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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 June 30, 2011

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.)



|                                                   |  |           
|-------------------------------------------------- |  | ----------
|1010 South Milpitas Boulevard
Milpitas, California |  | 95035     
|(Address of principal executive offices)           |  | (Zip Code)

(408) 582-7100

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

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 August 12, 2011
|Common Stock par value $0.01 per share |  | 9,547,033                     









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DAYSTAR TECHNOLOGIES, INC.

Quarterly Report on Form 10-Q

Quarterly Period Ended June 30, 2011

Table of
Contents



|                                                                                                                                                                                                  |  |  |    | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  |  | -- | 
|Part I  Financial Information                                                                                                                                                                    |  |  |    | 
|                                                                                                                                                                                                  | 
|Item 1. Financial Statements                                                                                                                                                                      |  |  |    | 
|                                                                                                                                                                                                  | 
|Balance SheetsAs of June 30, 2011 (unaudited) and December 31, 2010                                                                                                                              |  |  | 3  | 
|                                                                                                                                                                                                  | 
|Statements of OperationsFor the Three Months and Six Months Ended June 
30, 2011 and 2010 and For the Period From July 1, 2005 (Inception of the Development Stage) to June 30, 2011 (unaudited) |  |  | 4  | 
|                                                                                                                                                                                                  | 
|Statement of Changes in Stockholders EquityFor the Period From July 
1, 2005 (Inception of the Development Stage) to June 30, 2011 (unaudited)                                                  |  |  | 5  | 
|                                                                                                                                                                                                  | 
|Statements of Cash Flows for the Six Months Ended June 
30, 2011 and 2010 and For the Period From July 1, 2005 (Inception of the Development Stage) to June 30, 2011 (unaudited)                  |  |  | 7  | 
|                                                                                                                                                                                                  | 
|Notes to Financial Statements (unaudited)                                                                                                                                                         |  |  | 8  | 
|                                                                                                                                                                                                  | 
|Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations                                                                                                     |  |  | 15 | 
|                                                                                                                                                                                                  | 
|Item 3. Quantitative and Qualitative Disclosures About Market Risk                                                                                                                                |  |  | 18 | 
|                                                                                                                                                                                                  | 
|Item 4. Controls and Procedures                                                                                                                                                                   |  |  | 18 | 
|                                                                                                                                                                                                  | 
|PART II  Other Information                                                                                                                                                                       |  |  |    | 
|                                                                                                                                                                                                  | 
|Item 1. Legal Proceedings                                                                                                                                                                         |  |  | 19 | 
|                                                                                                                                                                                                  | 
|Item 1A. Risk Factors                                                                                                                                                                             |  |  | 19 | 
|                                                                                                                                                                                                  | 
|Item 2. Unregistered Sales of Equity Securities and Use of Proceeds                                                                                                                               |  |  | 19 | 
|                                                                                                                                                                                                  | 
|Item 3. Defaults Upon Senior Securities                                                                                                                                                           |  |  | 19 | 
|                                                                                                                                                                                                  | 
|Item 4. (Removed and Reserved)                                                                                                                                                                    |  |  | 19 | 
|                                                                                                                                                                                                  | 
|Item 5. Other Information                                                                                                                                                                         |  |  | 19 | 
|                                                                                                                                                                                                  | 
|Item 6. Exhibits                                                                                                                                                                                  |  |  | 20 | 
|                                                                                                                                                                                                  | 
|Signatures                                                                                                                                                                                        |  |  | 21 | 



2



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PART I. FINANCIAL INFORMATION



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

DAYSTAR TECHNOLOGIES, INC.

(A DEVELOPMENT STAGE ENTERPRISE)

BALANCE SHEETS



|                                                                                                                                                                        |  |              |              |   |                  |   |              |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------ | ------------ | - | ---------------- | - | ------------ | -
|                                                                                                                                                                        |  | June 30,2011 |              |   | December 31,2010 |  
|                                                                                                                                                                        |  | (Unaudited)  |              |   |                  |  
|ASSETS                                                                                                                                                                  |  |              |              |   |                  |   |              |  
|Current Assets:                                                                                                                                                         |  |              |              |   |                  |   |              |  
|Cash and cash equivalents                                                                                                                                               |  | $            | 4,819        |   |                  | $ | 97,058       |  
|Other current assets                                                                                                                                                    |  |              | 135,919      |   |                  |   | 294,743      |  
|                                                                                                                                                                        |  |              |              |   |                  |   |              |  
|Total current assets                                                                                                                                                    |  |              | 140,738      |   |                  |   | 391,801      |  
|                                                                                                                                                                        |  |              |              |   |                  |   |              |  
|Property and Equipment, at cost                                                                                                                                         |  |              | 20,738,338   |   |                  |   | 23,876,208   |  
|Less accumulated depreciation and amortization                                                                                                                          |  |              | (6,460,945   | ) |                  |   | (5,658,906   | )
|                                                                                                                                                                        |  |              |              |   |                  |   |              |  
|Net property and equipment                                                                                                                                              |  |              | 14,277,393   |   |                  |   | 18,217,302   |  
|                                                                                                                                                                        |  |              |              |   |                  |   |              |  
|Other Assets:                                                                                                                                                           |  |              |              |   |                  |   |              |  
|Other assets                                                                                                                                                            |  |              | 339,295      |   |                  |   | 30,940       |  
|                                                                                                                                                                        |  |              |              |   |                  |   |              |  
|Total Assets                                                                                                                                                            |  | $            | 14,757,426   |   |                  | $ | 18,640,043   |  
|                                                                                                                                                                        |  |              |              |   |                  |   |              |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                    |  |              |              |   |                  |   |              |  
|Current Liabilities:                                                                                                                                                    |  |              |              |   |                  |   |              |  
|Accounts payable and accrued expenses                                                                                                                                   |  | $            | 4,866,181    |   |                  | $ | 6,943,711    |  
|Notes and capital leases payable, current portion, net of discount of $107,300 and $664,835, respectively                                                               |  |              | 4,397,700    |   |                  |   | 4,590,165    |  
|                                                                                                                                                                        |  |              |              |   |                  |   |              |  
|Total current liabilities                                                                                                                                               |  |              | 9,263,881    |   |                  |   | 11,533,876   |  
|Long-Term Liabilities:                                                                                                                                                  |  |              |              |   |                  |   |              |  
|Conversion feature                                                                                                                                                      |  |              |             |   |                  |   | 3,854,272    |  
|                                                                                                                                                                        |  |              |              |   |                  |   |              |  
|Total long-term liabilities                                                                                                                                             |  |              |             |   |                  |   | 3,854,272    |  
|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; 8,959,044 and 6,484,516 shares issued and outstanding at
June 30, 2011 and December 31, 2010, respectively |  |              | 89,590       |   |                  |   | 64,845       |  
|Additional paid-in capital                                                                                                                                              |  |              | 156,935,215  |   |                  |   | 153,272,626  |  
|Accumulated deficit                                                                                                                                                     |  |              | (10,145,391  | ) |                  |   | (10,145,391  | )
|Deficit accumulated during the development stage                                                                                                                        |  |              | (141,385,869 | ) |                  |   | (139,940,185 | )
|                                                                                                                                                                        |  |              |              |   |                  |   |              |  
|Total stockholders equity                                                                                                                                              |  |              | 5,493,545    |   |                  |   | 3,251,895    |  
|                                                                                                                                                                        |  |              |              |   |                  |   |              |  
|Total Liabilities and Stockholders Equity                                                                                                                              |  | $            | 14,757,426   |   |                  | $ | 18,640,043   |  
|                                                                                                                                                                        |  |              |              |   |                  |   |              |  

See accompanying notes to these financial statements.



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DAYSTAR TECHNOLOGIES, INC.

(A DEVELOPMENT STAGE ENTERPRISE)

STATEMENTS OF OPERATIONS

(Unaudited)



