                                                                                             
|            | 
|4.5(5)      |  | Form of Unit Certificate.                                                                                                                                                   
|            | 
|4.6(5)      |  | Form of Warrant Agent Agreement.                                                                                                                                            
|            | 
|4.7(5)      |  | Form of Representatives Warrant.                                                                                                                                           
|            | 
|31.1        |  | Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.                                                              
|            | 
|31.2        |  | Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.                                                              
|            | 
|32.1        |  | Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                      
|            | 
|32.2        |  | Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                      



|(1) | Incorporated by reference to our Quarterly Report on Form 10-QSB filed with the SEC on August 11, 2006.
|--- | -------------------------------------------------------------------------------------------------------



|(2) | Incorporated by reference to our Quarterly Report on Form 10-Q filed with the SEC on November 14, 2008.
|--- | -------------------------------------------------------------------------------------------------------



|(3) | Incorporated by reference to our Quarterly Report on Form 10-Q filed with the SEC on August 7, 2008.
|--- | ----------------------------------------------------------------------------------------------------



|(4) | Incorporated by reference to our Registration Statement on Form 8-A filed with the SEC on May 8, 2008.
|--- | ------------------------------------------------------------------------------------------------------



|(5) | Incorporated by reference to our Registration Statement on Form SB-2 filed with the SEC on November 7, 2003.
|--- | ------------------------------------------------------------------------------------------------------------