**United
      States**


**Securities
      and Exchange Commission**





**Washington,
      D.C. 20549**





**Form
      10-KSB**




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




**For
      the fiscal year ended December 31, 2007**





OR




o
            TRANSITIONAL
                REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
                1934




For
      the
      transition period from _______________to_______________





**Commission
      File Number 001-13549**




**SOLAR
      THIN FILMS, INC.**


(Name
      of
      small business issuer as specified in its charter)





**DELAWARE**
            
            **95-4356228**(State
                or other jurisdiction of
              incorporation
                or organization)
            
            (IRS
                Employer
              Identification
                No.)




**25
      Highland Blvd, Dix Hills, New York 11746**


(Address
      of principal executive offices)





Issuer’s
      telephone number, including area code:  **(516)
      417-8454**





Securities
      registered under Section 12(g) of the Exchange Act:





**Title
                of Each
                Class**
            
            **Name
                of Each Exchange on which Registered**Common
                Stock, par value $.01 per
                share
            
            None




Check
      whether the issuer is not required to file reports pursuant to Section 13 or
      15
      (d) of the Exchange Act. o




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




Check
      if
      there is no disclosure of delinquent filers in response to Item 405 of
      Regulation S-B contained in this form, and no disclosure will be contained,
      to
      the best of registrant's knowledge, in definitive proxy or information
      statements incorporated by reference in Part III of this Form 10-KSB or any
      amendment to this Form 10-KSB. o




Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act)


Yes
o No
x




Issuer
      had revenues of $5,779,578 for the year ended December 31, 2007. As of March
      27,
      2008, 57,607,601 shares of Common Stock were outstanding **** of
      which
      29,004,609 were held by **** non-affiliates
      of the Company. The aggregate market value of the Common Stock held by
      non-affiliates of the Company as of March 27, 2008 was $23,203,687.




Transitional
      Small Business Disclosure Format (check one):





Yes
oNo
x










**TABLE
      OF CONTENTS**


PAGEPART
                  I
              
              
              
              2ITEM
                  1.
              
              DESCRIPTION
                  OF BUSINESS
              
              2ITEM
                  2.
              
              DESCRIPTION
                  OF PROPERTIES
              
              17ITEM
                  3.
              
              LEGAL
                  PROCEEDINGS
              
              17ITEM
                  4.
              
              SUBMISSION
                  OF MATTERS TO A VOTE OF SECURITY HOLDERS
              
              18PART
                  II
              
              
              
              19ITEM
                  5.
              
              MARKET
                  FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER
                  MATTERS
              
              19ITEM
                  6.
              
              MANAGEMENT'S
                  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
                  OPERATIONS
              
              21ITEM
                  7.
              
              FINANCIAL
                  STATEMENTS
              
              32ITEM
                  8.
              
              CHANGES
                  IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
                  DISCLOSURE
              
              32ITEM
                  8A
              
              CONTROLS
                  AND PROCEDURES
              
              33ITEM
                  8A(T)
              
              CONTROLS
                  AND PROCEDURES
              
              34ITEM
                  8B
              
              OTHER
                  INFORMATION
              
              34PART
                  III
              
              
              
              35ITEM
                  9.
              
              DIRECTORS,
                  EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH
                  SECTION
                  16(A) OF THE EXCHANGE ACT
              
              35ITEM
                  10.
              
              EXECUTIVE
                  COMPENSATION
              
              36ITEM
                  11.
              
              SECURITY
                  OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
              
              43ITEM
                  12.
              
              CERTAIN
                  RELATIONSHIPS AND RELATED TRANSACTIONS
              
              44ITEM
                  13.
              
              EXHIBITS
              
              44ITEM
                  14.
              
              PRINCIPAL
                  ACCOUNTANT FEES AND SERVICES
              
              47
  1




**PART
      I**




**ITEM
                    1.**
                  **DESCRIPTION
                      OF
                      BUSINESS**




Overview




On
      August
      9, 2005, Solar Thin Films, Inc (“Company” or “STF”) entered into a Share
      Purchase Agreement (the “Agreement”) with Kraft Elektonikai Zrt., a Hungarian
      corporation (“Kraft”) and the shareholders of Kraft. Pursuant to the Agreement,
      the Company agreed to acquire 100% of the outstanding interest in Kraft. On
      January 30, 2006, the Agreement expired pursuant to its own terms.




Commencing
      in March 2006 through June 2006, the Company entered into Securities Purchase
      Agreements with shareholders of Kraft that together owned 95.5% of the equity
      interest in Kraft to acquire their interests. On June 14, 2006, the Company
      closed on the acquisition of 95.5% of the outstanding securities of Kraft.
      In
      consideration for the shares of Kraft, STF issued the sellers an aggregate
      of
      95,500 shares of Series B-4 Preferred Stock of the Company (the “Preferred
      Shares”). Each share of Series B-4 Preferred Stock automatically converted into
      350 shares of common stock or an aggregate of 33,425,000 shares of common stock
      upon our increasing our authorized shares of common stock. Prior to such
      conversion, the Preferred Shares had the same voting rights of the shares of
      common stock and voted together with the shares of common stock on all matters.
      As of September 30, 2007, all of the Series B-4 Preferred shares were converted
      into an aggregate of 33,425,000 shares of the Company’s common stock.




On
      August
      3, 2007, the Company acquired the remaining 4.5% minority interest of Kraft
      in
      exchange for 1,575,000 shares of common stock, and as a result, Kraft is now
      a
      wholly-owned subsidiary of the Company.




On
      June
      15, 2006, shareholders of the Company representing a majority of the outstanding
      voting stock of the company authorized the Company to engage in the
      following:




·
            increase
                the authorized shares of common stock as set forth in its certificate
                of
                incorporation from 40,000,000 to 150,000,000;
                and




·
            reverse
                split the authorized shares of common stock on a basis of one for
                1.6
                shares of common stock.




The
      Company filed a definitive information statement with the Securities and
      Exchange Commission in January 2007 and delivered a definitive information
      statement to its record shareholders disclosing the aforementioned items. The
      reverse split and increase of authorized share became effective in February
      2007.




Effective
      as of July 3, 2006, the Company changed its name from “American United Global,
      Inc.” to “Solar Thin Films, Inc.” As a result, our quotation symbol changed from
“AUGB.PK” to “SLTF.PK”. In February 2007, the Company’s symbol was changed to
      SLTN.OB.




2




In
      October 2007, the Company formed a majority owned subsidiary, Solar Thin Power,
      Inc ( “Solar Thin Power”) to pursue international opportunities in
      Europe.




On
      December 19, 2007, Solar Thin Power issued and sold an aggregate of 6,770,000
      shares of common stock of Solar Thin Power to 6 accredited investors (the
“Investors”) in a private placement (the “Private Placement”). In addition, the
      Investors also received warrants to purchase an aggregate of 3,385,000 shares
      of
      common stock of the Company at an exercise price of $3.30 per share, subject
      to
      certain adjustments. The Warrants expire 5 years from the date of issuance.
      After deducting the expenses of the Private Placement, Solar Thin Power received
      net proceeds of $3,348,395.50. Solar Thin Power was a non-operational subsidiary
      of the Company as of December 31, 2007.




Organizational
      History




Solar
      Thin Films History




The
      Company was initially organized as a New York corporation on June 22, 1988
      under
      the name Alrom Corp. ("Alrom"), and completed an initial public offering of
      securities in August 1990. Alrom effected a statutory merger in December 1991,
      pursuant to which Alrom was reincorporated in the State of Delaware under the
      name American United Global, Inc. Prior to the acquisition of Kraft, the Company
      intended to focus its business strategy on acquisitions of operating businesses
      in various sectors. On June 14, 2006, in connection with its business strategy,
      the Company closed on the acquisition of 95.5% of the outstanding securities
      of
      Kraft. In additional, the Company acquired the remaining 4.5% minority interest
      in August 2007 and, as a result, now conducts its operations via Kraft, the
      wholly-owned subsidiary.




Kraft
      History




Kraft
      was
      founded in 1993, shortly after the breakup of the communist economy in Hungary.
      Its founding members were associated with the Hungarian Central Research
      Institute for Physics. In 1996, Kraft was contracted to develop thin-film
      photovoltaic deposition equipment for production of amorphous silicon based
      thin-film modules, as well as complete turnkey facilities. Photovoltaics (PV)
      is
      the physical phenomenon , which
      allows certain semiconductor materials to directly convert sunlight into
      electricity.




In
      the
      subsequent years, Kraft has manufactured four such facilities in New Jersey,
      Hungary, China and Greece. In producing these facilities, Kraft developed all
      aspects needed for becoming a leading manufacturer of turnkey plants and
      equipment that produce photovoltaics modules that utilizing thin-film
      technology.




On
      behalf
      of its customers, Kraft is presently engaged in the design, development and
      construction of various turnkey manufacturing plants that produce photovoltaic
      thin-film modules. The Company expects the primary purchase of such photovoltaic
      thin-film modules to be used by corporations and governments in the development
      and construction of solar power plants. Kraft, in the future, may further
      integrate itself in this industry through the engagement in other areas
      including, but not limited to, operating the manufacturing plants, selling
      thin-film photovoltaic modules, installing the thin-film photovoltaic modules
      and managing solar power plants.




3




Business
      Overview




The
      Company conducts its business operations via the wholly-owned subsidiary, Kraft.
      Kraft is an equipment design and manufacturing company headquartered in
      Budapest, Hungary, which had historically been engaged in the design,
      development and manufacture of vacuum based production and quality control
      equipment used in several hi-tech industries. Over its ten-year existence,
      Kraft
      has developed and manufactured a line of equipment serving the semiconductor
      industry, glass coating technologies and, more recently, the photovoltaic
      industry. For the past five years, the Company has focused substantially all
      of
      its efforts on the design, development and construction of “turnkey” thin-film
      PV manufacturing equipment used in plants that produce photovoltaic thin-film
      modules. Going forward the Company expects most of its growth to develop through
      the delivery of its “turnkey” PV facilities and related equipment
      sales.




Over
      the
      past two years, the Company has utilized relationships with key strategic
      partners to help secure a leading position as the primary supplier of “turnkey”
PV facilities. Such “turnkey” facilities consists of all the hardware and
      machinery manufactured, assembled, and installed by the Company and all the
      software, know-how and training associated with the manufacturing process
      supplied jointly with its strategic partners. Historically, the strategic
      partner has served as the main contractor guaranteeing process performance
      to
      the buyer, and Kraft has served as primary sub-contractor for the equipment.
      However, STF maintains the right to market, sell and deliver “turnkey” PV
      production facilities and intends to increasingly take on this role in the
      future.




The
      main
      strategic partner of the Company in the sale of turnkey thin-film photovoltaic
      module manufacturing facilities is presently Renewable Energy Solutions, Inc.
      (“RESI”). Historically, the Company has also partnered with Terra Solar Global,
      Inc. (“Terra Solar”). Terra Solar, Inc. (“TSI”) owns approximately 49% of the
      outstanding securities of Terra Solar. Zoltan Kiss, a director and shareholder
      of the Company, is a shareholder of TSI. Zoltan Kiss, a director and shareholder
      of the Company, is also the Chairman and majority owner of RESI. Over the past
      two years, the Company has been supplying equipment for a large turnkey project
      with Blue Star Terra Corporation in China through its strategic partners -
      RESI
      and Terra Solar. The Blue Star contract was originally held by Terra Solar
      and
      in April 2007 RESI assumed right and obligations under the contract from Terra
      Solar. Revenues under the contract were $2,751,836 for the year ended December
      31, 2007. The Company currently has related party trade receivables of
      $1,456,863 from RESI as of December 31, 2007, primarily from the Blue Star
      Contract. While the Company’s liability is contractually limited to the delivery
      of equipment and not to turnkey manufacturing performance, there is some risk
      of
      non-payment until the facility has successfully passed an acceptance test,
      a
      RESI liability. Mr. Kiss resigned as Chairman and a Director of the Company
      effective December 20, 2007.




**Products
      and product development**




PV
      Modules on Glass Substrate for Power Applications




The
      Company has developed a line of manufacturing equipment, sold both as individual
      products and as part of “turnkey” manufacturing facilities for the production of
“thin-film” amorphous silicon modules on glass substrate. By 2007, STF’s Kraft
      subsidiary had participated in the construction of four “turnkey” manufacturing
      facilities. However, the PV industry ia changing rapidly, and it is imperative
      that STF continue to fund R&D activities dedicated to developing next
      generation deposition equipment. To accomplish this, the Company is
      participating directly and on a contracted basis to develop:




·
            manufacturing
                equipment to produce copper indium gallium diselenide (CIGS) based
                PV
                modules on a 2ft x 4ft glass
                substrate;




4




·
            manufacturing
                equipment to produce more efficient modules using amorphous silicon
                and/or
                nano-crystalline silicon on a 2ft x 4ft glass substrate;
                and




·
            manual
                or automated glass handling and robotic processes to reduce labor
                costs
                from PV module production on 2ft x 4ft glass and larger
                substrates.




PV
      Modules on Glass Substrate for Building Integrated Photovoltaic (BIPV)
      Applications




The
      Company is working together with customers and partners to develop products
      targeted at the market for building integrated photovoltaic modules - that
      is
      photovoltaic modules incorporated into curtain wall systems for buildings.
      Management believes that using existing technology it can create attractive
      products for this market, which will bear higher prices per Watt for finished
      product.