|                                                               |  |                                    |            |   |                                  |   |             |                                                                                |  |   |            |   |  |      |             |   |  |   |              |  
|-------------------------------------------------------------- |  | ---------------------------------- | ---------- | - | -------------------------------- | - | ----------- | ------------------------------------------------------------------------------ |  | - | ---------- | - |  | ---- | ----------- | - |  | - | ------------ | -
|                                                               |  | For the Three Months EndedJune 30, |            |   | For the Six MonthsEnded June 30, |   |             | For the Period
from July 1, 2005(Inception of theDevelopment Stage)to June 30, | 
|                                                               |  | 2011                               |            |   | 2010                             |   |             | 2011                                                                           |  |   | 2010       |   |  | 2011 |            
|Revenue:                                                       |  |                                    |            |   |                                  |   |             |                                                                                |  |   |            |   |  |      |             |   |  |   |              |  
|Product revenue                                                |  | $                                  |           |   |                                  | $ |            |                                                                                |  | $ |           |   |  | $    |            |   |  | $ | 3,528        |  
|Research and development contract revenue                      |  |                                    |           |   |                                  |   |            |                                                                                |  |   |           |   |  |      |            |   |  |   | 615,000      |  
|                                                               |  |                                    |            |   |                                  |   |             |                                                                                |  |   |            |   |  |      |             |   |  |   |              |  
|Total revenue                                                  |  |                                    |           |   |                                  |   |            |                                                                                |  |   |           |   |  |      |            |   |  |   | 618,528      |  
|Costs and Expenses:                                            |  |                                    |            |   |                                  |   |             |                                                                                |  |   |            |   |  |      |             |   |  |   |              |  
|Research and development                                       |  |                                    | 233,206    |   |                                  |   | 2,564,357   |                                                                                |  |   | 839,771    |   |  |      | 5,053,185   |   |  |   | 61,359,659   |  
|Selling, general and administrative                            |  |                                    | 459,357    |   |                                  |   | 1,090,805   |                                                                                |  |   | 1,691,544  |   |  |      | 3,333,070   |   |  |   | 36,817,014   |  
|Restructuring                                                  |  |                                    |           |   |                                  |   | 7,765,588   |                                                                                |  |   | 850,000    |   |  |      | 7,765,588   |   |  |   | 13,883,693   |  
|Depreciation and amortization                                  |  |                                    | 398,018    |   |                                  |   | 640,491     |                                                                                |  |   | 802,804    |   |  |      | 1,369,852   |   |  |   | 14,874,912   |  
|                                                               |  |                                    |            |   |                                  |   |             |                                                                                |  |   |            |   |  |      |             |   |  |   |              |  
|Total costs and expenses                                       |  |                                    | 1,090,581  |   |                                  |   | 12,061,241  |                                                                                |  |   | 4,184,119  |   |  |      | 17,521,695  |   |  |   | 126,935,278  |  
|Other Income (Expense):                                        |  |                                    |            |   |                                  |   |             |                                                                                |  |   |            |   |  |      |             |   |  |   |              |  
|Other income (expense)                                         |  |                                    |           |   |                                  |   | 5,000       |                                                                                |  |   |           |   |  |      | 14,375      |   |  |   | 2,228,332    |  
|Interest expense                                               |  |                                    | (111,782   | ) |                                  |   | (105,698    | )                                                                              |  |   | (345,569   | ) |  |      | (227,924    | ) |  |   | (3,418,352   | )
|Amortization of note discount and financing costs              |  |                                    | (106,250   | ) |                                  |   | (556,785    | )                                                                              |  |   | (812,062   | ) |  |      | (1,532,016  | ) |  |   | (16,954,517  | )
|Gain on derivative liabilities                                 |  |                                    | 245,898    |   |                                  |   | 468,886     |                                                                                |  |   | 3,896,066  |   |  |      | 875,065     |   |  |   | 14,066,154   |  
|Loss on extinguishment of debt                                 |  |                                    |           |   |                                  |   |            |                                                                                |  |   |           |   |  |      |            |   |  |   | (10,990,736  | )
|                                                               |  |                                    |            |   |                                  |   |             |                                                                                |  |   |            |   |  |      |             |   |  |   |              |  
|Total other income (expense)                                   |  |                                    | 27,866     |   |                                  |   | (188,597    | )                                                                              |  |   | 2,738,435  |   |  |      | (870,500    | ) |  |   | (15,069,119  | )
|                                                               |  |                                    |            |   |                                  |   |             |                                                                                |  |   |            |   |  |      |             |   |  |   |              |  
|Net Loss                                                       |  | $                                  | (1,062,715 | ) |                                  | $ | (12,249,838 | )                                                                              |  | $ | (1,445,684 | ) |  | $    | (18,392,195 | ) |  | $ | (141,385,869 | )
|                                                               |  |                                    |            |   |                                  |   |             |                                                                                |  |   |            |   |  |      |             |   |  |   |              |  
|Weighted Average Common Shares Outstanding (Basic And Diluted) |  |                                    | 8,904,649  |   |                                  |   | 4,130,926   |                                                                                |  |   | 8,368,909  |   |  |      | 3,970,282   |   |  |   |              |  
|                                                               |  |                                    |            |   |                                  |   |             |                                                                                |  |   |            |   |  |      |             |   |  |   |              |  
|Net Loss Per Share (Basic and Diluted)                         |  | $                                  | (0.12      | ) |                                  | $ | (2.97       | )                                                                              |  | $ | (0.17      | ) |  | $    | (4.63       | ) |  |   |              |  
|                                                               |  |                                    |            |   |                                  |   |             |                                                                                |  |   |            |   |  |      |             |   |  |   |              |  

See accompanying notes to these financial statements.



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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 JUNE 30, 2011

(Unaudited)



|                                                                                                    |  |              |           |  |                     |   |        |                          |  |  |                                  |   |  |                    |     |   |                                              |   |            |       |  |   |          |   |  |   |             |   |  |   |             |   |  |   |             |  
|--------------------------------------------------------------------------------------------------- |  | ------------ | --------- |  | ------------------- | - | ------ | ------------------------ |  |  | -------------------------------- | - |  | ------------------ | --- | - | -------------------------------------------- | - | ---------- | ----- |  | - | -------- | - |  | - | ----------- | - |  | - | ----------- | - |  | - | ----------- | -
|                                                                                                    |  | Common Stock |           |  | Class BCommon Stock |   |        | AdditionalPaid-InCapital |  |  | DeferredEquity BasedCompensation |   |  | AccumulatedDeficit |     |   | DeficitAccumulatedDuring theDevelopmentStage |   |            | Total | 
|                                                                                                    |  | Shares       |           |  | Amount              |   |        | Shares                   |  |  | Amount                           |   |  |                    |     |   |                                             
|BALANCES, July 1, 2005                                                                              |  |              | 564,806   |  |                     | $ | 5,648  |                          |  |  | 3,222                            |   |  | $                  | 32  |   |                                              | $ | 22,488,624 |       |  | $ | (110,770 | ) |  | $ | (10,145,391 | ) |  | $ |            |   |  | $ | 12,238,143  |  
|Exercise of warrants and stock options,7/05 -12/05 at $54.00$74.00 per share                       |  |              | 132,305   |  |                     |   | 1,323  |                          |  |  |                                 |   |  |                    |    |   |                                              |   | 7,218,879  |       |  |   |         |   |  |   |            |   |  |   |            |   |  |   | 7,220,202   |  
|Conversion of Class B common stock                                                                  |  |              | 6,444     |  |                     |   | 64     |                          |  |  | (3,222                           | ) |  |                    | (32 | ) |                                              |   | (32        | )     |  |   |         |   |  |   |            |   |  |   |            |   |  |   |            |  
|Share-based compensation                                                                            |  |              | 4,306     |  |                     |   | 43     |                          |  |  |                                 |   |  |                    |    |   |                                              |   | 412,257    |       |  |   | (292,940 | ) |  |   |            |   |  |   |            |   |  |   | 119,360     |  
|Net loss                                                                                            |  |              |          |  |                     |   |       |                          |  |  |                                 |   |  |                    |    |   |                                              |   |           |       |  |   |         |   |  |   |            |   |  |   | (3,904,151  | ) |  |   | (3,904,151  | )
|                                                                                                    |  |              |           |  |                     |   |        |                          |  |  |                                  |   |  |                    |     |   |                                              |   |            |       |  |   |          |   |  |   |             |   |  |   |             |   |  |   |             |  
|BALANCES, December 31, 2005                                                                         |  |              | 707,861   |  |                     | $ | 7,078  |                          |  |  |                                 |   |  | $                  |    |   |                                              | $ | 30,119,728 |       |  | $ | (403,710 | ) |  | $ | (10,145,391 | ) |  | $ | (3,904,151  | ) |  | $ | 15,673,554  |  
|Reclassification upon adoption ofSFAS 123(R)                                                        |  |              |          |  |                     |   |       |                          |  |  |                                 |   |  |                    |    |   |                                              |   | (403,710   | )     |  |   | 403,710  |   |  |   |            |   |  |   |            |   |  |   |            |  
|Exercise of warrants and stock options,1/06, 3/06 & 9/06 at $18.54$67.50 per share                 |  |              | 14,757    |  |                     |   | 148    |                          |  |  |                                 |   |  |                    |    |   |                                              |   | 671,725    |       |  |   |         |   |  |   |            |   |  |   |            |   |  |   | 671,873     |  
|Share-based compensation                                                                            |  |              | 19,674    |  |                     |   | 197    |                          |  |  |                                 |   |  |                    |    |   |                                              |   | 1,322,523  |       |  |   |         |   |  |   |            |   |  |   |            |   |  |   | 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                 |  |              | 127,004   |  |                     |   | 1,270  |                          |  |  |                                 |   |  |                    |    |   |                                              |   | 7,376,889  |       |  |   |         |   |  |   |            |   |  |   |            |   |  |   | 7,378,159   |  
|Warrants issued for placement of convertible note at $48.42 per share                               |  |              |          |  |                     |   |       |                          |  |  |                                 |   |  |                    |    |   |                                              |   | 140,419    |       |  |   |         |   |  |   |            |   |  |   |            |   |  |   | 140,419     |  
|Net loss                                                                                            |  |              |          |  |                     |   |       |                          |  |  |                                 |   |  |                    |    |   |                                              |   |           |       |  |   |         |   |  |   |            |   |  |   | (20,441,201 | ) |  |   | (20,441,201 | )
|                                                                                                    |  |              |           |  |                     |   |        |                          |  |  |                                  |   |  |                    |     |   |                                              |   |            |       |  |   |          |   |  |   |             |   |  |   |             |   |  |   |             |  
|BALANCES, December 31, 2006                                                                         |  |              | 869,296   |  |                     | $ | 8,693  |                          |  |  |                                 |   |  | $                  |    |   |                                              | $ | 40,451,416 |       |  | $ |         |   |  | $ | (10,145,391 | ) |  | $ | (24,345,352 | ) |  | $ | 5,969,366   |  
|Exercise of warrants and stock options,1/07, 3/07, 6/07, 9/07 & 11/07 at$18.00$31.05 per
share     |  |              | 57,578    |  |                     |   | 576    |                          |  |  |                                 |   |  |                    |    |   |                                              |   | 3,173,741  |       |  |   |         |   |  |   |            |   |  |   |            |   |  |   | 3,174,317   |  
|Share-based compensation                                                                            |  |              | 21,826    |  |                     |   | 218    |                          |  |  |                                 |   |  |                    |    |   |                                              |   | 4,089,826  |       |  |   |         |   |  |   |            |   |  |   |            |   |  |   | 4,090,044   |  
|Issuance of shares pursuant to offering, 2/07 at $18.00 per share                                   |  |              | 277,777   |  |                     |   | 2,778  |                          |  |  |                                 |   |  |                    |    |   |                                              |   | 4,997,222  |       |  |   |         |   |  |   |            |   |  |   |            |   |  |   | 5,000,000   |  
|Issuance of shares pursuant to secondary offering, 10/07 at $38.25 per share, net of offering costs |  |              | 1,916,668 |  |                     |   | 19,166 |                          |  |  |                                 |   |  |                    |    |   |                                              |   | 67,875,752 |       |  |   |         |   |  |   |            |   |  |   |            |   |  |   | 67,894,918  |  



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|                                                                                                                              |  |              |           |  |                     |   |        |                          |  |  |                                  |  |  |                    |   |  |                                              |   |             |       |  |   |   |  |  |   |             |   |  |   |              |   |  |   |             |  
|----------------------------------------------------------------------------------------------------------------------------- |  | ------------ | --------- |  | ------------------- | - | ------ | ------------------------ |  |  | -------------------------------- |  |  | ------------------ | - |  | -------------------------------------------- | - | ----------- | ----- |  | - | - |  |  | - | ----------- | - |  | - | ------------ | - |  | - | ----------- | -
|                                                                                                                              |  | Common Stock |           |  | Class BCommon Stock |   |        | AdditionalPaid-InCapital |  |  | DeferredEquity BasedCompensation |  |  | AccumulatedDeficit |   |  | DeficitAccumulatedDuring theDevelopmentStage |   |             | Total | 
|                                                                                                                              |  | Shares       |           |  | Amount              |   |        | Shares                   |  |  | Amount                           |  |  |                    |   |  |                                             
|Shares issued in payment of principal and interest on convertible note, 1/07 at $13.41 per share and 2/07 at $18.00 per
share |  |              | 430,598   |  |                     |   | 4,306  |                          |  |  |                                 |  |  |                    |  |  |                                              |   | 7,322,619   |       |  |   |  |  |  |   |            |   |  |   |             |   |  |   | 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 $18.00 per share                                                     |  |              | 50,841    |  |                     |   | 508    |                          |  |  |                                 |  |  |                    |  |  |                                              |   | 2,397,163   |       |  |   |  |  |  |   |            |   |  |   |             |   |  |   | 2,397,671   |  
|Net loss                                                                                                                      |  |              |          |  |                     |   |       |                          |  |  |                                 |  |  |                    |  |  |                                              |   |            |       |  |   |  |  |  |   |            |   |  |   | (36,142,861  | ) |  |   | (36,142,861 | )
|                                                                                                                              |  |              |           |  |                     |   |        |                          |  |  |                                  |  |  |                    |   |  |                                              |   |             |       |  |   |   |  |  |   |             |   |  |   |              |   |  |   |             |  
|BALANCES, December 31, 2007                                                                                                   |  |              | 3,624,584 |  |                     | $ | 36,245 |                          |  |  |                                 |  |  | $                  |  |  |                                              | $ | 135,677,017 |       |  | $ |  |  |  | $ | (10,145,391 | ) |  | $ | (60,488,213  | ) |  | $ | 65,079,658  |  
|Exercise of stock options, 6/08 at $28.26 per share                                                                           |  |              | 178       |  |                     |   | 2      |                          |  |  |                                 |  |  |                    |  |  |                                              |   | 5,022       |       |  |   |  |  |  |   |            |   |  |   |             |   |  |   | 5,024       |  
|Share-based compensation                                                                                                      |  |              | 90,667    |  |                     |   | 906    |                          |  |  |                                 |  |  |                    |  |  |                                              |   | 4,794,222   |       |  |   |  |  |  |   |            |   |  |   |             |   |  |   | 4,795,128   |  
|Net loss                                                                                                                      |  |              |          |  |                     |   |       |                          |  |  |                                 |  |  |                    |  |  |                                              |   |            |       |  |   |  |  |  |   |            |   |  |   | (26,330,271  | ) |  |   | (26,330,271 | )
|                                                                                                                              |  |              |           |  |                     |   |        |                          |  |  |                                  |  |  |                    |   |  |                                              |   |             |       |  |   |   |  |  |   |             |   |  |   |              |   |  |   |             |  
|BALANCES , December 31, 2008                                                                                                  |  |              | 3,715,429 |  |                     | $ | 37,153 |                          |  |  |                                 |  |  | $                  |  |  |                                              | $ | 140,476,261 |       |  | $ |  |  |  | $ | (10,145,391 | ) |  | $ | (86,818,484  | ) |  | $ | 43,549,539  |  
|Share-based compensation                                                                                                      |  |              | 51,861    |  |                     |   | 519    |                          |  |  |                                 |  |  |                    |  |  |                                              |   | 4,133,012   |       |  |   |  |  |  |   |            |   |  |   |             |   |  |   | 4,133,531   |  
|Warrants issued in connection with convertible note at $4.50 per share                                                        |  |              |          |  |                     |   |       |                          |  |  |                                 |  |  |                    |  |  |                                              |   | 497,578     |       |  |   |  |  |  |   |            |   |  |   |             |   |  |   | 497,578     |  
|Net loss                                                                                                                      |  |              |          |  |                     |   |       |                          |  |  |                                 |  |  |                    |  |  |                                              |   |            |       |  |   |  |  |  |   |            |   |  |   | (25,040,028  | ) |  |   | (25,040,028 | )
|                                                                                                                              |  |              |           |  |                     |   |        |                          |  |  |                                  |  |  |                    |   |  |                                              |   |             |       |  |   |   |  |  |   |             |   |  |   |              |   |  |   |             |  
|BALANCES, December 31, 2009                                                                                                   |  |              | 3,767,290 |  |                     | $ | 37,672 |                          |  |  |                                 |  |  | $                  |  |  |                                              | $ | 145,106,851 |       |  | $ |  |  |  | $ | (10,145,391 | ) |  | $ | (111,858,512 | ) |  | $ | 23,140,620  |  
|                                                                                                                              |  |              |           |  |                     |   |        |                          |  |  |                                  |  |  |                    |   |  |                                              |   |             |       |  |   |   |  |  |   |             |   |  |   |              |   |  |   |             |  
|Exercise of warrants, 7/10 & 10/10 at $0.90 per share                                                                         |  |              | 66,667    |  |                     |   | 667    |                          |  |  |                                 |  |  |                    |  |  |                                              |   | 59,762      |       |  |   |  |  |  |   |            |   |  |   |             |   |  |   | 60,429      |  
|Share-based compensation                                                                                                      |  |              | 693,540   |  |                     |   | 6,934  |                          |  |  |                                 |  |  |                    |  |  |                                              |   | 4,662,142   |       |  |   |  |  |  |   |            |   |  |   |             |   |  |   | 4,669,076   |  
|Warrants issued in connection with convertible note at $2.70 - $4.50 per share                                                |  |              |          |  |                     |   |       |                          |  |  |                                 |  |  |                    |  |  |                                              |   | 704,481     |       |  |   |  |  |  |   |            |   |  |   |             |   |  |   | 704,481     |  
|Shares issued in settlement of liabilities at$1.54 - $1.85 per share                                                          |  |              | 1,927,232 |  |                     |   | 19,272 |                          |  |  |                                 |  |  |                    |  |  |                                              |   | 2,734,340   |       |  |   |  |  |  |   |            |   |  |   |             |   |  |   | 2,758,662   |  
|Reverse split adjustment                                                                                                      |  |              | 29,787    |  |                     |   | 300    |                          |  |  |                                 |  |  |                    |  |  |                                              |   |            |       |  |   |  |  |  |   |            |   |  |   |             |   |  |   | 300         |  
|Net loss                                                                                                                      |  |              |          |  |                     |   |       |                          |  |  |                                 |  |  |                    |  |  |                                              |   |            |       |  |   |  |  |  |   |            |   |  |   | (28,081,673  | ) |  |   | (28,081,673 | )
|                                                                                                                              |  |              |           |  |                     |   |        |                          |  |  |                                  |  |  |                    |   |  |                                              |   |             |       |  |   |   |  |  |   |             |   |  |   |              |   |  |   |             |  
|BALANCES, December 31, 2010                                                                                                   |  |              | 6,484,516 |  |                     | $ | 64,845 |                          |  |  |                                 |  |  | $                  |  |  |                                              | $ | 153,272,626 |       |  | $ |  |  |  | $ | (10,145,391 | ) |  | $ | (139,940,185 | ) |  | $ | 3,251,895   |  
|                                                                                                                              |  |              |           |  |                     |   |        |                          |  |  |                                  |  |  |                    |   |  |                                              |   |             |       |  |   |   |  |  |   |             |   |  |   |              |   |  |   |             |  
|Share-based compensation                                                                                                      |  |              | 312,093   |  |                     |   | 3,121  |                          |  |  |                                 |  |  |                    |  |  |                                              |   | 1,107,247   |       |  |   |  |  |  |   |            |   |  |   |             |   |  |   | 1,110,368   |  
|Warrants issued in connection with notes at$1.00 - $1.55 per share                                                            |  |              |          |  |                     |   |       |                          |  |  |                                 |  |  |                    |  |  |                                              |   | 212,732     |       |  |   |  |  |  |   |            |   |  |   |             |   |  |   | 212,732     |  
|Conversion of notes payable and accrued interest at $0.90 per share                                                           |  |              | 1,386,438 |  |                     |   | 13,864 |                          |  |  |                                 |  |  |                    |  |  |                                              |   | 1,233,930   |       |  |   |  |  |  |   |            |   |  |   |             |   |  |   | 1,247,794   |  
|Shares issued in settlement of liabilities at$0.90 - $1.57 per share                                                          |  |              | 775,997   |  |                     |   | 7,760  |                          |  |  |                                 |  |  |                    |  |  |                                              |   | 1,108,680   |       |  |   |  |  |  |   |            |   |  |   |             |   |  |   | 1,116,440   |  
|Net loss                                                                                                                      |  |              |          |  |                     |   |       |                          |  |  |                                 |  |  |                    |  |  |                                              |   |            |       |  |   |  |  |  |   |            |   |  |   | (1,445,684   | ) |  |   | (1,445,684  | )
|                                                                                                                              |  |              |           |  |                     |   |        |                          |  |  |                                  |  |  |                    |   |  |                                              |   |             |       |  |   |   |  |  |   |             |   |  |   |              |   |  |   |             |  
|BALANCES, June 30, 2011                                                                                                       |  |              | 8,959,044 |  |                     | $ | 89,590 |                          |  |  |                                 |  |  | $                  |  |  |                                              | $ | 156,935,215 |       |  | $ |  |  |  | $ | (10,145,391 | ) |  | $ | (141,385,869 | ) |  | $ | 5,493,545   |  
|                                                                                                                              |  |              |           |  |                     |   |        |                          |  |  |                                  |  |  |                    |   |  |                                              |   |             |       |  |   |   |  |  |   |             |   |  |   |              |   |  |   |             |  

See accompanying notes to these financial statements.



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##### Table of Contents

DAYSTAR TECHNOLOGIES, INC.