**Market**




Management
      believes the PV industry is currently growing from infancy to adolescence.
      The
      Company believes this growth is aided by the concerns of global warming,
      governmental incentives, political and institutional involvement, fuel prices
      and the economics of the PV industry. STF believes the strongest force in
      causing the move from fossil fuels to PV will be the economics of PV. Since
      the
      cost of the PV module represents more that 70% of the cost of installed PV
      systems, learning to manufacture the lowest cost PV modules will help secure
      the
      greatest competitive edge and advantage in the market place.




The
      market presently consists substantially of modules produced using crystalline
      silicon. Most of the thin-films that have been produced, until now, use
      amorphous silicon on a glass substrate. The costs of the thin-film based modules
      are less than half of those for crystalline silicon. Based on the economic
      pressures caused by this major cost difference, STF believes that the ratio
      of
      crystalline to thin-film in the product mix will substantially shift in the
      next
      decade, driving rapid increases in the market for “thin film” PV products. The
      Company further believes that it can continue to drive costs down through
      further process improvements to existing technology (amorphous silicon) and
      through the introduction of newer technologies, possibly including
      CIGS.




**Competition**




Crystalline
      silicon PV technologies currently represent substantially 90% of the PV market.
      Demand for crystalline (and poly-crystalline) silicon has grown very rapidly
      over the past decade, but photovoltaic module prices have remained relatively
      unchanged due to cost realities of the crystalline production process. As such,
      prices are expected to remain relatively stable until “thin film” production
      expands sufficiently to drive prices down. In the mean time, this presents
      significant opportunities to profit for “thin film” module and equipment
      producers, placing STF in an attractive position.




However,
      there are an increasing number of competitors for the Company in this market,
      and through well funded research and development activities, these competitors
      have developed their own pilot lines for thin-films PV module manufacturing
      and
      are introducing both modules and equipment into the marketplace. Competitors
      will consist of 1) companies who build their own PV plants utilizing internal
      technology and know how - and who may represent customer opportunities for
      specific pieces of equipment, and 2) companies who manufacture and deliver
      production equipment to third parties. Many players in this latter market
      specialize in the sale of individual pieces of equipment rather than “turnk-key”
production lines, while others compete directly for “turn-key” business.




5




The
      former competitors include companies such as EPV Solar, which is likewise
      specializing in amorphous silicon thin film modules, and is a customer of STF,
      and companies such as First Solar, which produces cadmium telluride thin film
      modules. The latter competitors include a range of companies selling individual
      pieces of equipment such as IV testers and laminators, and companies selling
      “turn-key” lines including Applied Materials, Oerlikon and Energo Solar. STF
      believes that its competitive edge derives from 1) its ability to deliver
“turn-key” lines at attractive capital costs and prectable production costs, and
      2) its history of success in delivering such lines.




**Strategy**




The
      Company’s strategy is to market complete turnkey manufacturing equipment to
      manufacture thin-film based PV modules where possible, while offering individual
      pieces of equipment to companies possessing their own internal process
      knowledge.




Sale
      of
      Turnkey Facilities




The
      Company’s main focus is delivering “turnkey” amorphous silicon production lines,
      and in the future “turn-key” production lines based on newer materials.
      Customers include companies with manufacturing expertise and local knowledge,
      but without the technology base required to build and manage their own
      production lines.




Alone,
      and together with strategic partners, STF offers a “turnkey” amorphous silicon
      manufacturing facility that is sold installed and with certain guarantees
      regarding throughput, module efficiency, and in some cases, manufacturing cost.
      Such “turnkey” facilities consists of all the hardware and machinery
      manufactured, assembled, and installed by the Company together with all the
      software, know-how and training associated with the manufacturing process.




In
      the
      past TerraSolar and then RESI have acted as general contractor - guaranteeing
      process performance to the buyer - and STF as equipment sub-contractor, for
      specific “turnkey” facilities. Specifically for STF’s Blue Star (now CG Solar)
      contract TerraSolar acted as General Contractor to the buyer, until April 2007,
      when RESI assumed such rights and obligations under the contract.




STF
      also
      has maintained the right to sell such “turnkey” facilities on its own as General
      Contractor and intends to act in such fashion on a case-by-case basis going
      forward.




On
      a
      case-by-case basis STF will also consider investing in its clients “turn-key”
production lines as an equity partner and may secure distribution and/or
      purchase rights for modules for resale or for use in power projects developed
      by
      its majority-owned subsidiary ST Power.




Sale
      of
      Individual Machines




The
      Company will also continue to sell individual pieces of equipment including
      deposition lines, sputtering equipment, laminators, IV testers, transport
      equipment, etc. to customers with their own technology expertise or as add-ons
      for existing “turn-key” customers.




**Customers**




Currently
      the Company has three key customers, which counted for over 99% of the total
      revenue in 2007. Both companies are located in the US and request Kraft to
      manufacture and deliver thin-film photovoltaic manufacturing equipments to
      their
      clients in the various parts of the world (e.g. Portugal, China and Taiwan).




6





**Governmental
      Regulation**





The
      Company’s operations are subject to local, state and federal laws and
      regulations governing environmental quality and pollution control. To date,
      the
      Company’s compliance with these regulations had no material effect on its
      operations, capital, earnings, or competitive position, and the cost of such
      compliance has not been material. STF is unable to assess or predict at this
      time the effects that additional regulations or legislation could have on the
      activities.




**Employees**




As
      of
      December 31, 2007 and 2006, the Company employed 54 and 48 full-time and 1
      part-time employees, respectively none of whom is a member of a union or work
      council.




*Sales
      and Project management*




Two
      members of management and two sales engineers are currently focused on the
      company’s sales activity including finding and contacting potential customers
      and managing contracts and bids - for both “turn-key” and equipment sales. In
      addition the company currently has two project managers, responsible for
      managing contracts and projects from inception through completion. The sales
      and
      project management groups work together with the engineering and equipment
      manufacturing groups to assure timely production and deliveries.





*Engineering*





The
      Companies engineering department consists of three dedicated mechanical
      engineers and seven dedicated electrical engineers as well as a number of vacuum
      and field services engineers. The engineering department works closely with
      the
      manufacturing unit to guarantee quality and timely delivery, under the quidance
      of its project management staff.





*Production
      (Equipment manufacturing)*





The
      largest group in the Company is the production (equipment manufacturing)
      department, consisting of 25 employees. These people perform the actual assembly
      of equipment, including activities related to the mechanical, electrical and
      vacuum system parts of the finished product. The manufacturing activities are
      actively supported by input from the engineering group.





**ITEM
              1A.**
            **RISK
                FACTORS**





You
      should carefully consider the risks described below as well as other information
      provided to you in this document, including information in the section of this
      document entitled “Information Regarding Forward Looking Statements.” The risks
      and uncertainties described below are not the only ones facing the Company.
      Additional risks and uncertainties not presently known to the Company or that
      the Company currently believes are immaterial may also impair the Company’s
      business operations. If any of the following risks actually occur, the Company’s
      businesses, financial condition or results of operations could be materially
      adversely affected, the value of the Company common stock could decline, and
      you
      may lose all or part of your investment.




7




·
            **We
                have a history of losses, expect to incur substantial further losses
                and
                may not achieve or maintain profitability in the future, which may
                decrease the market value of our
                stock.**




The
      Company has reported a net loss of $3,824,645 from operations for the year
      ended
      December 31, 2007 and a net loss of $4,938,370 from operations for the year
      ended December 31, 2006.




The
      Company has suffered operating losses and negative cash flows from operations
      since inception and, at December 31, 2007, the Company had an accumulated
      deficit of $24,075,554. We cannot assure you that we can achieve or sustain
      profitability on a quarterly or annual basis in the future. If revenues grow
      more slowly than we anticipate, or if operating expenses exceed our expectations
      or cannot be adjusted accordingly, we will continue to incur losses. We will
      continue to incur losses until we are able to establish significant sales.
      Our
      possible success is dependent upon the successful development and marketing
      of
      our services and products, as to which there is no assurance. Any future success
      that we might enjoy will depend upon many factors, including factors out of
      our
      control or which cannot be predicted at this time. These factors may include
      changes in or increased levels of competition, including the entry of additional
      competitors and increased success by existing competitors, changes in general
      economic conditions, increases in operating costs, including costs of supplies,
      personnel, marketing and promotions, reduced margins caused by competitive
      pressures and other factors. These conditions may have a materially adverse
      effect upon us or may force us to reduce or curtail operations. In addition,
      we
      will require additional funds to sustain and expand our sales and marketing
      activities, particularly if a well-financed competitor emerges. There can be
      no
      assurance that financing will be available in amounts or on terms acceptable
      to
      us, if at all. The inability to obtain sufficient funds from operations or
      external sources would require us to curtail or cease operations.




·
            **Kraft
                is dependent on a small amount of customers and any loss of these
                customers will have a negative impact on our
                operations.**




For
      the
      year ended December 31, 2007, Kraft derived over 99% of its total revenues
      from
      three major customers. A loss of any of these relationships, for any reason
      could cause the Company to experience difficulties in obtaining revenue and
      implementing its business strategy. There can be no assurance that the Company
      could establish other relationships of adequate revenue in a timely manner
      or at
      all. In the event that STF is not able to significantly increase the number
      of
      customers or vendors that purchase its products its financial condition and
      results of operations will be materially and adversely affected.




·
            **Kraft
                has generated limited revenues and it may never achieve profitability.**




To
      date,
      the Company has generated limited revenues of $5,779,578 and $2,426,954 for
      the
      year ended December 31, 2007 and December 31, 2006, respectively, and the
      Company incurred losses from continuing operations of $3,824,645 and $4,938,370,
      respectively. STF’s existence is dependent upon management’s ability to develop
      profitable operations and resolve its liquidity problems. We cannot assure
      you
      that the Company can achieve or sustain profitability in the future. STF’s
      operations are subject to the risks and competition inherent in the
      establishment of a business enterprise. There can be no assurance that future
      operations will be profitable. Revenues and profits, if any, will depend upon
      various factors, including whether our PV manufacturing facilities development
      will achieve market acceptance. The Company may not achieve its business
      objectives and the failure to achieve such goals would have an adverse impact
      on
      STF. These matters raise substantial doubt about the Company’s ability to
      continue as a going concern.




8




·
            **Evaluating
                our business and future prospects may be difficult due to the rapidly
                changing market landscape.**




There
      is
      limited historical information available about our company upon which you can
      base your evaluation of our business and prospects. Although Kraft was formed
      in
      1993 for the development of vacuum based technologies it has only recently
      developed four turnkey PV module manufacturing facilities pursuant to which
      it
      has only recognized limited revenues.




The
      market we are addressing is rapidly evolving and is experiencing technological
      advances and new market entrants. Our future success will require us to scale
      our manufacturing capacity significantly beyond the capacity of our Budapest,
      Hungary manufacturing facility, and our business model and technology are
      unproven at significant scale. Moreover, Kraft’s strategic partnership with
      RESI, are only in the early stages of development and have not been officially
      agreed to and formalized. Kraft has limited experience upon which to predict
      whether it will be successful. As a result, you should consider its business
      and
      prospects in light of the risks, expenses and challenges that we will face
      as an
      early-stage company seeking to develop and manufacture new products in a growing
      and rapidly evolving market.




·
            **Our
                future success substantially depends on our ability to significantly
                increase our manufacturing capacity through the development of additional
                manufacturing facilities. We may be unable to achieve our capacity
                expansion goals as a result of a number of risks, which would limit
                our
                growth potential, impair our operating results and financial condition
                and
                cause our stock price to decline.**




Our
      future success depends on our ability to increase our manufacturing capacity
      through the development of additional manufacturing facilities. If we are unable
      to do so, we may not be able to achieve the production volumes and per unit
      costs that will allow us to meet customer demand, maintain our competitive
      position and achieve profitability. Our ability to develop additional
      manufacturing facilities is subject to significant risk and uncertainty,
      including:




·
            we
                may need to continue to raise significant additional capital through
                the
                issuance of equity or convertible or debt securities in order to
                finance
                the costs of development of any additional facility, which we may
                be
                unable to do on reasonable terms or at all, and which could be dilutive
                to
                our existing stockholders;




·
            the
                build-out of any additional facilities will be subject to the risks
                inherent in the development of a new manufacturing facility, including
                risks of delays and cost overruns as a result of a number of factors,
                many
                of which may be out of our control, such as delays in government
                approvals
                or problems with supplier
                relationships;




9




·
            our
                manufacturing processes, particularly those for the development of
                the
                equipment used in the turnkey PV manufacturing facilities, are unproven
                at
                large scale and may prove difficult to implement in any new facility;
                and




·
            if
                a new facility is established internationally, we may encounter legal
                restrictions and liability, encounter commercial restrictions and
                incur
                taxes and other expenses to do so and otherwise be subject to the
                risks
                inherent in conducting business in a foreign jurisdiction as described
                elsewhere in this section.




If
      we are
      unable to develop and successfully operate additional manufacturing facilities,
      or if we encounter any of the risks described above, we may be unable to scale
      our business to the extent necessary to achieve profitability, which would
      cause
      our stock price to decline. Moreover, there can be no assurance that if we
      do
      expand our manufacturing capacity that we will be able to generate customer
      demand for our turnkey PV manufacturing facilities at these production levels
      or
      that we will increase our revenues or achieve profitability.