(A DEVELOPMENT STAGE ENTERPRISE)

STATEMENTS OF CASH FLOWS

(Unaudited)



|                                                                        |  |                                  |            |   |                                                                                   |   |             |      |  |   |              |  
|----------------------------------------------------------------------- |  | -------------------------------- | ---------- | - | --------------------------------------------------------------------------------- | - | ----------- | ---- |  | - | ------------ | -
|                                                                        |  | For the Six Months EndedJune 30, |            |   | For the Period
from July 1, 2005 (Inception of the Development Stage)
to June 30, |  
|                                                                        |  | 2011                             |            |   | 2010                                                                              |   |             | 2011 | 
|Cash Flows from Operating Activities:                                   |  |                                  |            |   |                                                                                   |   |             |      |  |   |              |  
|Net loss                                                                |  | $                                | (1,445,684 | ) |                                                                                   | $ | (18,392,195 | )    |  | $ | (141,385,869 | )
|Adjustments to reconcile net loss to cash used in operating activities: |  |                                  |            |   |                                                                                   |   |             |      |  |   |              |  
|Depreciation and amortization                                           |  |                                  | 802,804    |   |                                                                                   |   | 1,369,852   |      |  |   | 14,874,912   |  
|Share-based compensation                                                |  |                                  | 1,110,368  |   |                                                                                   |   | 3,620,249   |      |  |   | 20,378,282   |  
|Non-cash interest                                                       |  |                                  | 345,569    |   |                                                                                   |   | 227,924     |      |  |   | 2,657,953    |  
|Amortization of note discount and non-cash financing costs              |  |                                  | 812,062    |   |                                                                                   |   | 1,497,016   |      |  |   | 16,377,818   |  
|Gain on derivative liabilities                                          |  |                                  | (3,896,066 | ) |                                                                                   |   | (875,065    | )    |  |   | (14,066,154  | )
|Non-cash restructuring                                                  |  |                                  | 850,000    |   |                                                                                   |   | 7,765,588   |      |  |   | 11,881,895   |  
|Loss on sale of fixed assets                                            |  |                                  |           |   |                                                                                   |   |            |      |  |   | 389,784      |  
|Loss on extinguishment of debt                                          |  |                                  |           |   |                                                                                   |   |            |      |  |   | 10,990,736   |  
|Changes in operating assets and liabilities:                            |  |                                  |            |   |                                                                                   |   |             |      |  |   |              |  
|Other assets                                                            |  |                                  | 143,824    |   |                                                                                   |   | 133,202     |      |  |   | (218,891     | )
|Accounts payable and accrued expenses                                   |  |                                  | 784,884    |   |                                                                                   |   | 2,629,798   |      |  |   | 7,769,414    |  
|Deferred rent                                                           |  |                                  |           |   |                                                                                   |   |            |      |  |   | 1,595,239    |  
|Deferred revenue                                                        |  |                                  |           |   |                                                                                   |   |            |      |  |   | 217,618      |  
|                                                                        |  |                                  |            |   |                                                                                   |   |             |      |  |   |              |  
|Net cash used in operating activities                                   |  |                                  | (492,239   | ) |                                                                                   |   | (2,023,631  | )    |  |   | (68,537,263  | )
|Cash Flows from Investing Activities:                                   |  |                                  |            |   |                                                                                   |   |             |      |  |   |              |  
|Purchase of investments                                                 |  |                                  |           |   |                                                                                   |   |            |      |  |   | (71,957,732  | )
|Proceeds from sale of investments                                       |  |                                  |           |   |                                                                                   |   |            |      |  |   | 72,662,973   |  
|Purchase of equipment and improvements                                  |  |                                  |           |   |                                                                                   |   |            |      |  |   | (42,570,127  | )
|Proceeds from sale of assets                                            |  |                                  |           |   |                                                                                   |   |            |      |  |   | 2,035,280    |  
|                                                                        |  |                                  |            |   |                                                                                   |   |             |      |  |   |              |  
|Net cash used in investing activities                                   |  |                                  |           |   |                                                                                   |   |            |      |  |   | (39,829,606  | )
|Cash Flows from Financing Activities:                                   |  |                                  |            |   |                                                                                   |   |             |      |  |   |              |  
|Proceeds from sale of stock                                             |  |                                  |           |   |                                                                                   |   |            |      |  |   | 78,312,500   |  
|Proceeds from issuance of notes                                         |  |                                  | 450,000    |   |                                                                                   |   | 2,030,000   |      |  |   | 29,705,000   |  
|Payments on notes and capital leases                                    |  |                                  | (50,000    | ) |                                                                                   |   |            |      |  |   | (11,545,310  | )
|Cost of financing                                                       |  |                                  |           |   |                                                                                   |   |            |      |  |   | (6,342,379   | )
|Proceeds from exercise of warrants and stock options                    |  |                                  |           |   |                                                                                   |   |            |      |  |   | 8,870,549    |  
|                                                                        |  |                                  |            |   |                                                                                   |   |             |      |  |   |              |  
|Net cash provided by financing activities                               |  |                                  | 400,000    |   |                                                                                   |   | 2,030,000   |      |  |   | 99,000,360   |  
|                                                                        |  |                                  |            |   |                                                                                   |   |             |      |  |   |              |  
|Net change in cash and cash equivalents                                 |  |                                  | (92,239    | ) |                                                                                   |   | 6,369       |      |  |   | (9,366,509   | )
|Cash and cash equivalents, beginning of period                          |  |                                  | 97,058     |   |                                                                                   |   | 17,320      |      |  |   | 9,371,328    |  
|                                                                        |  |                                  |            |   |                                                                                   |   |             |      |  |   |              |  
|Cash and cash equivalents, end of period                                |  | $                                | 4,819      |   |                                                                                   | $ | 23,689      |      |  | $ | 4,819        |  
|                                                                        |  |                                  |            |   |                                                                                   |   |             |      |  |   |              |  
|Supplemental Cash Flow Information:                                     |  |                                  |            |   |                                                                                   |   |             |      |  |   |              |  
|Cash paid for interest                                                  |  | $                                |           |   |                                                                                   | $ |            |      |  |   |              |  
|                                                                        |  |                                  |            |   |                                                                                   |   |             |      |  |   |              |  
|Non-Cash Transactions:                                                  |  |                                  |            |   |                                                                                   |   |             |      |  |   |              |  
|Principal and interest payments on convertible notes, in common stock   |  | $                                | 1,247,794  |   |                                                                                   | $ |            |      |  |   |              |  
|                                                                        |  |                                  |            |   |                                                                                   |   |             |      |  |   |              |  
|Beneficial conversion feature on convertible note                       |  | $                                | 41,794     |   |                                                                                   | $ | 12,720      |      |  |   |              |  
|                                                                        |  |                                  |            |   |                                                                                   |   |             |      |  |   |              |  
|Shares issued for settlement of liabilities                             |  | $                                | 1,116,440  |   |                                                                                   | $ |            |      |  |   |              |  
|                                                                        |  |                                  |            |   |                                                                                   |   |             |      |  |   |              |  
|Accrued property & equipment                                            |  | $                                |           |   |                                                                                   | $ | 9,636,002   |      |  |   |              |  
|                                                                        |  |                                  |            |   |                                                                                   |   |             |      |  |   |              |  

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 di-selenide (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 low-cost monolithically integrated, CIGS-on-glass modules that address the
grid-tied, ground-based PV market. The Company is pursuing a strategy to manufacture its CIGS modules offshore and is in discussions with potential partners to implement this strategy.

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, 2010. The condensed balance sheet as of December 31, 2010 has been derived from audited financial statements. The results of
operations for the six months ended June 30, 2011 and 2010 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 June 30, 2011 and the results of
its operations and its cash flows for the three months and six months ended June 30, 2011 and 2010 and for the period from July 1, 2005 (Inception of the Development Stage) to June 30, 2011.

Reverse Stock Split  On April 23, 2010, the Companys shareholders approved a reverse stock split of its issued
and outstanding common shares in the range of one-for-five to one-for-nine, with the final ratio to be selected by the Companys Board of Directors. The total authorized shares of common stock remained unchanged at 120,000,000. The Board of
Directors selected a ratio of one-for-nine and the reverse stock split was effective on May 11, 2010. Trading of the Companys common stock on the NASDAQ Capital Market on a split-adjusted basis began at the open of trading on May 12,
2010. The reverse stock split affected all shares of the Companys common stock, as well as options to purchase the Companys common stock and other equity incentive awards, as well as convertible debt instruments and warrants that were
outstanding immediately prior to the effective date of the reverse stock split. All references to common shares and per-share data for prior periods have been retroactively restated to reflect the reverse stock split as if it had occurred at the
beginning of the earliest period presented.

2. Liquidity and Future Operations

The Companys financial statements for the year ended December 31, 2010 and for the six months ended
June 30, 2011 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 $1.4 million for the six months ended June 30, 2011. 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. In order to continue operations, pursue offshore manufacturing partners 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
current financial requirements on February 2, 2011, the Company entered into a Securities Purchase Agreement (the Purchase Agreement) with Socius CG II, Ltd. (the Investor or Socius). Pursuant to the terms of
the Purchase Agreement, the Company has the right over a term of two years, subject to certain conditions, to demand through separate tranche notices that the Investor purchase up to a total of $5.0 million of Series B preferred stock.

The Company is pursuing a strategy to manufacture its CIGS modules offshore and is in discussions with potential partners to
commercialize its product through long-term strategic investments and partnerships. Those potential partnerships, if consummated, could include joint ventures, licensing agreements, contract manufacturing agreements, a merger with or an acquisition
of DayStar. 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 cease operations. The Company has implemented cost savings measures to limit its
cash outflows while pursuing strategic investments and partnerships.



8



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##### Table of Contents

An inability to raise additional funding in the very near term may cause the Company 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. 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.

Revenue RecognitionThe Company recognizes revenue in accordance with the FASB ASC 605 Revenue Recognition and Securities and
Exchange Commission (the SEC)s Staff Accounting Bulletin No. 104, Revenue Recognition (SAB 104) which require 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 a liability of $520,000 and $420,000 at June 30, 2011 and December 31, 2010, respectively.

Research and development contract revenue is recognized as the Company meets milestones as set forth under the contract. The Company recognized no revenue for the six months ended June 30, 2011 and
2010, respectively.

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 FASB ASC 718 CompensationStock Compensation, 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 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 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.



9



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##### Table of Contents

Share-based compensation expense for the three months and six months ended June 30,
2011 and 2010 was as follows:



|                                    |  |                                    |         |  |                                  |   |           |      |  |   |           |  |  |   |           | 
|----------------------------------- |  | ---------------------------------- | ------- |  | -------------------------------- | - | --------- | ---- |  | - | --------- |  |  | - | --------- | 
|                                    |  | For the Three MonthsEnded June 30, |         |  | For the Six MonthsEnded June 30, |  
|                                    |  | 2011                               |         |  | 2010                             |   |           | 2011 |  |   | 2010      | 
|Share-based compensation:           |  |                                    |         |  |                                  |   |           |      |  |   |           |  |  |   |           | 
|Selling, general and administrative |  | $                                  | 128,686 |  |                                  | $ | 465,511   |      |  | $ | 766,107   |  |  | $ | 1,744,447 | 
|Research and development            |  |                                    | 48,929  |  |                                  |   | 1,016,096 |      |  |   | 344,261   |  |  |   | 1,875,802 | 
|                                    |  |                                    |         |  |                                  |   |           |      |  |   |           |  |  |   |           | 
|Total share-based compensation      |  | $                                  | 177,615 |  |                                  | $ | 1,481,607 |      |  | $ | 1,110,368 |  |  | $ | 3,620,249 | 
|                                    |  |                                    |         |  |                                  |   |           |      |  |   |           |  |  |   |           | 

During the six months ended June 30, 2011, the Company granted options to purchase 335,000 shares of
common stock at an exercise price of $1.55 - $1.71 per share, all with a contractual life of ten years. Options to purchase 225,185 shares of common stock were forfeited during the six months ended June 30, 2011. During the six months
ended June 30, 2011 there were restricted stock units granted to purchase 365,000 shares of common stock and there were no restricted stock units forfeited.

Subsequent to June 30, 2011 and through the date of this filing, no options or restricted stock units were granted or forfeited.

ReclassificationsCertain reclassifications have been made to the 2010 financial statements to conform to the 2011
presentation. Such reclassifications had no impact on net loss.

Impact of Recently Issued Accounting
Pronouncements

In April 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update
(ASU) 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS. This ASU amends current fair value measurement and disclosure guidance to include
increased transparency around valuation input and investment categorization. ASU 2011-04 is effective for fiscal years and interim periods beginning after December 15, 2011, with early adoption not permitted. The Company does not believe that
the adoption of ASU 2011-04 in the first quarter of 2012 will have an impact its financial position, results of operations, or cash flows.

In June 2011, the FASB issued ASU 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income. ASU 2011-05 allows an entity to present components of net income and other comprehensive
income in one continuous statement, referred to as the statement of comprehensive income, or in two separate, but consecutive statements. ASU 2011-05 eliminates the option to present the components of other comprehensive income as part of the
statement of changes in stockholders equity. While the new guidance changes the presentation of comprehensive income, there are no changes to the components that are recognized in net income or other comprehensive income under current
accounting guidance. ASU 2011-05 is effective for fiscal years and interim periods beginning after December 15, 2011 and must be applied retrospectively. The Company does not believe that the adoption of ASU 2011-05 will have an impact on its
financial position, results of operations, or cash flows.

4. Secured Convertible Promissory Notes and Warrants

Beginning in September 2009, the Company has entered into a series of agreements with various lenders (the
Lenders) to provide bridge financing to the Company in exchange for notes and warrants. With the exception of the traditional loans indicated in the table below, these notes (the Notes) are convertible into shares of the
Companys common stock and each contain terms of six months, are secured by all assets of the Company, and accrue interest at rates of between 8  10% per annum. The Lenders may, at their option at any time prior to payment in full of
the Notes, elect to convert all or any part of the entire outstanding principal amount of the Notes plus the accrued interest on the then outstanding balance into shares of the Companys common stock at the conversion price specified in each of
the Notes (subject to adjustment in the event of any stock splits, stock dividends or other recapitalization of common stock subsequent to the date of such sale or issuance). If between the date of the Notes and such conversion, the Company issues
or sells any shares of capital stock, other than certain excluded securities (a Future Issuance), at a per share price below the original conversion price specified in the Notes, then the conversion price of the Notes will be reduced to
the price of such Future Issuance. As of June 30, 2011, the aggregate principal balance of all outstanding Notes was $4,505,000 and the Notes were convertible into 4,711,114 shares of common stock.

The Notes conversion features were determined to be embedded derivative liabilities and therefore were bifurcated from the Notes
and recorded as a discount to the Notes at their fair value at issuance and are required to be adjusted to fair value at the end of each reporting period. The change in fair value of the conversion features, calculated using the Black Scholes model,
is recorded as a gain or loss on derivative liabilities. The conversion feature fair values at June 30, 2011 and December 31, 2010 were $0 and $3,854,272, respectively. The change in fair value of the conversion features during the three
months ended June 30, 2011 and 2010 resulted in a gain on derivative liabilities of $245,898 and $411,421, respectively. The change in fair value of the conversion features during the six months ended June 30, 2011 and 2010 resulted in a
gain on derivative liabilities of $3,896,066 and $755,493, respectively.



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The proceeds remaining, if any, after allocation to the conversion features are allocated on
a relative fair value basis between the Notes and the warrants and the amounts allocated to the warrants, calculated using the Black Scholes model, are recorded as additional note discount. The discount attributable to the issuance date aggregate
fair value of the conversion features and warrants, is being amortized using the effective interest method over the terms of the Notes. During the three months ended June 30, 2011 and 2010, $106,250 and $521,785, respectively, of this discount
was amortized to expense. During the six months ended June 30, 2011 and 2010, $812,062 and $1,497,016, respectively, of this discount was amortized to expense.

The warrants issued in connection with these Notes are exercisable upon issuance (with the exception of the warrants issued to Dynamic Worldwide Solar Energy, LLC) and entitle the Lenders to purchase up
to 6,028,740 shares of common stock at exercise prices ranging from $1.00  $1.70 per share, as adjusted for standard anti-dilution provisions and are exercisable for a period of 2  7 years from their respective issuance dates.

The following table summarizes the pertinent details of the outstanding notes and warrants as of June 30, 2011.



|                                     |  |                  |           |  |          |   |         |                               |  |   |                                |  |  |                 |           |  |          |   |      |                      |  |  |           |  |  |   |      | 
|------------------------------------ |  | ---------------- | --------- |  | -------- | - | ------- | ----------------------------- |  | - | ------------------------------ |  |  | --------------- | --------- |  | -------- | - | ---- | -------------------- |  |  | --------- |  |  | - | ---- | 
|Lender                               |  | Principal Amount |           |  | Discount |   |         | Note Payable(net of discount) |  |   | Note ConversionShares Issuable |  |  | ConversionPrice |           |  | Warrants |   |      | WarrantExercisePrice | 
|Peter Lacey(1)                       |  | $                | 3,075,000 |  |          | $ |        |                               |  | $ | 3,075,000                      |  |  |                 | 3,416,668 |  |          | $ | 0.90 |                      |  |  | 724,074   |  |  | $ | 1.25 | 
|Peter Lacey(1)                       |  |                  |           |  |          |   |         |                               |  |   |                                |  |  |                 |           |  |          |   |      |                      |  |  | 2,692,594 |  |  | $ | 1.70 | 
|Peter Lacey(1)                       |  |                  | 125,000   |  |          |   | 46,310  |                               |  |   | 78,690                         |  |  |                 | N/A       |  |          |   | N/A  |                      |  |  | 250,000   |  |  | $ | 1.00 | 
|Michael Moretti                      |  |                  | 750,000   |  |          |   |        |                               |  |   | 750,000                        |  |  |                 | 833,335   |  |          | $ | 0.90 |                      |  |  | 833,335   |  |  | $ | 1.25 | 
|Michael Moretti                      |  |                  | 150,000   |  |          |   | 14,680  |                               |  |   | 135,320                        |  |  |                 | 150,000   |  |          | $ | 1.00 |                      |  |  | 193,550   |  |  | $ | 1.55 | 
|Michael Moretti                      |  |                  | 125,000   |  |          |   | 46,310  |                               |  |   | 78,690                         |  |  |                 | N/A       |  |          |   | N/A  |                      |  |  | 250,000   |  |  | $ | 1.00 | 
|John Gorman                          |  |                  | 100,000   |  |          |   |        |                               |  |   | 100,000                        |  |  |                 | 111,111   |  |          | $ | 0.90 |                      |  |  | 666,667   |  |  | $ | 1.25 | 
|Richard Schottenfeld                 |  |                  | 100,000   |  |          |   |        |                               |  |   | 100,000                        |  |  |                 | 111,111   |  |          | $ | 0.90 |                      |  |  | 111,111   |  |  | $ | 1.25 | 
|William Steckel(2)                   |  |                  | 30,000    |  |          |   |        |                               |  |   | 30,000                         |  |  |                 | 33,333    |  |          | $ | 0.90 |                      |  |  | 11,112    |  |  | $ | 1.25 | 
|Robert Weiss(3)                      |  |                  | 50,000    |  |          |   |        |                               |  |   | 50,000                         |  |  |                 | 55,556    |  |          | $ | 0.90 |                      |  |  | 55,556    |  |  | $ | 1.25 | 
|Dynamic Worldwide Solar Energy, LLC. |  |                  |          |  |          |   |        |                               |  |   |                               |  |  |                 |          |  |          |   |     |                      |  |  | 240,741   |  |  | $ | 1.25 | 
|                                     |  | $                | 4,505,000 |  |          | $ | 107,300 |                               |  | $ | 4,397,700                      |  |  |                 | 4,711,114 |  |          |   |      |                      |  |  | 6,028,740 |  |  |   |      | 

The following table summarizes the pertinent details of the outstanding notes and warrants as of
December 31, 2010.