·
            **Our
                “turnkey” manufacturing facility may not gain market acceptance, which
                would prevent us from achieving increased sales and market share.**




The
      development of a successful market for turnkey manufacturing facility may be
      adversely affected by a number of factors, many of which are beyond our control,
      including:




·
            our
                ability to market our services together with our
                equipment;




·
            our
                failure to produce a turnkey facility that competes favorably against
                companies electing to develop these facilities
                internally;




·
            our
                failure to produce a turnkey facility that produces PV modules that
                compete favorably against conventional energy sources and alternative
                distributed generation technologies, such as wind and biomass, on
                the
                basis of cost, quality and performance;
                and




·
            our
                failure to develop and maintain successful relationships with strategic
                partner.




If
      our
“turnkey” facilities or the PV solar modules produced by our facilities fail to
      gain market acceptance, we would be unable to increase our sales and market
      share and to achieve and sustain profitability.




·
            **Technological
                changes in the solar power industry could render our turnkey manufacturing
                facilities uncompetitive or obsolete, which could reduce our market
                share
                and cause our sales to decline.**




Our
      failure to further refine our technology and develop and introduce the next
      generation of our turnkey facility could cause our products to become
      uncompetitive or obsolete, which could reduce our market share and cause our
      sales to decline. The solar power industry is rapidly evolving and competitive.
      We will need to invest significant financial resources in research and
      development to keep pace with technological advances in the solar power industry
      and to effectively compete in the future. We believe that a variety of competing
      solar power technologies are under development by other companies that could
      result in lower manufacturing costs or higher product performance than those
      expected to be produced utilizing our turnkey facilities. Our development
      efforts may be rendered obsolete by the technological advances of others and
      other technologies may prove more advantageous for the commercialization of
      solar power products.




10




·
            **We
                face risks associated with the marketing, development and sale of
                our
                turnkey facilities internationally, and if we are unable to effectively
                manage these risks, it could impair our ability to expand our business
                abroad.**




To
      date,
      Kraft has developed four “turnkey” facilities in New Jersey, Hungary, China and
      Greece. We expect to seek to develop turnkey facilities on an international
      basis. It will require significant management attention and financial resources
      to successfully develop our international sales channels either internally
      or
      through RESI. In addition, the marketing, development and sale of our turnkey
      facilities internationally could expose us to a number of markets with which
      we
      have limited experience. If we are unable to effectively manage these risks,
      it
      could impair our ability to grow our business abroad. These risks
      include:




·
            difficult
                and expensive compliance with the commercial and legal requirements
                of
                international markets, with which we have only limited
                experience;




·
            inability
                to obtain, maintain or enforce intellectual property
                rights;




·
            encountering
                trade barriers such as export requirements, tariffs, taxes and other
                restrictions and expenses, which could affect the competitive pricing
                of
                our turnkey facilities;




·
            fluctuations
                in currency exchange rates relative to the United States dollar and
                the
                Hungarian florint;




·
            difficulty
                in recruiting and retaining individuals skilled in international
                business
                operations; and




·
            difficulty
                of enforcing revenue collection
                internationally.




We
      expect
      that a portion of our international sales will be denominated in United States
      dollars. As a result, increases in the value of the United States dollar
      relative to foreign currencies would cause our products to become less
      competitive in international markets and could result in limited, if any, sales
      and profitability.




Furthermore,
      in the development of our facilities in foreign markets, we may encounter legal
      restrictions, commercial restrictions and incur taxes and other expenses to
      establish our manufacturing facilities in certain countries. In addition, we
      may
      potentially forfeit, voluntarily or involuntarily, foreign assets due to
      economic or political instability in the countries where our local manufacturing
      facilities are located.




11




·
            **We
                may not be able to successfully develop and commercialize our turnkey
                PV
                manufacturing facilities which would result in continues losses and
                may
                require us to curtail or cease
                operations**




While
      we
      have made progress in the development of our PV manufacturing facilities, we
      have generated limited revenues and we are unable to project when we will
      achieve profitability, if at all. As is the case with any new technology, we
      expect the development process to continue. We cannot assure that our
      engineering resources will be able to modify the product fast enough to meet
      market requirements. We can also not assure that our product will gain market
      acceptance and that we will be able to successfully commercialize the
      technologies. The failure to successfully develop and commercialize the
      technologies passed its current stage would result in continued losses and
      may
      require us to curtail or cease operations




·
            **We
                do not maintain theft or casualty insurance and only maintain modest
                liability and property insurance coverage and therefore we could
                incur
                losses as a result of an uninsured
                loss.**




We
      do not
      maintain theft or casualty insurance and we have modest liability and property
      insurance coverage. We cannot assure that we will not incur uninsured
      liabilities and losses as a result of the conduct of our business. Any such
      uninsured or insured loss or liability could have a material adverse affect
      on
      our results of operations.




·
            **The
                loss of strategic relationships used in the development and marketing
                of
                our products, including our relationship with various strategic partners
                including RESI could impede our ability to further develop our turnkey
                manufacturing facilities and result in a material adverse effect
                causing
                the business to suffer.**




We
      have
      established a plan of operations under which we rely on a strategic relationship
      with strategic partners, which provides marketing, installation and software
      development services. We also have an alliance with RESI for the development
      of
      the next generation of the PV manufacturing equipment. We also market our
      products and engage in R&D activity internally outside of our relationships
      with RESI. However, a loss of any of these relationships, especially our
      relationship with RESI, for any reason could cause us to experience difficulties
      in completing the further development of our product and implementing our
      business strategy. There can be no assurance that we could establish other
      relationships of adequate expertise in a timely manner or at all.




·
            **We
                may need to raise additional capital which may not be available on
                acceptable terms or at all**




The
      Company currently anticipates that its available cash resources will be
      sufficient to meet its presently anticipated working capital and capital
      expenditure requirements for at least the next twelve months. The Company may
      have future acquisitions or capital expenditures that could potentially exceed
      available funds. Therefore, the Company may need to raise additional funds
      in
      order to support more rapid expansion, acquire complementary businesses or
      technologies or take advantage of unanticipated opportunities through public
      or
      private financing, strategic relationships or fulfill our research and
      development plans or other arrangements. There can be no assurance that such
      additional funding, if needed, will be available on terms acceptable to the
      Company, or at all. If adequate funds are not available on acceptable terms,
      the
      Company may be unable to develop or enhance its products or take advantage
      of
      future opportunities either of which could have a material adverse effect on
      the
      Company's business, results of operations and financial condition and may reduce
      our ability to continue to conduct business operations.  Any
      additional equity financing may involve substantial dilution to our then
      existing shareholders.




12




·
            **Our
                revenues and operating results are likely to fluctuate
                significantly**




As
      a
      result of our limited operating history and the rapidly changing nature of
      the
      markets in which the Company competes, our quarterly and annual revenues and
      operating results are likely to fluctuate from period to period. These
      fluctuations may be caused by a number of factors, many of which are beyond
      our
      control. These factors include the following, as well as others discussed
      elsewhere in this section:




·
            how
                and when we introduce new products and services and enhance our existing
                products and services;




·
            our
                ability to attract and retain new customers and satisfy our customers'
                demands;




·
            the
                timing and success of our brand-building and marketing
                campaigns;




·
            our
                ability to establish and maintain strategic
                relationships;




·
            our
                ability to attract, train and retain key
                personnel;




·
            the
                emergence and success of new and existing
                competition;




·
            varying
                operating costs and capital expenditures related to the expansion
                of our
                business operations and infrastructure, domestically and internationally,
                including the hiring of new
                employees;




·
            changes
                in the mix of products and services that we sell to our
                customers;




·
            costs
                and effects related to the acquisition of businesses or technology
                and
                related integration; and




·
            costs
                of litigation and intellectual property
                protection.




In
      addition, because the market for our products and services is relatively new
      and
      rapidly changing, it is difficult to predict future financial
      results.




For
      these
      reasons, you should not rely on period-to-period comparisons of our financial
      results, if any, as indications of future results. Our future operating results
      could fall below the expectations of public market analysts or investors and
      significantly reduce the market price of our common stock. Fluctuations in
      our
      operating results will likely increase the volatility of our stock
      price.




·
            **Loss
                of Peter Lewis, our Chief Executive Officer and Robert Rubin, our
                Chief
                Financial Officer, could impair our ability to
                operate.**




If
      we
      lose our key employees, Peter Lewis or Robert Rubin, or are unable to attract
      or
      retain qualified personnel, our business could suffer. Our success is highly
      dependent on our ability to attract and retain qualified management personnel.
      We are highly dependent on our management, in particular, Peter Lewis, our
      Chief
      Executive Officer, and Robert Rubin, a Chief Financial Officer, consultant
      who
      are all critical to the development of our financing arrangements, technologies
      and business. The employment agreement entered with Mr. Lewis and our company
      is
      for a term of three years through June 2010. The agreements entered between
      our
      company and Rubin expire in June 2009. The loss of the services of Lewis or
      Rubin could have a material adverse effect on our operations. If we were to
      lose
      any one of these individuals, we may experience difficulties in competing
      effectively, developing our technology and implementing our business strategies
      or financing arrangements. We do not have key man life insurance in place for
      any person working for us.




13




·
            **We
                have a few proprietary rights, the lack of which may make it easier
                for
                our competitors to compete against
                us.**




We
      attempt to protect our limited proprietary property through copyright,
      trademark, trade secret, nondisclosure and confidentiality measures. Such
      protections, however, may not preclude competitors from developing similar
      technologies. Any inability to adequately protect our proprietary technology
      could harm our ability to compete.




Our
      future success and ability to compete depends in part upon our proprietary
      technology and our trademarks, which we attempt to protect with a combination
      of
      patent, copyright, trademark and trade secret laws, as well as with our
      confidentiality procedures and contractual provisions. These legal protections
      afford only limited protection and are time-consuming and expensive to obtain
      and/or maintain. Further, despite our efforts, we may be unable to prevent
      third
      parties from infringing upon or misappropriating our intellectual
      property.




·
            **There
                are a large number of shares underlying our convertible notes and
                warrants
                that may be available for future sale and the sale of these shares
                may
                depress the market price of our common
                stock.**




As
      of
      March 27, 2008, we had 57,607,601 shares of common stock issued and outstanding,
      and outstanding options and warrants to purchase additional 20,028,959 shares
      of
      common stock. In the offering pursuant to registration statement filed with
      SEC,
      the June 2006 private placement investors may sell up to 8,562,500 shares of
      common stock underlying convertible notes and 12,625,000 shares of common stock
      underlying the warrants. As of March 27, 2008, the selling stockholders have
      converted principal on the convertible notes into an aggregate of 4,624,000
      shares of the Company’s Common Stock.




·
            **Our
                historic stock price has been volatile and the future market price
                for our
                common stock may continue to be volatile. Further, the limited market
                for
                our shares will make our price more volatile. This may make it difficult
                for you to sell our common stock for a positive return on your
                investment.**




Our
      common stock is currently quoted on the OTC Bulletin Board under the symbol
      “SLTN". There is a limited trading market for our common stock. Accordingly,
      there can be no assurance as to the liquidity of any markets that may develop
      for our common stock, the ability of holders of our common stock to sell our
      common stock, or the prices at which holders may be able to sell our common
      stock.




14




The
      public market for our common stock has historically been very volatile. For
      the
      past two fiscal years and as of the date of this Financial Statements, the
      market price for our common stock has ranged from $0.42 to $3.52, as adjusted
      for the one for 1.6 reverse stock split effected on June 15, 2006. Any future
      market price for our shares may continue to be very volatile. This price
      volatility may make it more difficult for you to sell shares when you want
      at
      prices you find attractive. We do not know of any one particular factor that
      has
      caused volatility in our stock price. However, the stock market in general
      has
      experienced extreme price and volume fluctuations that often are unrelated
      or
      disproportionate to the operating performance of companies. Broad market factors
      and the investing public's negative perception of our business may reduce our
      stock price, regardless of our operating performance. Market fluctuations and
      volatility, as well as general economic, market and political conditions, could
      reduce our market price. As a result, this may make it difficult or impossible
      for you to sell our common stock for a positive return on your
      investment.




·
            **A
                sale of a substantial number of shares of our common stock may cause
                the
                price of its common stock to decline**.




If
      our
      stockholders sell substantial amounts of the Company’s common stock in the
      public market, including shares issued upon the exercise of outstanding options
      or warrants, the market price of its common stock could fall. These sales also
      may make it more difficult for the Company to sell equity or equity-related
      securities in the future at a time and price that the Company deems reasonable
      or appropriate. Stockholders who have been issued shares in the Acquisition
      will
      be able to sell their shares pursuant to Rule 144 under the Securities Act
      of
      1933, beginning one year after the stockholders acquired their
      shares.




·
            **Our
                common stock is subject to the "penny stock" rules of the SEC and
                the
                trading market in our securities is limited, which makes transactions
                in
                our stock cumbersome and may reduce the value of an investment in
                our
                stock.**




The
      SEC
      has adopted Rule 3a51-1 which establishes the definition of a "penny stock,"
      for
      the purposes relevant to us, as any equity security that has a market price
      of
      less than $5.00 per share or with an exercise price of less than $5.00 per
      share, subject to certain exceptions. For any transaction involving a penny
      stock, unless exempt, Rule 15g-9 requires:




·
            that
                a broker or dealer approve a person's account for transactions in
                penny
                stocks; and




·
            the
                broker or dealer receives from the investor a written agreement to
                the
                transaction, setting forth the identity and quantity of the penny
                stock to
                be purchased.