|                                     |  |                  |           |  |          |   |         |                               |  |   |                                |  |  |                 |           |  |          |   |      |                      |  |  |           |  |  |   |      | 
|------------------------------------ |  | ---------------- | --------- |  | -------- | - | ------- | ----------------------------- |  | - | ------------------------------ |  |  | --------------- | --------- |  | -------- | - | ---- | -------------------- |  |  | --------- |  |  | - | ---- | 
|Lender                               |  | Principal Amount |           |  | Discount |   |         | Note Payable(net of discount) |  |   | Note ConversionShares Issuable |  |  | ConversionPrice |           |  | Warrants |   |      | WarrantExercisePrice | 
|Peter Lacey(1)                       |  | $                | 3,075,000 |  |          | $ | 365,676 |                               |  | $ | 2,709,324                      |  |  |                 | 3,416,668 |  |          | $ | 0.90 |                      |  |  | 724,074   |  |  | $ | 1.25 | 
|                                     |  |                  |           |  |          |   |         |                               |  |   |                                |  |  |                 |           |  |          |   |      |                      |  |  | 2,692,594 |  |  | $ | 1.70 | 
|Michael Moretti                      |  |                  | 750,000   |  |          |   | 89,189  |                               |  |   | 660,811                        |  |  |                 | 833,335   |  |          | $ | 0.90 |                      |  |  | 833,335   |  |  | $ | 1.25 | 
|John Gorman                          |  |                  | 700,000   |  |          |   | 83,243  |                               |  |   | 616,757                        |  |  |                 | 777,778   |  |          | $ | 0.90 |                      |  |  | 777,778   |  |  | $ | 1.25 | 
|William Steckel(2)                   |  |                  | 30,000    |  |          |   | 3,568   |                               |  |   | 26,432                         |  |  |                 | 33,333    |  |          | $ | 0.90 |                      |  |  | 11,112    |  |  | $ | 1.25 | 
|Robert Weiss(3)                      |  |                  | 50,000    |  |          |   | 5,946   |                               |  |   | 44,054                         |  |  |                 | 55,556    |  |          | $ | 0.90 |                      |  |  | 55,556    |  |  | $ | 1.25 | 
|Dynamic Worldwide Solar Energy, LLC. |  |                  | 650,000   |  |          |   | 117,213 |                               |  |   | 532,787                        |  |  |                 | 722,222   |  |          | $ | 0.90 |                      |  |  | 240,741   |  |  | $ | 1.25 | 
|                                     |  | $                | 5,255,000 |  |          | $ | 664,835 |                               |  | $ | 4,590,165                      |  |  |                 | 5,838,892 |  |          |   |      |                      |  |  | 5,335,190 |  |  |   |      | 



|(1) | Mr. Lacey is Chairman of the Board of Directors for the Company and currently serving as the Companys Interim President and Chief Executive Officer.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Mr. Steckel is a Director of the Company and the former Chief Executive Officer and Chief Financial Officer.
|--- | ------------------------------------------------------------------------------------------------------------

|(3) | Mr. Weiss is the Companys Chief Technology Officer.
|--- | ----------------------------------------------------

In January 2011, Dynamic Worldwide Solar Energy, LLC converted its entire outstanding principal balance of $650,000 as well as the accrued interest thereon into shares of the Companys common stock,
and John Gorman converted $500,000 of his outstanding principal balance as well as the accrued interest thereon into shares of the Companys common stock. Additionally, John Gorman transferred $100,000 of his remaining balance to Richard
Schottenfeld.



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5. Derivative Liabilities

As described in Note 4 Secured Convertible Promissory Notes and Warrants, the Company is accounting for the conversion
features in its secured convertible notes as embedded 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 conversion features are
not considered hedging instruments.

The conversion feature liability on the balance sheet at June 30, 2011 and 2010, and
the change in the liability for the six months ended June 30, 2011 and 2010 is summarized as follows:



|                           |  |                            |            |  
|-------------------------- |  | -------------------------- | ---------- | -
|                           |  | ConversionFeatureLiability |           
|Balance, December 31, 2009 |  | $                          | 251,618    |  
|New debt issuances         |  |                            | 516,595    |  
|Change in fair value       |  |                            | (755,493   | )
|                           |  |                            |            |  
|Balance, June 30, 2010     |  | $                          | 12,720     |  
|                           |  |                            |            |  
|Balance, December 31, 2010 |  | $                          | 3,854,272  |  
|New debt issuances         |  |                            | 41,794     |  
|Change in fair value       |  |                            | (3,896,066 | )
|                           |  |                            |            |  
|Balance, June 30, 2011     |  | $                          |           |  
|                           |  |                            |            |  

In accordance with ASC 820, the following table represents the Companys fair value hierarchy for
its financial liabilities measured at fair value on a recurring basis as of June 30, 2011 and December 31, 2010. There were no financial assets subject to the provisions of ASC 820 as of June 30, 2011 and December 31, 2010:



|                                            |  |         |   |  |         |   |   |         |  |   |           |  |  |   |           | 
|------------------------------------------- |  | ------- | - |  | ------- | - | - | ------- |  | - | --------- |  |  | - | --------- | 
|                                            |  | Level 1 |   |  | Level 2 |   |   | Level 3 |  |   | Total     | 
|Financial liabilities at June 30, 2011:     |  |         |   |  |         |   |   |         |  |   |           |  |  |   |           | 
|Conversion feature                          |  | $       |  |  |         | $ |  |         |  | $ |          |  |  | $ |          | 
|                                            |  |         |   |  |         |   |   |         |  |   |           |  |  |   |           | 
|                                            |  | $       |  |  |         | $ |  |         |  | $ |          |  |  | $ |          | 
|                                            |  |         |   |  |         |   |   |         |  |   |           |  |  |   |           | 
|Financial liabilities at December 31, 2010: |  |         |   |  |         |   |   |         |  |   |           |  |  |   |           | 
|Conversion feature                          |  | $       |  |  |         | $ |  |         |  | $ | 3,854,272 |  |  | $ | 3,854,272 | 
|                                            |  |         |   |  |         |   |   |         |  |   |           |  |  |   |           | 
|                                            |  | $       |  |  |         | $ |  |         |  | $ | 3,854,272 |  |  | $ | 3,854,272 | 
|                                            |  |         |   |  |         |   |   |         |  |   |           |  |  |   |           | 

6. Funding Commitment

On February 2, 2011 the Company entered into a Securities Purchase Agreement (the Purchase Agreement)
with Socius CG II, Ltd. (the Investor or Socius). Pursuant to the terms of the Purchase Agreement, the Company has the right over a term of two years, subject to certain conditions, to demand through separate tranche notices
that the Investor purchase up to a total of $5.0 million of Series B preferred stock.

Under the Purchase Agreement, in
connection with each tranche, Socius will receive the right (the Investment Right) to purchase an amount of shares of our common stock equal in value to the amount of the tranche at a per share price equal to the closing bid price of the
common stock on the date preceding our delivery of the tranche notice (the Investment Price). The Investment Right will be automatically exercised for shares of common stock at the time of each tranche. In addition, in connection with
each tranche notice, a portion of a warrant issued to Socius under the Purchase Agreement with an aggregate exercise price equal to 35% of the amount of the tranche will vest and immediately be exercised at a per share price equal to the Investment
Price.

Socius may pay for the shares it elects to purchase under the investment right at its option, in cash or a secured
promissory note. Socius may pay for the shares it elects to purchase under the warrant at its option, in cash or a secured promissory note. Any such promissory note will bear interest at 2.0% per year and be secured by securities owned by
Socius with a fair market value equal to the principal amount of the promissory note. The entire principal balance and interest on the promissory note is due and payable on the fourth anniversary of the date of the promissory note, and may be
applied by the Company toward the redemption of shares of Series B preferred stock held by Socius.



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Holders of Series B Preferred Stock will be entitled to receive dividends, which will accrue
in shares of Series B Preferred Stock on an annual basis at a rate equal to 10% per annum from the issuance date. Accrued dividends will be payable upon redemption of the Series B Preferred Stock or upon the liquidation, dissolution or winding
up of the Company. The Series B Preferred Stock ranks, with respect to dividend right and upon liquidation:



| |  |  | Senior to the Companys common stock and any other series or class of preferred stock other than a class or series of preferred stock intended to
be listed for trading; and
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Junior to all existing and future indebtedness of the company and any class or series of preferred stock intended to be listed for trading.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------

The Series B Preferred Stock has a liquidation preference per share equal to the original price per share
thereof plus all accrued dividends thereon (the Liquidation Value), and is subject to repurchase by the Company following the consummation of certain fundamental transactions by the Company. Upon or after the fourth anniversary of the
applicable issuance date, the Company has the right, at its option, to redeem all or a portion of the shares of Series B Preferred Stock at the Liquidation Value. The Company also has the right, at its option, to redeem all or a portion of the
shares of Series B Preferred Stock, at a price per share equal to: (i) 136% of the Liquidation Value if redeemed on or after the applicable issuance date but prior to the first anniversary of the applicable issuance date, (ii) 127% of the
Liquidation Value if redeemed on or after the first anniversary but prior to the second anniversary of the applicable issuance date, (iii) 118% of the Liquidation Value if redeemed on or after the second anniversary but prior to the third
anniversary of the applicable issuance date, and (iv) 109% of the Liquidation Value if redeemed on or after the third anniversary but prior to the fourth anniversary of the applicable issuance date.

Under the terms of the Purchase Agreement, the Company was obligated to pay Socius a commitment fee for committing to purchase the Series
B Preferred Stock in the form of shares of common stock or cash, at the Companys option. The amount of the commitment fee was the number of shares determined by dividing $294,120 by the closing bid price of the Companys common stock on
the trading day immediately preceding the date on which the commitment fee is paid, or $250,000 in cash. If not earlier paid, the commitment fee was payable in full on the six-month anniversary of the effective date of the Purchase Agreement. On
August 2, 2011, the Company transferred ownership of 744,607 shares of its common stock, including 587,989 newly issued shares in full payment of the commitment fee.

The Companys ability to submit a tranche notice is subject to certain conditions including, among others, that: (1) a registration statement covering our sale of shares of common stock issuable
upon exercise of the additional investment right contained in the Purchase Agreement or upon exercise of the warrants issued to Socius in connection with the tranche is effective and (2) the issuance of such shares (together with all other
shares beneficially owned) would not result in Socius and its affiliates beneficially owning more than 9.99% of the Companys common stock.

7. Liability Settlements

On January 26, 2011 the Company issued 254,777 shares of common stock to Grenzebach Corporation
(Grenzebach) and on February 2, 2011 the Company issued 290,323 shares of common stock to Reis GmbH & Co. KG Maschinenfabrik (Reis). These shares were issued in settlement of outstanding liabilities on the
Companys balance sheet of $3,137,870 and related to the purchase of certain pieces of equipment. The settlement of these obligations and issuance of common stock resulted in $850,000 in restructuring expenses during the six months ended
June 30, 2011.

8. Subsequent Events

Bridge Financing

On July 19, 2011 the Company, Michael Moretti and Peter A. Lacey, entered into Purchase Agreements (each a Purchase Agreement, collectively, the Purchase Agreements). Pursuant
to the Purchase Agreement, each of Mr. Moretti and Mr. Lacey agreed to loan the Company $150,000 (the Loan) to fund operating capital and general corporate purposes. On July 19, 2011, the Company issued Mr. Moretti
and Mr. Lacey (a) a Secured Convertible Promissory Note (the Notes) and (b) a warrant to purchase 288,462 shares of the Companys common stock (subject to adjustment for certain dilutive transactions) (the
Warrants). The Notes carry an interest rate of 10% per annum and are convertible into shares of the Companys common stock based on a $0.52 conversion price (subject to adjustment for certain dilutive transactions). The Notes,
to the extent that any part of the outstanding principal amount is not converted into shares of common stock, mature on the 180th day after the date of the Notes and are secured by all the assets of the Company. The Warrants are immediately
exercisable, expire on July 18, 2013, and have an exercise price of $0.52 per share. As a result of this issuance, the conversion price of outstanding bridge notes was adjusted to reflect the purchase price implied by this issuance.