·
            In
                order to approve a person's account for transactions in penny stocks,
                the
                broker or dealer must:




·
            obtain
                financial information and investment experience objectives of the
                person;
                and




·
            make
                a reasonable determination that the transactions in penny stocks
                are
                suitable for that person and the person has sufficient knowledge
                and
                experience in financial matters to be capable of evaluating the risks
                of
                transactions in penny stocks.




15




The
      broker or dealer must also deliver, prior to any transaction in a penny stock,
      a
      disclosure schedule prescribed by the SEC relating to the penny stock market,
      which, in highlight form:




·
            sets
                forth the basis on which the broker or dealer made the suitability
                determination; and




·
            that
                the broker or dealer received a signed, written agreement from the
                investor prior to the transaction.




Disclosure
      also has to be made about the risks of investing in penny stocks in both public
      offerings and in secondary trading and about the commissions payable to both
      the
      broker-dealer and the registered representative, current quotations for the
      securities and the rights and remedies available to an investor in cases of
      fraud in penny stock transactions. Finally, monthly statements have to be sent
      disclosing recent price information for the penny stock held in the account
      and
      information on the limited market in penny stocks.




Generally,
      brokers may be less willing to execute transactions in securities subject to
      the
      "penny stock" rules. This may make it more difficult for investors to dispose
      of
      our common stock and cause a decline in the market value of our
      stock.




·
            **We
                have not paid cash dividends in the past and do not expect to pay
                cash
                dividends in the future. Any return on investment may be limited
                to the
                value of our stock.**




We
      have
      never paid cash dividends on our stock and do not anticipate paying cash
      dividends on our stock in the foreseeable future. The payment of cash dividends
      on our stock will depend on our earnings, financial condition and other business
      and economic factors affecting us at such time as the board of directors may
      consider relevant. If we do not pay cash dividends, our stock may be less
      valuable because a return on your investment will only occur if our stock price
      appreciates.




·
            **Foreign
                Currency and Exchange Risks and Rate Revaluation.**





We
      will
      be subject to significant foreign exchange risk. There are currently no
      meaningful ways to hedge currency risk in Hungary. Therefore, the Company’s
      ability to limit its exposure to currency fluctuations is significantly
      restricted. The Company’s ability to obtain dividends or other distributions is
      subject to, among other things, restrictions on dividends under applicable
      local
      laws and foreign currency exchange regulations of the jurisdictions in which
      its
      subsidiaries operate. The laws under which the Company’s operating subsidiaries
      are organized provide generally that dividends may be declared by the partners
      or shareholders out of yearly profits subject to the maintenance of registered
      capital and required reserves and after the recovery of accumulated
      losses.




16




**ITEM
                  2.**
                **DESCRIPTION
                    OF PROPERTIES**




The
      following table lists the office space that the Company leases from unaffiliated
      persons:


Lessee
              
              Address
                  of Property
              
              Primary
                  Use
              
              Sq.
                  feet
              
              Rent
                Amount/
                Month
              
              Lease
                  TermsKraft
              
              1112
                  Budapest,
                Kőérberki
                  út 36.
                Hungary
              
              General
                  operation
                Equipment
                  manufacturing plant
                stockholder
                  relations, general executive
              
              23,200
              
              USD
                  20,800
              
              3
                  years from January 1, 2008
                non-cancelableKraft
              
              9900
                  Körmend
                Hegyalja
                  u 42.
                Hungary
              
              Equipment
                  manufacturing plant
              
              10,760
              
              USD
                  1,600
              
              unlimited
                  with 6 months cancellation
                  period




In
      November 2005, Kraft entered into a three year fixed term lease agreement for
      its corporate offices and facilities in Budapest, Hungary at a rate ranging
      from
      $4,543 to $14,200 per month as the lease has provisions for additional space
      for
      the period calendar year of 2006 and beyond. The lease agreement provides for
      moderate increases in rent after December 31, 2006 in accordance with the
      inflationary index published by the Central Statistical Office. Rental expenses
      charged to operations for the year ended December 31, 2007 and 2006 are $217,885
      and $123,043, respectively. The increase in the rent expense for the year ended
      December 31, 2007 as compared to the year ended December 31, 2006 was the result
      of an increase in the amount of square footage rented by Kraft from
      approximately 500 square feets in late 2005 to over 20,000 square feets in
      late
      2006. In late 2007, the Company signed a modified rental agreement for the
      Budapest facilities and expanded its spaces as well as extended the contract
      for
      an additional three years period of time.




The
      Company also has a mailing address within the United States located at 25
      Highland Blvd., Dix Hills, New York 11746.




**ITEM
              3.**
            **LEGAL
                PROCEEDINGS**




New
      York
      Medical, Inc. and Redwood Investment Associates, L.P. vs. American United
      Global, Inc., et al. (Supreme Court, New York State, New York County). In this
      suit, filed on December 12, 2003, plaintiffs seek a declaration that a series
      of
      transactions by which we allegedly acquired Lifetime Healthcare Services, Inc.
      ("Lifetime") and Lifetime acquired an interest in NY Medical from Redwood
      (collectively "Transactions") were properly rescinded or, alternatively, that
      because the Transactions were induced by fraudulent conduct of our company
      and
      others, that the Transactions should be judicially rescinded. In addition to
      the
      requests for equitable relief, plaintiffs also seek monitory damages in excess
      of $5 million and exemplary damages in the amount of $15 million.




17





Currently,
      the suit has not proceeded past the filing and service of the complaint. We
      have
      obtained an open-ended extension of time in which to answer and/or move with
      regard to the complaint. We are attempting to resolve the matter amicably.
      However, in the event litigation proceeds, it will be aggressively
      defended.




The
      Company's Act in Hungary prescribes that in the case of obtaining majority
      interest (over 50%) by a company in other Public Limited Companies by shares
      ("PLC") any of the remaining shareholders in a PLC may offer their shares to
      the
      new majority owner for acquisition. In the case of the offering, the Company
      is
      obligated to purchase those shares on market value valid on the date when the
      majority owner acquired interest. Commencing in March 2006 through June 2006,
      the company entered into securities purchase agreement with shareholders of
      Kraft that that together owned 95.5% of Kraft. The remaining shareholders of
      Kraft representing 4.5% requested cash payment. As of June 30, 2007, the
      partners were in discussion about the fair market price of the 4.5% interest.
      On
      August 3, 2007, the company entered into a share purchase agreement thereby
      the
      company acquired the remaining 4.5% interest in Kraft. In connection with the
      share purchase agreement, the remaining shareholders of Kraft released all
      planned and enforced claims against the Company under the Company's Act in
      Hungary.





On
      or
      about February 19, 2008, the Company was served with process by Hudson Bay
      Fund,
      L.P. (“Hudson Bay”). Hudson Bay is seeking in excess of registration delay
      payments. The Company intends to vigorously defend against such
      action.




From
      time
      to time, we are a party to litigation or other legal proceedings that we
      consider to be a part of the ordinary course of our business. We are not
      involved currently in legal proceedings that could reasonably be expected to
      have a material adverse effect on our business, prospects, financial condition
      or results of operations. We may become involved in material legal proceedings
      in the future **.**




**ITEM
              4.**
            **SUBMISSION
                OF MATTERS TO A VOTE OF SECURITY
                HOLDERS**




No
      matters were submitted to a vote of the Company's security holders through
      the
      solicitation of proxies or otherwise, during the last quarter of the fiscal
      year
      ended December 31, 2007.




18




**PART
      II**




**ITEM
              5.**
            **MARKET
                FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER
                MATTERS**




**Market
      Information**




The
      Company's common stock is traded on the OTC Bulletin Board ("OTC") under the
      symbol "SLTF.OB".




Listed
      below are the high and low sale prices for the shares of Company’s common stock
      during the years ended December 31, 2007 and 2006. These quotations reflect
      inter-dealer prices, without mark-up, mark-down or commission and may not
      represent actual transactions.




**High
                ($)**
            
            **Low
                ($)****Quarter
                Ending:****2007**March
                31, 2007
            
            
            2.24
            
            
            0.82June
                30, 2007
            
            
            0.93
            
            
            0.47September
                30, 2007
            
            
            1.09
            
            
            0.57December
                31, 2007
            
            
            1.57
            
            
            0.94


**2006**March
                31, 2007
            
            
            3.20
            
            
            1.36June
                30, 2007
            
            
            3.52
            
            
            1.36September
                30, 2007
            
            
            3.12
            
            
            1.92December
                31, 2007
            
            
            2.27
            
            
            1.52





On
      March
      27, 2008 the closing bid price on the OTC for the Company’s common stock
      was **** $0.80.




The
      shares quoted are subject to the provisions of Section 15(g) and Rule 15g-9
      of
      the Securities Exchange Act of 1934, as amended (the Exchange Act"), commonly
      referred to as the "penny stock" rule. Section 15(g) sets forth certain
      requirements for transactions in penny stocks and Rule 15g-9(d)(1) incorporates
      the definition of penny stock as that used in Rule 3a51-1 of the Exchange
      Act.




The
      Commission generally defines penny stock to be any equity security that has
      a
      market price less than $5.00 per share, subject to certain exceptions. Rule
      3a51-1 provides that any equity security is considered to be a penny stock
      unless that security is: registered and traded on a national securities exchange
      meeting specified criteria set by the Commission; authorized for quotation
      on
      The NASDAQ Stock Market; issued by a registered investment company; excluded
      from the definition on the basis of price (at least $5.00 per share) or the
      registrant's net tangible assets; or exempted from the definition by the
      Commission. Trading in the shares is subject to additional sales practice
      requirements on broker-dealers who sell penny stocks to persons other than
      established customers and accredited investors, generally persons with assets
      in
      excess of $1,000,000 or annual income exceeding $200,000, or $300,000 together
      with their spouse.




For
      transactions covered by these rules, broker-dealers must make a special
      suitability determination for the purchase of such securities and must have
      received the purchaser's written consent to the transaction prior to the
      purchase. Additionally, for any transaction involving a penny stock, unless
      exempt, the rules require the delivery, prior to the first transaction, of
      a
      risk disclosure document relating to the penny stock market. A broker-dealer
      also must disclose the commissions payable to both the broker-dealer and the
      registered representative, and current quotations for the securities. Finally,
      the monthly statements must be sent disclosing recent price information for
      the
      penny stocks held in the account and information on the limited market in penny
      stocks. Consequently, these rules may restrict the ability of broker dealers
      to
      trade and/or maintain a market in the company’s common stock and may affect the
      ability of shareholders to sell their shares.




19




**Holders
      of Common Stock** ****




On
      March
      27, 2008, there were approximately 189 holders of record of the Company’s Common
      Stock then issued and outstanding.




**Dividends**




Except
      for dividend payment declared by Kraft in 2001 and 2002, the Company has never
      paid cash dividends and has no plans to do so in the foreseeable future. STF
      future dividend policy will be determined by its board of directors and will
      depend upon a number of factors, including our financial condition and
      performance, its cash needs and expansion plans, income tax consequences, and
      the restrictions that applicable laws and our credit arrangements then impose.




**Equity
      Compensation Plans**





The
      following table shows information with respect to each equity compensation
      plan
      under which the Company’s common stock is authorized for issuance as of December
      31, 2007.





Number of securitiesNumber of securities
            
            
            
            remaining available forto be issued upon
            
            Weighted average
            
            future issuance underexercise of
            
            exercise price of
            
            equity compensation plansoutstanding options,
            
            outstanding options,
            
            (excluding securitiesPlan category
            
            warrants and rights
              (a)
            
            warrants and rights
              (b)
            
            reflected in column
              (a))Equity
                compensation plans approved by security holders2001
                Stock Plan
            
            
            None
            
            
            —
            
            
            None2007
                Stock Plan
            
            
            None
            
            
            —
            
            
            5,000,000Equity
                compensation plans not approved by security holders
            
            
            None
            
            
            —
            
            
            NoneTotal
            
            
            None
            
            
            —
            
            
            5,000,000





The
      equity compensation plans are discussed in Note 12 of the 2007 Consolidated
      Financial Statements




**Sale
      of Securities that were not Registered Under the Securities Act of
      1933**




The
      Company did not sell any securities that were not registered under the
      Securities Act of 1933 during the year ended December 31, 2007 that have not
      been previously included in a Quarterly Report on Form 10-QSB or a Current
      Report on Form 8-K.




20




**ITEM
              6**
            **MANAGEMENT'S
                DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
                OPERATIONS**




**Overview**





The
      Company operates in Hungary through its wholly owned subsidiary, Kraft, a
      Hungarian corporation.





The
      Company through its subsidiary is presently engaged in the design, development
      and construction on behalf of its customers of both photovoltaic
      manufacturing equipment and through strategic partners “turnkey”
manufacturing plants that produce photovoltaic thin film modules (though the
      Company retains the right to deliver turnkey plants on its own account). The
      Company expects the primary use of such photovoltaic thin film modules will
      be
      the construction of solar power plants by corporations and
      governments.





STF,
      in
      the future, may further vertically integrate itself within this industry through
      activities in, but not limited to, investing in and/or operating the module
      manufacturing plants, selling thin film photovoltaic modules, and through its
      newly formed subsidiary, Solar Thin Power, installing and/or managing solar
      power plants.