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##### Table of Contents

The following table summarizes the pertinent details of the outstanding notes and warrants
after the July 19, 2011 bridge loan.



|                                     |  |              |            |     |                  |   |           |                                |  |  |                 |  |  |          |      |  |                      |  |           |  |  |   |      | 
|------------------------------------ |  | ------------ | ---------- | --- | ---------------- | - | --------- | ------------------------------ |  |  | --------------- |  |  | -------- | ---- |  | -------------------- |  | --------- |  |  | - | ---- | 
|Lender                               |  | MaturityDate |            |     | Principal Amount |   |           | Note ConversionShares Issuable |  |  | ConversionPrice |  |  | Warrants |      |  | WarrantExercisePrice | 
|Peter Lacey                          |  |              | 10/22/2011 |     |                  | $ | 3,075,000 |                                |  |  | 5,913,462       |  |  | $        | 0.52 |  |                      |  | 724,074   |  |  | $ | 1.25 | 
|Peter Lacey                          |  |              |            |     |                  |   |           |                                |  |  |                 |  |  |          |      |  |                      |  | 2,692,594 |  |  | $ | 1.70 | 
|Peter Lacey                          |  |              | 10/27/2011 |     |                  |   | 125,000   |                                |  |  | N/A             |  |  |          | N/A  |  |                      |  | 250,000   |  |  | $ | 1.00 | 
|Peter Lacey                          |  |              | 1/19/2012  |     |                  |   | 150,000   |                                |  |  | 288,462         |  |  | $        | 0.52 |  |                      |  | 288,462   |  |  | $ | 0.52 | 
|Michael Moretti                      |  |              | 10/22/2011 |     |                  |   | 750,000   |                                |  |  | 1,442,308       |  |  | $        | 0.52 |  |                      |  | 833,335   |  |  | $ | 1.25 | 
|Michael Moretti                      |  |              | 10/22/2011 |     |                  |   | 150,000   |                                |  |  | 288,462         |  |  | $        | 0.52 |  |                      |  | 193,550   |  |  | $ | 1.55 | 
|Michael Moretti                      |  |              | 10/27/2011 |     |                  |   | 125,000   |                                |  |  | N/A             |  |  |          | N/A  |  |                      |  | 250,000   |  |  | $ | 1.00 | 
|Michael Moretti                      |  |              | 1/19/2012  |     |                  |   | 150,000   |                                |  |  | 288,462         |  |  | $        | 0.52 |  |                      |  | 288,462   |  |  | $ | 0.52 | 
|John Gorman                          |  |              | 7/22/2011  | (1) |                  |   | 100,000   |                                |  |  | 192,308         |  |  | $        | 0.52 |  |                      |  | 666,667   |  |  | $ | 1.25 | 
|Richard Schottenfeld                 |  |              | 7/22/2011  | (1) |                  |   | 100,000   |                                |  |  | 192,308         |  |  | $        | 0.52 |  |                      |  | 111,111   |  |  | $ | 1.25 | 
|William Steckel                      |  |              | 10/22/2011 |     |                  |   | 30,000    |                                |  |  | 57,692          |  |  | $        | 0.52 |  |                      |  | 11,112    |  |  | $ | 1.25 | 
|Robert Weiss                         |  |              | 9/1/2011   |     |                  |   | 50,000    |                                |  |  | 96,154          |  |  | $        | 0.52 |  |                      |  | 55,556    |  |  | $ | 1.25 | 
|Dynamic Worldwide Solar Energy, LLC. |  |              |            |     |                  |   |          |                                |  |  |                |  |  |          |     |  |                      |  | 240,741   |  |  | $ | 1.25 | 
|                                     |  |              |            |     |                  | $ | 4,805,000 |                                |  |  | 8,759,618       |  |  |          |      |  |                      |  | 6,605,664 |  |  |   |      | 



|(1) | The Company is currently in discussions with Messrs. Gorman and Schottenfeld regarding an extension of the maturity date of their notes.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------



14



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##### Table of Contents

|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 31, 2011 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 believe this proprietary tool, when combined with commercially
available thin film manufacturing equipment, will provide 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 are pursuing a
strategy to produce our CIGS-on-glass modules utilizing offshore manufacturing.

We believe this proprietary deposition
process, when operated at an annual capacity of approximately 100 megawatts, will 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 15% cell efficiencies over large areas on CIGS PV devices, and we believe that this approach will enable module efficiencies greater than 13%.

In October 2007, we completed a follow-on public offering in which we sold 17,250,000 shares of our common stock. Our net proceeds from the offering were approximately $68 million. We have used these
proceeds to develop our proprietary deposition process, to build our prototype and commercial scale deposition tools. In the near term, we will require substantial funds beyond our current cash on hand in order to pursue a strategic partnership (or
partnerships) to commercialize the CIGS modules, to pursue offshore manufacturing, to fund future operations, and to expand our capacity.

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 our financial statements. 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.

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 FASB ASC 718 CompensationStock Compensation, 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 SAB No. 107, Share-Based Payment (SAB 107), as amended by SAB No. 110, which provides supplemental
application guidance based on the views of the SEC.

Results of Operations

Comparison of the Three Months Ended June 30, 2011 and 2010

Certain
reclassifications have been made to the 2010 financial information to conform to the 2011 presentation. Such reclassifications had no impact on net loss.

Research and development expenses. Research and development expenses were $233,206 for the three months ended June 30, 2011 compared to $2,564,357 for the three months ended June 30,
2010, a decrease of $2,331,151 or 91%. The decrease is primarily due to the cost savings measures implemented including a reduction in our workforce, the consolidation of our facilities into one location in California and a reduction in expenditures
for materials, supplies and consultants, as well as a decrease of $967,167 in share based compensation.



15



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##### Table of Contents

Selling, general and administrative expenses. Selling, general and administrative
expenses were $459,357 for the three months ended June 30, 2011 compared to $1,090,805 for the three months ended June 30, 2010, a decrease of $631,448 or 58%. The decrease in selling, general and administrative expenses was primarily due
to cost savings measures implemented, including a reduction in our workforce and outside consultants and professional fees, as well as a decrease of $336,825 in share based compensation.

Restructuring.There were no restructuring expenses for the three months ended June 30, 2011. Restructuring expenses were
$7,765,588 for the three months ended June 30, 2010. In June 2010, we were unable to cure all alleged defaults under the lease for our Newark, California facility and on July 15, 2010, we were notified by our landlord that the lease for
the facility was forfeited and terminated, and that the landlord had received a judgment for possession of the premises. Therefore, we recorded an impairment charge for the book value of the leasehold improvements for this facility and the write-off
of any non-cash deferred rent, in the amount of $3,509,763. Additionally, we recorded impairment charges of $4,255,825 on certain equipment during the second quarter of 2010.

Depreciation and amortization expense. Depreciation and amortization expense was $398,018 for the three months ended June 30, 2011 compared to $640,491 for the three months ended June 30,
2010, a decrease of $242,473 or 38%. During the second quarter of 2010, we consolidated our California facilities and recorded impairment charges on leasehold improvements and certain equipment which resulted in a decrease in depreciation expense.

Interest expense. Interest expense was $111,782 for the three months ended June 30, 2011 compared to $105,698 for
the three months ended June 30, 2010, an increase of $6,084 or 6%. The increase in interest expense was due to the increase in our outstanding notes issued in connection with our bridge financing, as well as interest expense on certain
outstanding payables at June 30, 2011.

Amortization of note discount and financing costs.Amortization of note
discount and financing costs was $106,250 for the three months ended June 30, 2011 compared to $556,785 for the three months ended June 30, 2010, a decrease of $450,535 or 81%. The convertible notes issued in connection with our bridge
financing contain conversion features as well as warrants which result in discounts to the principal amount of the notes payable reflected on our balance sheet, based on the fair value of the warrants and conversion features. The discounts on the
convertible notes are amortized using the effective interest method over the terms of the notes. During the second quarter of 2010, a significant portion of the discount on the then outstanding notes was amortized whereas in the second quarter of
2011, the discount related to a relatively smaller amount of notes issued in 2011, was amortized to expense.

Gain on
derivative liabilities. Gain on derivative liabilities was $245,898 for the three months ended June 30, 2011 compared to $468,886 for the three months ended June 30, 2010. The conversion features on the convertible notes issued in
conjunction with our bridge financing 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 liabilities and a gain on
derivative liabilities. Conversely, an increase in our stock price during the period would result in an increase in the liabilities and a loss on derivative liabilities. During the three months ended June 30, 2011, our common stock price as
well as the remaining term of the outstanding convertible notes decreased which caused the fair value of the conversion features to be reduced to zero and the remainder of the conversion feature liability was written off at June 30, 2011. The
reduction in the fair value of the conversion features was recorded as gain on derivative liabilities.

Comparison of the Six Months Ended
June 30, 2011 and 2010

Certain reclassifications have been made to the 2010 financial information to conform to the
2011 presentation. Such reclassifications had no impact on net loss.

Research and development expenses. Research and
development expenses were $839,771 for the six months ended June 30, 2011 compared to $5,053,185 for the six months ended June 30, 2010, a decrease of $4,213,414 or 83%. The decrease is primarily due to the cost savings measures
implemented including a reduction in our workforce, the consolidation of our facilities into one location in California and a reduction in expenditures for materials, supplies and consultants, as well as a decrease of $1,531,541 in share based
compensation.

Selling, general and administrative expenses. Selling, general and administrative expenses were
$1,691,544 for the six months ended June 30, 2011 compared to $3,333,070 for the six months ended June 30, 2010, a decrease of $1,641,526 or 49%. The decrease in selling, general and administrative expenses was primarily due to cost
savings measures implemented, including a reduction in our workforce and outside consultants and professional fees, as well as a decrease of $978,340 in share based compensation.