**Acquisition
      - Kraft**





Commencing
      in March 2006 through June 2006, the Company entered into Securities Purchase
      Agreements with shareholders of Kraft that together owned 95.5% of the equity
      interest in Kraft to acquire their interests. On June 14, 2006, the Company
      closed on the acquisition of 95.5% of the outstanding securities of Kraft and,
      as a result, Kraft became a majority-owned subsidiary of the Company. In
      consideration for the shares of Kraft, the Company issued the sellers an
      aggregate of 95,500 shares of Series B-4 Preferred Stock of the Company (the
      “Preferred Shares”). Each Preferred Shares is automatically converted into 350
      shares of common stock or an aggregate of 33,425,000 shares of common stock
      upon
      us increasing our authorized shares of common stock and, prior to such
      conversion, the Preferred Shares had the same voting rights of the shares of
      common stock and voted together with the shares of common stock on all matters.




As
      a
      result of the Securities Purchase Agreement, there was a change in control
      of
      STF, the public entity. In accordance with SFAS No. 141, Kraft was the acquiring
      entity. While the transaction is accounted for using the purchase method of
      accounting, in substance the Agreement is a recapitalization of Kraft's capital
      structure. For accounting purposes, the Company accounted for the transaction
      as
      a reverse acquisition and Kraft is the surviving entity. The total purchase
      price and carrying value of net assets acquired was $6,681,891. Additionally,
      on
      August 3, 2007, the Company acquired the remaining 4.5% minority interest of
      Kraft in exchange for 1,575,000 shares of common stock value at $1,181,250,
      and
      as a result, Kraft is now a wholly-owned subsidiary of the Company. The Company
      did not recognize goodwill or any intangible assets in connection with the
      transaction. Prior to the Agreement, the Company was an inactive corporation
      with no significant assets and liabilities.




Critical
      Accounting Estimates





The
      preparation of our financial statements in conformity with accounting principles
      generally accepted in the United States requires us to make estimates and
      judgments that affect our reported assets, liabilities, revenues, and expenses,
      and the disclosure of contingent assets and liabilities. We base our estimates
      and judgments on historical experience and on various others assumptions we
      believe to be reasonable under the circumstances. Future events, however, may
      differ markedly from our current expectations and assumptions. While there
      are a
      number of significant accounting policies affecting our consolidated financial
      statements; we believe the following critical accounting policies involve the
      most complex, difficult and subjective estimates and judgments:





· Revenue
        Recognition
  22




· Allowance
        for doubtful accounts




· 
Research
      and development




· Warrant
      liability




· Product
      warranty reserve




·
            Revenue
                recognition





Significant
      portions of Kraft’s revenues are derived from manufacturing. For revenue from
      product/contract sales, the Company recognizes revenue in accordance with Staff
      Accounting Bulletin No. 104, Revenue Recognition (“SAB 104”), which superceded
      Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statement
      (“SAB 101”). SAB 101 requires that four basic criteria must be met before
      revenue can be recognized: 1. Persuasive evidence of an arrangement exists;
      2.
      delivery has occurred; 3. the selling price is fixed and determinable; and
      4.
      collectibility is reasonable assured. Determination of criteria 3. and 4. are
      based on management’s judgments regarding the fixed nature of the selling prices
      of the products delivered and the collectibility of those amounts. Provisions
      for discounts and rebates to customers, estimated returns and allowances, and
      other adjustments are provided for in the same period the related sales are
      recorded. The company defers any revenue for which the product has not been
      delivered or is subject to refund until such time that the company and the
      customer jointly determine that the product has been delivered or no refund
      will
      be required.





SAB
      104
      incorporates Emerging Issues Task Force 00-21 (“EITF 00-21”),
      Multiple-Deliverable Revenue Arrangements. EITF 00-21 addresses accounting
      for
      arrangements that may involve the delivery or performance of multiple products,
      services and/or rights to use assets. The effect of implementing EITF 00-21
      on
      the Company’s financial position and results of operations was not
      significant.





Percentage-of-Completion
      Accounting: in accordance with the provisions of the American Institute of
      Certified Public Accountants (AICPA) Statement of Position No. 81-1, "Accounting
      for Performance of Construction-Type and Certain Production-Type Contracts."
      (”SOP 81-1”), sales - derived from long-term fixed-priced contracts to design,
      develop and construct of complete or just part of turnkey manufacturing plants
      that produce photovoltaic thin film modules in accordance with customer
      specifications - are recorded using the percentage of completion method as
      the
      compounds are delivered (under the units of delivery method). The contract
      costs
      related to delivered compounds are recorded to cost of revenue as the compounds
      are delivered and revenue is recognized.





·
            Allowance
                For Doubtful Accounts





We
      are
      required to estimate the collectibility of our trade receivables. A considerable
      amount of judgment is required in assessing the realization of these receivables
      including the current creditworthiness of each customer and related aging of
      the
      past due balances. In order to assess the collectibility of these receivables,
      we perform ongoing credit evaluations of our customers' financial condition.
      Through these evaluations we may become aware of a situation where a customer
      may not be able to meet its financial obligations due to deterioration of its
      financial viability, credit ratings or bankruptcy. The reserve requirements
      are
      based on the best facts available to us and are reevaluated and adjusted as
      additional information is received. Our reserves are also based on amounts
      determined by using percentages applied to certain aged receivable categories.
      These percentages are determined by a variety of factors including, but are
      not
      limited to, current economic trends, historical payment and bad debt write-off
      experience. We are not able to predict changes in the financial condition of
      our
      customers and if circumstances related to our customers deteriorate, our
      estimates of the recoverability of our receivables could be materially affected
      and we may be required to record additional allowances. Alternatively, if we
      provided more allowances than are ultimately required, we may reverse a portion
      of such provisions in future periods based on our actual collection
      experience.




23





·
            Research
                and development





Solar
      Thin Film’s accounts for research and development costs in accordance with the
      Financial Accounting Standards Board’s Statement of Financial Accounting
      Standards No. 2 (“SFAS 2”), “Accounting for Research and Development Costs.”
Under SFAS 2, all research and development cost must be charged to expense
      as
      incurred. Accordingly, internal research and development cost are expensed
      as
      incurred. Third-party research and developments costs are expensed when the
      contracted work has been performed or as milestone results have been achieved.
      Company-sponsored research and development costs related to both present and
      future products are expensed in the period incurred.





·
            Warrant
                Liability





In
      connection with the placement of certain debt instruments during the twelve
      month ended December 31, 2006, the Company issued freestanding warrants.
      Although the terms of the warrants do not provide for net-cash settlement,
      in
      certain circumstances, physical or net-share settlement is deemed to not be
      within our control and, accordingly, the Company are required to account for
      these freestanding warrants as a derivative financial instrument liability,
      rather than as shareholders’ equity.





The
      warrant liability is initially measured and recorded at its fair value, and
      is
      then re-valued at each reporting date, with changes in the fair value reported
      as non-cash charges or credits to earnings. For warrant-based derivative
      financial instruments, the Black-Scholes option pricing model is used to value
      the warrant liability.





The
      classification of derivative instruments, including whether such instruments
      should be recorded as liabilities or as equity, is re-assessed at the end of
      each reporting period. Derivative instrument liabilities are classified in
      the
      balance sheet as current or non-current based on whether or not net-cash
      settlement of the derivative instrument could be required within 12 months
      of
      the balance sheet date.





We
      do not
      use derivative instruments to hedge exposures to cash flow, market, or foreign
      currency risks.





·
            Product
                Warranty Reserves





We
      provide our customers with limited rights under a warranty agreement for a
      period of 18 months with a requirement to start any defective repairs within
      7
      working dates of notice. Additionally, we provide 6 additional months of service
      whereby we will repair or replace at our actual cost. In conjunction with our
      obligation under our warranties, we have charged to our operating expenses
      an
      estimated warranty cost upon recognition of the related revenue. Our estimate
      is
      management’s of anticipated estimated costs of repair based on historical costs
      and any known specific product issues. The Company accrued a provision for
      product warranty of approximately $180,000 during 2007; of which approximately
      $85,000 was utilized during the year ended December 31, 2007. The assumptions
      we
      used and our future anticipated warranty costs are reevaluated periodically
      and
      are adjusted accordingly. Our determinations are based on estimates. Should
      product failure rate differ from our estimates, actual costs could vary
      significantly from our expectations.




24





Use
      of
      Estimates





The
      preparation of these financial statements requires the Company to make estimates
      and judgments that affect the reported amounts of assets, liabilities, revenues,
      expenses, and the disclosure of contingent assets and liabilities, if any,
      at
      the date of the financial statements. The Company analyzes its estimates,
      including those related to contingencies and litigation. The Company bases
      its
      estimates on assumptions that are believed to be reasonable under the
      circumstances. Actual results may differ from these estimates under different
      assumptions or conditions.





**Commitments
      and contingencies**





The
      Company’s subsidiaries have entered into non-cancelable operational agreements
      for office premises.





In
      connection with the acquisition of Kraft, the Company entered into consulting
      agreements with Robert Rubin and Zoltan Kiss pursuant to which each consultant
      will receive an annual salary of $160,000 per annum, reimbursement for up to
      $5,000 in expenses associated with company activities and major medical benefits
      in consideration for services performed on behalf of the company. Each of these
      agreements is for a term of three years. Mr. Rubin’s salary was increased to
      $225,000 per annum when he assumed the duties of Chief Financial Officer. In
      December 2007, Mr. Kiss resigned as director of the Company.




On
      June
      20, 2007, Peter Lewis and Solar Thin Films, Inc. (the “Company”) entered into an
      Employment Agreement pursuant to which Mr. Lewis has agreed to serve as the
      Chief Executive Officer of the Company. The Employment Agreement contains the
      following terms:




·
            base
                salary of $225,000 per year;





·
            the
                issuance of 187,617 shares of common stock per
                year;





·
            a
                bonus paid pursuant to the Executive Officer Incentive Plan as determined
                by the Board of Directors;





·
            a
                ten year option to purchase 3,000,000 shares of common stock at an
                exercise price of $0.533 per share on a cashless basis vesting on
                a
                pro-rata basis over a period of two
                years;





·
            participation
                in all employee benefit plans and programs;
                and





·
            reimbursement
                of reasonable expenses.





25




In
      November 2005, the Company entered into a three year fixed term lease agreement
      for our corporate offices and facilities in Budapest, Hungary at a rate ranging
      from $4,543 to $15,433 per month as the lease has provisions for additional
      space for the period calendar year of 2006 and beyond. The lease agreement
      provides for moderate increases in rent after the first year in accordance
      with
      the inflationary index published by the Central Statistical Office. In November
      2007, the Company signed the modification of lease agreement resulted a charge
      of $20,800 per months from January 1, 2008 for three years period of time.
      The 3
      year minimum future cash flow for the leases at December 31, 2007 is as
      follows:





Fiscal
                Year:
            
            Amount:December
                31, 2008
            
            $
            249,600December
                31, 2009
            
            $
            249,600December
                31, 2010
            
            $
            249,600





The
      following table summarizes the cash commitments described above:





Contractual
                cash obligation
            
            2008
            
            2009
            
            2010
            
            2011
            
            After
                2012Operational
                leases
            
            $
            249,600
            
            $
            249,600
            
            $
            249,600
            
            
            -
            
            
            -Employment
                agreements (1)
            
            
            450,000
            
            
            337,000
            
            
            112,500
            
            
            -
            
            
            -Total
            
            $
            699,600
            
            $
            586,600
            
            $
            362,100
            
            
            -
            
            
            -




(1)
      base
      salary of CEO and CFO





**Results
      of Operations** ****





**Year
      Ended December 31, 2007** **compared
      to Year Ended December 31, 200** **6**





*Revenues*





The
      following table summarizes our revenues for the years ended December 31, 2007
      and 2006:





Year
                ended December 31,
            
            **2007**
            
            **2006**Total
                Revenues
            
            $
            5,779,578
            
            $
            2,426,954




For
      the
      year ended December 31, 2007, revenues were increased by 138% or $3,352,624
      as
      compared to the similar period in 2006. This increase in revenues was due to
      the
      completion of a large related party and other contracts in
      2007.





*Cost
      of sales*





The
      following table summarizes our cost of sales for the years ended December 31,
      2007 and 2006:





Year
                ended December 31,
            
            **2007**
            
            **2006**Total
                cost of sales
            
            $
            4,779,962
            
            $
            1,766,806





Our
      cost
      of sales for the year ended December 31, 2007 were $4,779,962 or 82.7% of our
      sales as compared to $1,766,806, or 72.8% of our sales for the year ended
      December 31, 2006. The decrease in gross margin was attributable primarily
      to
      the weakening of the US Dollar, higher cost of raw materials and related
      manufacturing cost. Our cost of sales predominantly consists of the cost of
      labor, raw materials, and absorbed indirect manufacturing cost.





*General,
      selling and administrative expenses*





The
      following table summarizes our general, selling and administrative expenses
      for
      the years ended December 31, 2007 and 2006:





Year
                ended December 31,
            
            **2007**
            
            **2006**General,
                selling and administrativeexpenses
            
            $
            4,243,401
            
            $
            5,531,590




26




For
      the
      year ended December 31, 2007 selling, general and administrative expenses were
      $4,243,401 as compared to $5,531,590 in 2006. The decrease in selling, general
      and administrative expenses of $1,288,189 is attributable to the additional
      staff/consultants (legal, audit) supporting the recapitalization offset by
      reduction in stock based compensation issued in 2007 of $356,618 as compared
      with $2,831,353 in 2006.





*Research
      and development*





The
      following table summarizes our research and development expenses for the years
      ended December 31, 2007 and 2006:





Year
                ended December 31
            
            **2007**
            
            **2006**Research
                and development expenses
            
            $
            360,000
            
            $
            11,600





Our
      research and development for year ended December 31, 2007 were $360,000 compared
      to $11,600 for the year ended December 31, 2006. In late 2005, the Company
      suspended its research and development activity, while it signed a new contract
      with RESI in middle of December 2006 for a new agreement representing a monthly
      charge of $30,000.





*Depreciation
      and amortization*





The
      following table summarizes our depreciation and amortization for the years
      ended
      December 31, 2007 and 2006:





Year
                ended December 31,
            
            **2007**
            
            **2006**Depreciation
                and amortization
            
            $
            220,860
            
            $
            55,328




Depreciation
      and amortization has increased by $165,532 in the year ended December 31, 2007
      compared to the same period in 2006. The increase mainly due to the acquisition
      of new equipments purchased in second half of 2006 and during 2007.





*Interest
      expense, net*





The
      following table summarizes our interest expense, net for the years ended
      December 31, 2007 and 2006:





Year
                ended December 31,
            
            **2007**
            
            **2006**Interest
                expense, net
            
            $
            4,527,940
            
            $
            1,476,599





Interest
      expense,net has increased by $3,051,341 in the year ended December 31, 2007
      compared to the same period in 2006. The increase mainly due to the issuance
      of
      4,029,000 shares of common stock in exchange for convertible notes payable
      in
      2007.





27




**Liquidity
      and Capital Resources**




As
      of December 31, 2007, our cash, cash equivalents and marketable securities
      were
      approximately $4,157,476, an increase of $1,489,993 from December 31, 2006.





As
      of December 31,  2007, we had working capital of $1,862,717. We generated a
      deficit in cash flow from operations of $1,674,555 for the year ended December
      31, 2007. This deficit is primarily attributable to our net loss from operations
      of $8,747,795, net with depreciation and amortization, amortization of debt
      discount and deferred financing costs of $5,055,644 as well as $418,385 fair
      value of vested options and warrants issued, $242,000 in stock based
      compensation for services, minority interests of $17,089, non cash loss of
      disposal of fixed assets of $11,184 and to the changes in the balances of
      current assets and liabilities. Accounts payable and accrued expenses, and
      advances received from customers increased by $216,745 (net), and
      inventory, receivables, prepaid expenses and other current assets decreased
      (net) by $1,146,371.





Cash
      flows used by in investing activities for the year ended December 31, 2007
      was
      $197,757, due to the
      purchase of property and equipment.





We
      met
      our cash requirements during the period through net proceeds from the sale
      of
      common stock of our subsidiary, Solar Thin Power, Inc of $3,348,395,
      net with
      payments towards related party notes of $157,472.





While
      we
      have raised capital to meet our working capital and financing needs in the
      past,
      additional financing is required in order to meet our current and projected
      cash
      flow requirements from operations and development. We believe, we have
      sufficient cash on hand as of December 31, 2007 to meet our working capital
      needs and requirements for the next twelve (12) months. However, we are seeking
      additional financing, which may take the form of debt, convertible debt or
      equity, in order to provide the additional working capital and funds for
      expansion. We currently have no commitments for financing. There is no guarantee
      that we will be successful in raising the funds required.




**Inflation
      and Foreign Currency**




The
      Company maintains its books in local currency: US Dollars for the parent holding
      Company in the United States of America and Hungarian Forint for Kraft in
      Hungary.





The
      Company’s operations are primary outside of the United States through its wholly
      owned subsidiary. As a result, fluctuations in currency exchange rates may
      significantly affect the Company's sales, profitability and financial position
      when the foreign currencies, primarily the Hungarian Forint, of its
      international operations are translated into U.S. dollars for financial
      reporting. In additional, we are also subject to currency fluctuation risk
      with
      respect to certain foreign currency denominated receivables and payables.
      Although the Company cannot predict the extent to which currency fluctuations
      may or will affect the Company's business and financial position, there is
      a
      risk that such fluctuations will have an adverse impact on the Company's sales,
      profits and financial position. Because differing portions of our revenues
      and
      costs are denominated in foreign currency, movements could impact our margins
      by, for example, decreasing our foreign revenues when the dollar strengthens
      and
      not correspondingly decreasing our expenses. The Company does not currently
      hedge its currency exposure. In the future, we may engage in hedging
      transactions to mitigate foreign exchange risk.





The
      translation of the Company’s subsidiaries forint denominated balance sheets into
      U.S. dollars, as of December 31, 2007, has been affected by the weakening of
      the
      U.S. dollar against the Hungarian forint from 191.62 as of December 31, 2006,
      to
      172.61 as of December 31, 2007, an approximate 11% depreciation in value. The
      average Hungarian forint/U.S. dollar exchange rates used for the translation
      of
      the subsidiaries forint denominated statements of operations into U.S. dollars,
      for the years ended December 31, 2007 and 2006 were 183.64 and 198.80,
      respectively.




28




**Effect
      of Recent Accounting Pronouncements**




In
      February 2006, the FASB issued SFAS No. 155. “ *Accounting
      for certain Hybrid Financial Instruments an amendment of FASB Statements No.
      133
      and 140,”* or SFAS
      No. 155. SFAS No. 155 permits fair value remeasurement for any hybrid financial
      instrument that contains an embedded derivative that otherwise would require
      bifurcation, clarifies which interest-only strips and principal-only strips
      are
      not subject to the requirements of Statement No. 133, establishes a requirement
      to evaluate interests in securitized financial assets to identify interests
      that
      are freestanding derivatives or that are hybrid financial instruments that
      contain an embedded derivative requiring bifurcation, clarifies that
      concentrations of credit risk in the form of subordination are not embedded
      derivatives, and amends SFAS No. 140 to eliminate the prohibition on a
      qualifying special purpose entity from holding a derivative financial instrument
      that pertains to a beneficial interest other than another derivative financial
      instrument. SFAS No. 155 is effective for all financial instruments acquired
      or
      issued after the beginning of an entity’s first fiscal year that begins after
      September 15, 2006. We did not have a material impact on our consolidated
      financial position, results of operations or cash flows.





In
      March
      2006, the FASB issued SFAS No. 156, Accounting for Servicing of Financial Assets
      - an amendment to FASB Statement No. 140. SFAS No. 156 requires that an entity
      recognize a servicing asset or servicing liability each time it undertakes
      an
      obligation to service a financial asset by entering into a service contract
      under certain situations. The new standard is effective for fiscal years
      beginning after September 15, 2006. The adoption of SFAS No.156 did not have
      a
      material impact on the Company's financial position, results of operations
      or
      cash flows.





In
      July
      2006, the FASB issued Interpretation No. 48 (FIN 48). “ *Accounting* *for
      uncertainty in Income Taxes”.* FIN 48
      clarifies the accounting for Income Taxes by prescribing the minimum recognition
      threshold a tax position is required to meet before being recognized in the
      financial statements. It also provides guidance on derecognition, measurement,
      classification, interest and penalties, accounting in interim periods,
      disclosure and transition and clearly scopes income taxes out of SFAS No. 5,
“ *Accounting
      for Contingencies”.* FIN 48
      is effective for fiscal years beginning after December 15, 2006. We did not
      have
      a material impact on our consolidated financial position, results of operations
      or cash flows.





In
      September 2006, FASB issued its SFAS No. 157, “Fair Value Measurements” (“SFAS
      No. 157”). SFAS No. 157 defines fair value, establishes a framework for
      measuring fair value in generally accepted accounting principles (GAAP), and
      expands disclosures about fair value measurements. SFAS No.157 applies under
      other accounting pronouncements that require or permit fair value measurements,
      the Board having previously concluded in those accounting pronouncements that
      fair value is the relevant measurement attribute. Accordingly, SFAS No. 157
      does
      not require any new fair value measurements. However, for some entities, the
      application of SFAS No. 157 will change current practice. SFAS No. 157 is
      effective for fiscal years beginning after November 15, 2007. The Company does
      not expect adoption of this standard will have a material impact on its
      financial position, results of operations or cash flows.





In
      September 2006 the FASB issued its SFAS No. 158, “Employers’ Accounting for
      Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB
      Statements No. 87, 88, 106 and 132(R)” (“SFAS No. 158”). SFAS No. 158 improves
      financial reporting by requiring an employer to recognize the overfunded or
      underfunded status of a defined benefit postretirement plan (other than a
      multiemployer plan) as an asset or liability in its statement of financial
      position and to recognize changes in that funded status in the year in which
      the
      changes occur through comprehensive income of a business entity or changes
      in
      unrestricted net assets of a not-for-profit organization. SFAS No. 158 also
      improves financial reporting by requiring an employer to measure the funded
      status of a plan as of the date of its year-end statement of financial position,
      with limited exceptions. The effective date for an employer with publicly traded
      equity securities is as of the end of the fiscal year ending after December
      15,
      2006. SFAS No. did not have a material impact on the Company's financial
      position, results of operations or cash flows as the Company does not have any
      defined benefit pension and other postretirement plans at December 31,
      2007.




29





In
      December 2006, the FASB issued FSP EITF 00-19-2, Accounting for Registration
      Payment Arrangements (" FSP
      00-19 -2")
      which addresses accounting for registration payment arrangements. FSP
      00-19 -2
      specifies that the contingent obligation to make future payments or otherwise
      transfer consideration under a registration payment arrangement, whether issued
      as a separate agreement or included as a provision of a financial instrument
      or
      other agreement, should be separately recognized and measured in accordance
      with
      FASB Statement No. 5, Accounting for Contingencies. FSP
      00-19 -2
      further clarifies that a financial instrument subject to a registration payment
      arrangement should be accounted for in accordance with other applicable
      generally accepted accounting principles without regard to the contingent
      obligation to transfer consideration pursuant to the registration payment
      arrangement. For registration payment arrangements and financial instruments
      subject to those arrangements that were entered into prior to the issuance
      of
      EITF 00-19-2, this guidance shall be effective for financial statements issued
      for fiscal years beginning after December 15, 2006 and interim periods within
      those fiscal years. The Company adopted FSP 00-19-2 in the preparation of the
      financial statements (see Note 1).





In
      February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
      Financial Assets and Financial Liabilities.” SFAS 159 permits entities to choose
      to measure many financial instruments, and certain other items, at fair value.
      SFAS 159 applies to reporting periods beginning after November 15, 2007. The
      adoption of SFAS 159 is not expected to have a material impact on the Company’s
      financial position, results of operations, or cash flows.





In
      June 2007, the Accounting Standards Executive Committee issued Statement of
      Position 07-1, “Clarification of the Scope of the Audit and Accounting Guide
      Investment Companies and Accounting by Parent Companies and Equity Method
      Investors for Investments in Investment Companies” (“SOP 07-1”). SOP 07-1
      provides guidance for determining whether an entity is within the scope of
      the
      AICPA Audit and Accounting Guide Investment Companies (the “Audit Guide”). SOP
      07-1 was originally determined to be effective for fiscal years beginning on
      or
      after December 15, 2007, however, on February 6, 2008, FASB issued a
      final Staff Position indefinitely deferring the effective date and prohibiting
      early adoption of SOP 07-1 while addressing implementation issues.





In
      June
      2007, the FASB ratified the consensus in EITF Issue No. 07-3, “Accounting
      for Nonrefundable Advance Payments for Goods or Services to be Used in Future
      Research and Development Activities” (EITF 07-3), which requires that
      nonrefundable advance payments for goods or services that will be used or
      rendered for future research and development (R&D) activities be deferred
      and amortized over the period that the goods are delivered or the related
      services are performed, subject to an assessment of recoverability.
      EITF 07-3 will be effective for fiscal years beginning after
      December 15, 2007. The Company does not expect that the adoption of
      EITF 07-3 will have a material impact on our consolidated financial
      position, results of operations or cash flows.




30





In
      December 2007, the FASB issued SFAS No. 141(R), *"Business
      Combinations"* ("SFAS No. 141(R)"), which establishes principles and requirements for how
      an acquirer recognizes and measures in its financial statements the identifiable
      assets acquired, the liabilities assumed, and any noncontrolling interest in
      an
      acquiree, including the recognition and measurement of goodwill acquired in
      a
      business combination. SFAS No. 141(R) is effective as of the beginning of the
      first fiscal year beginning on or after December 15, 2008. Earlier adoption
      is prohibited and the Company is currently evaluating the effect, if any, that
      the adoption will have on its financial position, results of operations or
      cash
      flows.





In
      December 2007, the FASB issued SFAS No. 160, *"Noncontrolling
      Interest in Consolidated Financial Statements, an amendment of ARB
      No. 51"* ("SFAS
      No. 160"), which will change the accounting and reporting for minority
      interests, which will be recharacterized as noncontrolling interests and
      classified as a component of equity within the consolidated balance sheets.
      SFAS
      No. 160 is effective as of the beginning of the first fiscal year beginning
      on
      or after December 15, 2008. Earlier adoption is prohibited and the Company
      is currently evaluating the effect, if any, that the adoption will have on
      its
      financial position, results of operations or cash flows.





In
      December 2007, the FASB ratified the consensus in EITF Issue No. 07-1,
“Accounting for Collaborative Arrangements” (EITF 07-1). EITF 07-1
      defines collaborative arrangements and requires collaborators to present the
      result of activities for which they act as the principal on a gross basis and
      report any payments received from (made to) the other collaborators based on
      other applicable authoritative accounting literature, and in the absence of
      other applicable authoritative literature, on a reasonable, rational and
      consistent accounting policy is to be elected. EITF 07-1 also provides for
      disclosures regarding the nature and purpose of the arrangement, the entity’s
      rights and obligations, the accounting policy for the arrangement and the income
      statement classification and amounts arising from the agreement. EITF 07-1
      will be effective for fiscal years beginning after December 15, 2008, which
      will be the Company’s fiscal year 2009, and will be applied as a change in
      accounting principle retrospectively for all collaborative arrangements existing
      as of the effective date. The Company has not yet evaluated the potential impact
      of adopting EITF 07-1 on our consolidated financial position, results of
      operations or cash flows.