Restructuring.Restructuring expenses were $850,000 for the six months ended June 30, 2011 compared to $7,765,588 for the six
months ended June 30, 2010. The restructuring expenses in 2011 resulted from impairment charges on certain equipment, as we have cancelled orders for such equipment and settled the outstanding obligations with the vendors. The settlement
amounts which were paid in shares of our common stock were recorded as restructuring expense during the six months ended June 30, 2011. In June 2010, we were unable to cure all alleged defaults under the lease for our Newark, California
facility and on July 15, 2010, we were notified by our landlord that the lease for the facility was forfeited and terminated, and that the landlord had received a judgment for possession of the premises. Therefore, we recorded an impairment
charge for the book value of the leasehold improvements for this facility and the write-off of any non-cash deferred rent, in the amount of $3,509,763 during the second quarter of 2010. Additionally, we recorded impairment charges of $4,255,825 on
certain equipment during the second quarter of 2010.



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##### Table of Contents

Depreciation and amortization expense. Depreciation and amortization expense was
$802,804 for the six months ended June 30, 2011 compared to $1,369,852 for the six months ended June 30, 2010, a decrease of $567,048 or 41%. During the second quarter of 2010, we consolidated our California facilities and recorded
impairment charges on leasehold improvements and certain equipment which resulted in a decrease in depreciation expense.

Interest expense. Interest expense was $345,569 for the six months ended June 30, 2011 compared to $227,924 for the six
months ended June 30, 2010, an increase of $117,645 or 52%. The increase in interest expense was due to the increase in our outstanding notes issued in connection with our bridge financing, as well as interest expense on certain outstanding
payables at June 30, 2011.

Amortization of note discount and financing costs.Amortization of note discount and
financing costs was $812,062 for the six months ended June 30, 2011 compared to $1,532,016 for the six months ended June 30, 2010, a decrease of $719,954 or 47%. The convertible notes issued in connection with our bridge financing contain
conversion features as well as warrants which result in discounts to the principal amount of the notes payable reflected on our balance sheet, based on the fair value of the warrants and conversion features. The discounts on the convertible notes
are amortized using the effective interest method over the terms of the notes. During the six months ended June 30, 2010, a significant portion of the discount on the then outstanding notes was amortized whereas during the six months ended
June 30, 2011, the discount related to a relatively smaller amount of notes issued in 2011, was amortized to expense.

Gain on derivative liabilities. Gain on derivative liabilities was $3,896,066 for the six months ended June 30,
2011 compared to $875,065 for the six months ended June 30, 2010. The conversion features on the convertible notes issued in conjunction with our bridge financing 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 liabilities and a gain on derivative liabilities. Conversely, an increase in our stock price during the period would result in an increase in
the liabilities and a loss on derivative liabilities. During the six months ended June 30, 2011, our common stock price as well as the remaining term of the outstanding convertible notes decreased which caused the fair value of the conversion
features to be reduced to zero and the remainder of the conversion feature liability was written off at June 30, 2011. The reduction in the fair value of the conversion features was recorded as gain on derivative liabilities.

Liquidity and Capital Resources

At June 30, 2011, our cash and cash equivalents totaled $5,000 compared to $97,000 at December 31, 2010. Subsequent to June 30, 2011 and through August 15, 2011, we have received
additional bridge financing of $300,000 to fund our operations.

We are in the development stage, and as such, have
historically reported net losses, including a net loss of $1.4 million for the six months ended June 30, 2011. We anticipate incurring losses in the future, as we complete the commercialization of our products, invest in research and
development, and incur associated administrative and operating costs. Our financial statements for the year ended December 31, 2010 and the six months ended June 30, 2011 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 and the issuance of convertible
notes. 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 1,916,667 shares of our common stock at $38.25 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 and to build our prototype and commercial scale
deposition tools. We are pursuing a strategy to manufacture and commercialize our CIGS modules offshore and are in discussions with potential partners to implement this strategy. Commercialization efforts, including continued development and
administrative costs will require significant additional capital.

Beginning in September 2009, we have funded our operations
through a series of bridge financing transactions in which we have issued convertible and traditional notes with an aggregate principal amount of $5.9 million and also issued warrants exercisable for shares of our common stock. Currently, $4.8
million of these notes remains outstanding.

In order to address our immediate capital requirements, in February 2011, we
entered into a Securities Purchase Agreement with Socius CG II, Ltd. (the Investor or Socius). Pursuant to the terms of the Purchase Agreement, we have the right over a term of two years, subject to certain conditions, to
demand through separate tranche notices that the Investor purchase up to a total of $5.0 million of Series B preferred stock. However, in order to continue operations, including development and commercialization efforts, we will require substantial
additional capital beyond our current cash on hand and any funds received from the Socius transaction. We are



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seeking long-term strategic investments and partnerships to manufacture and commercialize our product. To date, we have been unable to raise substantial additional capital or complete an
agreement with a strategic partner. Although we continue to seek strategic investors or partners, in light of our current cash position, we may in the near term be forced to cease or further curtail operations.

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, 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 June 30, 2011, we had no outstanding purchase orders for equipment and improvements. Other
commitments include rental payments under operating leases for 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 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.

We lease 32,000 square feet of factory and office space in Milpitas, California under a lease which expires in August 2011. This facility is the location of our corporate headquarters as well as the
development of our products and proprietary deposition 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 June 30, 2011.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting during the quarter ended June 30, 2011 that have materially
affected, or are reasonably likely to materially affect, our internal control over financial reporting.



18



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##### Table of Contents

PART II. OTHER INFORMATION



|Item 1. | Legal Proceedings
|------- | -----------------

In the
ordinary conduct of our business, we are subject to periodic lawsuits, investigations and claims, including routine employment matters. The following is a summary of legal proceedings to which we are a party at this time.

On January 6, 2010, New York State Urban Development, d/b/a/ Empire State Development Corporation (ESDC), filed a breach
of contract action against us. This action stems from the Grant Disbursement Award we entered into with ESDC when we relocated our headquarters to New York in 2004. ESDC has been awarded a judgment of approximately $520,000 and is currently in the
process of enforcing its judgment to recover such damages.



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

Item 1A (Risk Factors) of our annual report on Form 10-K for our fiscal year ended December 31, 2010 (Annual
Report) sets forth information relating to important risks and uncertainties that could materially adversely affect our business, financial condition or operating results. The risks and uncertainties described in our Annual Report 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. There has been no material changes in the Risk Factors contained in our Annual Report.



|Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds.
|------- | ------------------------------------------------------------

On April 27, 2011, we entered into Purchase Agreements (the Purchase Agreements) with Peter Lacey and Michael Moretti. Pursuant to the Purchase Agreements, Messrs. Lacey and Moretti each
agreed to loan us the amount of $125,000 (the Loan) for working capital. In connection with the Loan, we issued Messrs. Lacey and Moretti each (a) a Secured Promissory Note (the Note) and (b) a warrant to purchase
250,000 shares of our common stock (subject to adjustment for certain dilutive transactions) (the Warrant). The Note carries an interest rate of 10% per annum and is not convertible into common stock. The Note matures on
October 27, 2011, is secured by all of our assets, and includes customary provisions concerning events of default. The Warrant is immediately exercisable, has a term of five years, and has an exercise price of $1.00 per share.



|Item 3. | Defaults Upon Senior Securities.
|------- | --------------------------------

None.



|Item 4. | (Removed and Reserved).
|------- | -----------------------

None.



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

(a)
None.

(b) None.



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##### Table of Contents

|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)      |  | Text of Amendment of Amended and Restated Bylaws                                                                                                      
|            | 
|3.5(5)      |  | Certificate of Designations, Preferences and Rights of a Series of Preferred Stock classifying and designating the Series B Preferred Stock.          
|            | 
|4.1(6)      |  | Form of Common Stock Certificate.                                                                                                                     
|            | 
|4.2(6)      |  | Form of Class A Public Warrant.                                                                                                                       
|            | 
|4.3(6)      |  | Form of Class B Public Warrant.                                                                                                                       
|            | 
|4.4(6)      |  | Form of Unit Certificate.                                                                                                                             
|            | 
|4.5(6)      |  | Form of Warrant Agent Agreement.                                                                                                                      
|            | 
|4.6(6)      |  | 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 Current Report on Form 8-K filed with the SEC on January 25, 2010.
|--- | ---------------------------------------------------------------------------------------------------

|(5) | Incorporated by reference to our Current Report on Form 8-K filed with the SEC on February 3, 2011.
|--- | ---------------------------------------------------------------------------------------------------

|(6) | Incorporated by reference to our Registration Statement on Form SB-2 filed with the SEC on November 7, 2003.
|--- | ------------------------------------------------------------------------------------------------------------



20



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##### Table of Contents

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: August 15, 2011 |  |  |  | By:                        |  | /S/    PETER A.
LACEY                                             
|                      |  |  |  |                            |  | Peter A. Lacey                                                    
|                      |  |  |  |                            |  | Interim Chief Executive Officer (Principal Executive Officer)     
|                      |  |  | 
|Date: August 15, 2011 |  |  |  | By:                        |  | /S/    CHRISTOPHER T.
LAIL                                        
|                      |  |  |  |                            |  | Christopher T. Lail                                               
|                      |  |  |  |                            |  | Chief Financial Officer (Principal Financial & 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)      |  | Text of Amendment of Amended and Restated Bylaws                                                                                                      
|            | 
|3.5(5)      |  | Certificate of Designations, Preferences and Rights of a Series of Preferred Stock classifying and designating the Series B Preferred Stock.          
|            | 
|4.1(6)      |  | Form of Common Stock Certificate.                                                                                                                     
|            | 
|4.2(6)      |  | Form of Class A Public Warrant.                                                                                                                       
|            | 
|4.3(6)      |  | Form of Class B Public Warrant.                                                                                                                       
|            | 
|4.4(6)      |  | Form of Unit Certificate.                                                                                                                             
|            | 
|4.5(6)      |  | Form of Warrant Agent Agreement.                                                                                                                      
|            | 
|4.6(6)      |  | 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 Current Report on Form 8-K filed with the SEC on January 25, 2010.
|--- | ---------------------------------------------------------------------------------------------------

|(5) | Incorporated by reference to our Current Report on Form 8-K filed with the SEC on February 3, 2011.
|--- | ---------------------------------------------------------------------------------------------------

|(6) | Incorporated by reference to our Registration Statement on Form SB-2 filed with the SEC on November 7, 2003.
|--- | ------------------------------------------------------------------------------------------------------------



22