Other
      recent accounting pronouncements issued by the FASB (including its Emerging
      Issues Task Force), the AICPA, and the SEC did not, or are not believed by
      management to, have a material impact on the Company’s present or future
      consolidated financial statements.




**Forward-Looking
      Statements**




Forward-Looking
      Statements





We
      may
      from time to time make written or oral statements that are "forward-looking,"
      including statements contained in this Form 10KSB and other filings with the
      Securities and Exchange Commission, reports to our stockholders and news
      releases. All statements that express expectations, estimates, forecasts or
      projections are forward-looking statements within the meaning of the Act. In
      addition, other written or oral statements which constitute forward-looking
      statements may be made by us or on our behalf. Words such as "expects,"
      "anticipates," "intends," "plans," "believes," "seeks," "estimates," "projects,"
      "forecasts," "may," "should," variations of such words and similar expressions
      are intended to identify such forward-looking statements. These statements
      are
      not guarantees of future performance and involve risks, uncertainties and
      assumptions which are difficult to predict. Therefore, actual outcomes and
      results may differ materially from what is expressed or forecasted in or
      suggested by such forward-looking statements. We undertake no obligation to
      update publicly any forward-looking statements, whether as a result of new
      information, future events or otherwise. Important factors on which such
      statements are based are assumptions concerning uncertainties, including but
      not
      limited to uncertainties associated with the following:





(a)
      volatility or decline of our stock price;




31





(b)
      potential fluctuation in quarterly results;





(c)
      our
      failure to earn revenues or profits;





(d)
      inadequate capital and barriers to raising the additional capital or to
      obtaining the financing needed to implement its business plans;





(e)
      inadequate capital to continue business;





(f)
      changes in demand for our products and services;





(g)
      rapid
      and significant changes in markets;





(h)
      litigation with or legal claims and allegations by outside parties;





(i)
      insufficient revenues to cover operating costs.





You
      should read the following discussion and analysis in conjunction with our
      financial statements and notes thereto, included herewith. This discussion
      should not be construed to imply that the results discussed herein will
      necessarily continue into the future, or that any conclusion reached herein
      will
      necessarily be indicative of actual operating results in the future. Such
      discussion represents only the best present assessment of
      management.




**ITEM
              7.**
            **FINANCIAL
                STATEMENTS.**




Reference
      is made to the Consolidated Financial Statements of the Company, beginning
      with
      the index thereto on page F-1




**ITEM
              8.**
            **CHANGES
                IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
                DISCLOSURE**




On
      June
      14, 2006, as a result of the acquisition of Kraft, the Company effectively
      terminated the services of Seligson and Giannattasio, LLP (“SG”), as its
      independent auditor. SG performed the audit for the two year period ended
      December 31, 2005, which reports for the two years ended December 31, 2005
      and
      2004 did not contain any adverse opinion or a disclaimer of opinion, nor was
      it
      qualified as to audit scope or accounting principles but did carry a
      modification as to going concern. During the Company’s two most recent fiscal
      years and during any subsequent interim period prior to the June 14, 2006
      termination as the Company's independent auditors, there were no disagreements
      with SG, with respect to accounting or auditing issues of the type discussed
      in
      Item 304(a)(iv) of Regulation S-B.





On
      August
      8, 2007, SG provided the Company with the letter addressed to the SEC, stating
      that it agreed with the statements in the Company’s Form 8-K/A as filed with the
      SEC on June 14, 2006.




32





On
      July
      12, 2006, the board of directors of Solar Thin Films approved the engagement
      of
      the firm of RBSM LLP formerly known as Russell Bedford Stefanou Mirchandani,
      LLP
      as its independent auditors. During the Company’s two most recent fiscal years
      or any subsequent interim period prior to engaging RBSM LLP, the Company had
      not
      consulted RBSM LLP regarding any of the accounting or auditing concerns stated
      in Item 304(a)(2) of Regulation S-B.





**ITEM
                8A.**
              **CONTROLS
                  AND PROCEDURES**




**Management’s
      Report on Internal Control over Financial Reporting**





Our
      management is responsible for establishing and maintaining adequate internal
      control over financial reporting. Our internal control system was designed
      to
      provide reasonable assurance to our management and Board of Directors regarding
      the preparation and fair presentation of published financial
      statements.





Our
      management assessed the effectiveness of our internal control over financial
      reporting as of December 31, 2007. In making this assessment, it used the
      criteria set forth by the Committee of Sponsoring Organizations of the Treadway
      Commission (COSO) in *Internal
      Control—Integrated Framework* . Based
      on
      our assessment we believe that, as of December 31, 2007, our internal control
      over financial reporting is effective based on those criteria.





This
      annual report does not include an attestation report of the Company’s registered
      accounting firm regarding internal control over financial reporting.
      Management’s report was not subject to attestation by the Company’s registered
      public accounting firm pursuant to temporary rules of the Securities and
      Exchange Commission





In
      the
      prior year, as a result of comments raised by the Division of Corporate Finance
      of the Securities and Exchange Commission (the “Commission”), we determined that
      accounting errors were made in the accounting for and disclosing of the
      beneficial conversion feature, warrants issued, common shares issued and
      corresponding debt discount imbedded in a $1,250,000 convertible note payable
      assumed in connection with the acquisition of the American Global United, Inc.
      assets and assumption of the liabilities on June 14, 2006. In addition, the
      Company erroneously accounted for the net liabilities assumed of $ 6,681,891
      in
      connection with the acquisition of American United Global, Inc. as a transaction
      cost and charged the amount to operations. The Company determined the assumption
      of the net liabilities was not a cost of operations, but a capital transaction
      incurred in connection with the recapitalization of the Company and has charged
      the $ 6,681,891 directly to accumulated deficit.





As
      a
      result, in the prior year, we concluded that our disclosure controls were not
      effective as of the end of the period covered by the prior year
      report.





In
      the
      current year, we implemented the following remedial measures to address the
      identified material weaknesses and concluded that our disclosure controls were
      effective as of the end of the period covered by this report.





·
            We
                reviewed all convertible equity and debt securities to identify any
                securities that may have embedded beneficial conversion
                features





·
            We
                have improved the supervision and training of our accounting staff
                to
                understand and implement accounting requirements, policies and procedures
                applicable to the accounting and disclosure of convertible
                securities.




33




Changes
      in Disclosure Controls and Procedures





Except
      as described above, there
      was no change in our internal control over financial reporting (as defined
      in
      Rule 13a-15(f) of the Exchange Act) that occurred during the fiscal year to
      which this report relates that has materially affected, or is reasonably likely
      to materially affect, our internal control over financial
      reporting.




ITEM
      8A(T).  CONTROLS
      AND PROCEDURES





Not
      applicable





**ITEM
                8B.**
              **OTHER
                  INFORMATION**





None.




34





**PART
      III**




ITEM
      9.  DIRECTORS,
      EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION
      16(A)
      OF THE EXCHANGE ACT




**Executive
      Officers and Directors**





The
      following table sets forth certain information regarding the executive officers
      and directors of the Company as of March 27, 2008




Name
            
            Age
            
            PositionPeter
                Lewis
            
            48
            
            Chief
                Executive Officer and DirectorRobert
                M. Rubin
            
            66
            
            Chief
                Financial Officer and Director





Set
      forth
      below is a biographical description of each director and senior executive
      officer of the Company based on information supplied by each of
      them.





**Peter
      Lewis.** Mr.
      Lewis briefly provided consulting services to RESI, a business partner of the
      Company (from March 2007 until May 2007). A special meeting of the Board of
      Directors was held on August 22, 2007. The Board unanimously approved the
      appointment of Peter Lewis to the Board of Directors at such meeting. Mr. Lewis
      has served as the Company's Chief Executive Officer since June 2007. From 2005
      through 2006, Mr. Lewis served as an Executive Vice President of KmX
      Corporation, a Toronto based company he helped co-found that provides advanced
      membrane solutions for the chemical recycling and ethanol markets. Prior to
      joining KmX Corporation, from 2002 through 2004, Mr. Lewis served as the Chief
      Operating Officer of CA Technology (now Agilence), a New Jersey based company
      providing software and hardware solutions to the digital video and security
      marketplace. Mr. Lewis holds a B.A. in Economics from Columbia and an M.B.A.
      from Harvard Business School.





**Robert
      M. Rubin** . Mr.
      Rubin has served as a director since May 1991, and was our Chief Executive
      Officer from May 1991 to January 1, 1994. Mr. Rubin currently serves as our
      Chief Financial Officer. Between October 1990 and January 1, 1994, Mr. Rubin
      served as the Chairman of the Board and Chief Executive Officer of our company
      and its subsidiaries; from January 1, 1994 to January 19, 1996, he served only
      as Chairman of the Board of our company and its subsidiaries. From January
      19,
      1996 until June 2006, Mr. Rubin served as Chairman of the Board, President
      and
      Chief Executive Officer. Mr. Rubin resigned as Chairman in June 2006 and as
      an
      executive officer in October 2006. Mr. Rubin continues to serve as a director
      and consultant of our company. Mr. Rubin was the founder, President, Chief
      Executive Officer and a Director of Superior Care, Inc. ("SCI") from its
      inception in 1976 until May 1986, when Mr. Rubin resigned as an executive
      officer. Mr. Rubin continued as a director of SCI until the latter part of
      1987.
      In 1993, SCI was sold to Olsten Corporation (NYSE). On August 20, 2007, the
      Board of Directors of Solar Thin Films, Inc. (the “Company”), by unanimous
      written consent, elected Robert Rubin as its Chief Financial
      Officer.




**ROLE
      OF THE BOARD**





Pursuant
      to Delaware law, our business, property and affairs are managed under the
      direction of the Company’s board of directors. The board has responsibility for
      establishing broad corporate policies and for the overall performance and
      direction of Solar Thin Films, Inc, but is not involved in day-to-day
      operations. Members of the board keep informed of the Company’s business by
      participating in board and committee meetings, by reviewing analyses and reports
      sent to them regularly, and through discussions with its executive
      officers.




35




**BOARD
      MEETINGS**





In
      2006,
      the board did not meet and made eight written resolutions. In 2007 the board
      met
      twice.





**BOARD
      COMMITTEES**





We
      have
      not established an audit committee, compensation committee or nominating
      committee.





Compensation
      of the Board of Directors





Directors
      who are also our employees do not receive additional compensation for serving
      on
      the Board or its committees. Non-employee directors are not paid any annual
      cash
      fee. In addition, directors are entitled to receive options under our Stock
      Option Plan. All directors are reimbursed for their reasonable expenses incurred
      in attending Board meetings. We intend to procure directors and officers
      liability insurance.





**SECTION
      16(A) BENEFICIAL OWNERSHIP COMPLIANCE**




Section
      16(a) of the Securities Exchange Act of 1934 requires the Company’s directors
      and executive officers, and persons who own more then 10 percent of the
      Company’s Common Stock, to file with the SEC the initial reports of ownership
      and reports of changes in ownership of common stock. Officers, directors and
      greater than 10 percent stockholders are required by SEC regulation to furnish
      the Company with copies of all Section 16(a) forms they file.




Specific
      due dates for such reports have been established by the Commission and the
      Company is required to disclose in this Proxy Statement any failure to file
      reports by such dates during fiscal 2007. Based solely on its review of the
      copies of such reports received by it, or written representations from certain
      reporting persons that no Forms 5 were required for such persons, the Company
      believes that during the fiscal year ended December 31, 2007, there was no
      failure to comply with Section 16(a) filing requirements applicable to its
      officers, directors and ten percent stockholders.




**CODE
      OF ETHICS**




The
      Company adopted a Code of Ethics and Business Conduct for Officers, Directors
      and Employees that applies to all of the officers, directors and employees
      of
      the Company. A copy of our code of ethics may be found as Exhibit 14.3 to the
      Annual Report filed on Form 10-K with the Securities and Exchange Commission
      on
      July 16, 2004.







**ITEM
              10.**
            **EXECUTIVE
                COMPENSATION**




The
      following table sets forth information concerning the total compensation that
      the Company has paid or that has accrued on behalf of Company’s chief executive
      officer and other executive officers with annual compensation exceeding $100,000
      during the years ended December 31, 2007 and 2006.




36




The
      following table sets forth the cash compensation (including cash bonuses) paid
      or accrued and equity awards granted by us for years ended December 31, 2007
      and
      2006 to our Chief Executive Officer and our most highly compensated officers
      other than the Chief Executive Officer at December 31, 2007 whose total
      compensation exceeded $100,000.





Name &
              Principal
              Position
            
            Year
            
            Salary ($)
            
            Bonus
              ($)
            
            Stock
                Awards($)
            
            Option
                Awards ($)
            
            Non-Equity
                Incentive Plan Compensation ($)
            
            Change
                in Pension Value and Non-Qualified Deferred Compensation Earnings
                ($)
            
            All
                Other Compensation ($)
            
            Total ($)Peter
                Lewis (1)
            
            
            2007
            
            $
            131,250
            
            
            —
            
            $
            58,333
            (2)
            $
            356,618
            (3)
            
            —
            
            
            —
            
            
            —
            
            $
            546,201Chief
                Executive Officer
            
            
            2006
            
            $
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Zoltan
                Kiss *
            
            
            2007
            
            $
            136,000
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            
            
            $
            136,000Director
                (5)
            
            
            2006
            )
            $
            100,800
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            $
            100,800Robert
                Rubin
            
            
            2007
            
            $
            245,000
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            $
            245,000Chief
                Financial Officer, Director(7)
            
            
            2006
            
            $
            255,972
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            $
            255,972Csaba
                Toro**
            
            
            2007
            
            $
            103,068
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            $
            103,068Chief
                Executive Officer (4)
            
            
            2006
            
            $
            73,560
            
            
            N/A
            
            $
            100,000
            (5)
            $
            2,705,400
            (6)
            
            —
            
            
            —
            
            
            —
            
            $
            2,878,960




*
      Mr.
      Kiss resigned as director of the Company in December 2007




**
      Mr.
      Toro no longer serves as an executive officer of our company from June 20,
      2007.




(1)
      Mr.
      Lewis was appointed as Chief Executive Officer of our company on June 20, 2007.





(2)
      In
      accordance with Mr. Lewis’s employment agreement, Mr. Lewis is entitled to
      receive 187,617 shares of common stock per year. The shares are valued at the
      stated value in the employment agreement of $0.533 per share, which was the
      the
      average closing bid price for the 20 trading days immediately prior to the
      date
      of the employment agreement.





(3)
      Mr.
      Lewis was granted a ten year option to purchase 3,000,000 shares of common
      stock
      at an exercise price of $0.533 per share on a cashless basis vesting on a
      pro-rata basis over a period of two years. The option was valued using the
      black
      scholes option pricing model assuming a ten year life, no expected dividend
      payments a volatility of 82.53% and a risk free rate of 5.14%.





(4)
      Mr.
      Toro was appointed as Chief Executive Officer of our company on October 31,
      2006. In accordance with Mr. Toro’s employment agreement, Mr. Toro was entitled
      to receive 45,956 shares of common stock per year. The shares are valued at
      the
      stated value in the employment agreement of $2.18 per share, which was the
      market price as of the date of grant. Mr. Toro resigned as an executive officer
      and director of the Company on June 20, 2007. All obligations under Mr. Toro’s
      employment agreement, including the stock options granted were
      terminated.





(5)
      In
      June 2006, Mr. Kiss was appointed as a director and consultant. Mr. Kiss
      resigned as a Director and Chairman of the Company effective December 20, 2007.





(6)
      Mr.
      Toro was granted a ten year option to purchase 1,875,000 shares of common stock
      at an exercise price of $2.18 per share, which may be exercised on a cashless
      basis. Although the option has vested immediately, Mr. Toro is only permitted
      to
      sell 52,084 shares per month on a cumulative basis. The option was valued using
      the black scholes option pricing model assuming a ten year life, no expected
      dividend payments a volatility of 49.5% and a risk free rate of 4.6%. Mr. Toro
      resigned as an executive officer and director of the Company on June 20, 2007.
      All obligations under Mr. Toro’s employment agreement, including the stock
      options granted were terminated.




(7)In
      June 2006, Mr. Rubin was appointed as a director and consultant. Mr. Rubin
      was
      appointed Chief Financial Officer of the Company in August 2007. In addition
      to
      the compensation noted above, Mr. Rubin’ wife, an employee of the Company
      receives a salary of $1,250 per month for administrative services.





37




**OUTSTANDING
      EQUITY AWARDS**





Option
                Awards
            
            Stock
                AwardsName
            
            Number
              of
              Securities
              Underlying
              Unexercised
              Options
              (#)
              Exercisable
            
            Number
              of
              Securities
              Underlying
              Unexercised
              Options
              (#)
              Unexercisable
            
            Equity
              Incentive
              Plan
              Awards:
              Number
              of
              Securities
                Underlying
              Unexercised
              Unearned
              Options (#)
            
            Option
              Exercise
              Price ($)
            
            Option
              Expiration
              Date
            
            Number
              of
                Shares
              or
                Units
              of
                Stock
              That Have
              Not
              Vested
              (#)
            
            Market
              Value of
              Shares or
              Units of
              Stock
              That Have
              Not
              Vested
              ($)
            
            Equity
              Incentive
              Plan
                Awards:
              Number
              of
              Unearned
              Shares,
              Units
                or
              Other
              Rights
              That Have
              Not
              Vested
              (#)
            
            Equity
              Incentive
              Plan
              Awards:
              Market or
                Payout
              Value
              of
              Unearned
              Shares,
              Units or
              Other
              Rights
              That Have
              Not
              Vested
              ($)Peter
                Lewis (1)
            
            
            3,000,000
            (2)
            
            —
            
            
            —
            
            $
            0.533
            
            06/20/2017
            
            2,120,548
            (3)
            $
            2,862,740
            (3)
            
            —
            
            
            —





(1)
            Mr.
                Lewis was appointed as Chief Executive Officer of our company on
                June 20,
                2007.(2)
            Mr.
                Lewis received a ten year option to purchase 3,000,000 shares of
                common
                stock at an exercise price of $0.533 per share on a cashless basis
                vesting
                on a pro-rata basis over a period of two years;(3)
            In
                accordance with Mr. Lewis’s employment agreement, Mr. Lewis’s options are
                vesting on a pro-rata basis over a period of two years. The 2,120,548
                shares represents the shares of common stock that have not vested
                to date.
                The value of such shares is based on the closing price for our common
                stock of $1.35 as of December 31, 2007 (the last trading day of
                2007).Except
                as set forth above, no other named executive officer has received
                an
                equity award




**DIRECTOR
      COMPENSATION**





The
      following table sets forth with respect to the named director, compensation
      information inclusive of equity awards and payments made in the year end
      December 31, 2007.




Name
            
            Fees
              Earned
              or Paid
              in Cash
              ($)
            
            Stock
                Awards
              ($)
            
            Option
              Awards
              ($)
            
            Non-Equity
                Incentive Plan Compensation
              ($)
            
            Change in Pension
                Value and Nonqualified Deferred Compensation Earnings
            
            All
                Other Compensation
              ($)
            
            Total
              ($)Robert
                Rubin
            
            
            
            (1)
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Zoltan
                Kiss
            
            
            
            (1)
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Michael
                Metter
            
            
            —
            (2)
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Peter
                Lewis
            
            
            
            (1)
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —





(1)
            All
                compensation earned by Messrs. Rubin, Mr. Lewis and Kiss is fully
                reflected in the Summary Compensation Table above. In December 2007,
                Mr.
                Kiss has resigned as director.




(2)
            On
                September 13, 2006, Michael Metter, was granted an option to purchase
                15,625 shares of common stock at $2.07 per share.  The term is 3
                years.  The option was valued using the black scholes option pricing
                model assuming a three year life, no expected dividend payments,
                a
                volatility of 63.2% and a risk free rate of 4.8%. In April 2007,
                Mr.
                Metter has resigned as director




38




We
      do not
      pay directors compensation for their service as directors. We are in the process
      of developing a compensation policy for our directors.





**Employment
      and Other Agreements**





On
      June
      20, 2007, Peter Lewis and Solar Thin Films, Inc. (the “Company”) entered into an
      Employment Agreement (the “Lewis Agreement”) pursuant to which Mr. Lewis has
      agreed to serve as the Chief Executive Officer of the Company. The Lewis
      Agreement contains the following terms:








·
            base
                salary of $225,000 per year;





·
            the
                issuance of 187,617 shares of common stock per
                year;





·
            a
                bonus paid pursuant to the Executive Officer Incentive Plan as determined
                by the Board of Directors;





·
            a
                ten year option to purchase 3,000,000 shares of common stock at an
                exercise price of $0.533 per share on a cashless basis vesting on
                a
                pro-rata basis over a period of two
                years;





·
            participation
                in all employee benefit plans and programs;
                and





·
            reimbursement
                of reasonable expenses.





The
      term
      of the employment agreement is 36 months that may be renewed for one year
      periods unless either party notifies the other within 60 days prior to the
      end
      of the employment term of its intent to terminate the agreement.





In
      connection with the acquisition of Kraft, we entered into consulting agreements
      with Robert Rubin and Zoltan Kiss pursuant to which each consultant will receive
      an annual salary of $160,000 per annum, reimbursement for up to $5,000 in
      expenses associated with company activities and major medical benefits in
      consideration for services performed on behalf of the company. Each of these
      agreements is for a term of three years. Mr. Rubin’s compensation was increased
      to $225,000 per year upon his assumption of the duties of Chief Financial
      Officer.




On
      December 19, 2006, we entered into the R&D Contract with RESI relating to
      the development and commercialization of certain technology and/or equipment
      related to the photovoltaic industry. Zoltan Kiss, our director, consultant
      and
      significant shareholder is also a shareholder, director and chief technical
      officer of RESI. Pursuant to the R&D Contract, RESI has provided us with
      certain exclusive right to commercialize developments related to manufacturing
      equipment for the production of copper indium gallium selenide based thin film
      PV equipment and amorphous silicon equipment. In addition, we have a right
      of
      first refusal to develop any additional equipment not covered by the R&D
      Contract. The term of the R&D Contract is for three years and we are
      required to pay RESI $30,000 per month.





**STOCK
      OPTION PLAN**




**2001
      Stock Option plan**





**General**





The
      2001
      Stock Option Plan (“Plan”, “Incentive Plan”) was adopted by the Board of
      Directors. The Board of Directors has initially reserved 4,687,500 shares of
      Common Stock for issuance under the 2001 Stock Option Plan. Under the Plan,
      options may be granted which are intended to qualify as Incentive Stock Options
      ("ISOs") under Section 422 of the Internal Revenue Code of 1986 (the "Code")
      or
      which are not ("Non-ISOs") intended to qualify as Incentive Stock Options
      thereunder.





The
      2001
      Incentive Plan and the right of participants to make purchases thereunder are
      intended to qualify as an "employee stock purchase plan" under Section 423
      of
      the Internal Revenue Code of 1986, as amended (the "Code"). The 2001 Incentive
      Plan is not a qualified deferred compensation plan under Section 401(a) of
      the
      Internal Revenue Code and is not subject to the provisions of the Employee
      Retirement Income Security Act of 1974 ("ERISA").




39





**Purpose**





The
      primary purpose of the 2001 Incentive Plan is to attract and retain the best
      available personnel for the Company in order to promote the success of the
      Company's business and to facilitate the ownership of the Company's stock by
      employees.





**Administration**





The
      2001
      Incentive Plan is administered by a committee (the "Committee") consisting
      of
      not less than two members of the Board of Directors of the Company (the "Board
      of Directors"), who are selected by the Board of Directors. If, at any time,
      there are less than two members of the Committee, the Board of Directors shall
      appoint one or more other members of the Board of Directors to serve on the
      Committee. All Committee members shall serve, and may be removed by the Board
      of
      Directors.





A
      majority of the members of the Committee (but not less than two) shall
      constitute a quorum, and any action taken by a majority of such members present
      at any meeting at which a quorum is present, or acts approved in writing by
      all
      such members shall be the acts of the Committee.





Subject
      to the other provisions of the Plan, the Committee shall have full authority
      to
      decide the date or dates on which options (the "Options") to acquire shares
      of
      Common Stock will be granted under the Plan to determine whether the Options
      to
      be granted shall be Incentive Options or Non qualified Options, or a combination
      of both, to select the persons to whom the Options will be granted and to
      determine the number of shares of Common Stock to be covered by each Option,
      the
      price at which such shares may be purchased upon the exercise of such option
      (the "Option Exercise Price"), and other terms and conditions of the Options.
      In
      making those determinations, the Committee shall solicit the recommendations
      of
      the President and Chairman of the Board of the Company and may take into account
      the proposed optionee's present and potential contributions to the Company's
      business and any other factors which the Committee may deem relevant. Subject
      to
      the other provisions of the Plan, the Committee shall also have full authority
      to interpret the Plan and any stock option agreements evidencing Options granted
      hereunder, to issue rules for administering the Plan, to change, alter, amend
      or
      rescind such rules, and to make all other determinations necessary or
      appropriate for the administration of the Plan. All determinations,
      interpretations and constructions made by the Committee pursuant to this Section
      3 shall be final and conclusive. No member of the Board of Directors or the
      Committee shall be liable for any action, determination or omission taken or
      made in good faith with respect to this Plan or any Option granted
      hereunder





Members
      of the Board of Directors who are eligible employees are permitted to
      participate in the 2001 Incentive Plan, provided that any such eligible member
      may not vote on any matter affecting the administration of the 2001 Incentive
      Plan or the grant of any option pursuant to it, or serve on a committee
      appointed to administer the 2001 Incentive Plan. In the event that any member
      of
      the Board of Directors is at any time not a "disinterested person", as defined
      in Rule 16b-3(c)(3)(i) promulgated pursuant to the Securities Exchange Act
      of
      1934, the Plan shall not be administered by the Board of Directors, and may
      only
      by administered by a Committee, all the members of which are disinterested
      persons, as so defined.





**Eligibility**





Under
      the
      2001 Incentive Plan, options may be granted to key employees, officers,
      directors or consultants of the Company, as provided in the 2001 Incentive
      Plan.





**Terms
      of Options**





The
      term
      of each Option granted under the Plan shall be contained in a stock option
      agreement between the Optionee and the Company and such terms shall be
      determined by the Committee consistent with the provisions of the Plan,
      including the following:





(a)
      PURCHASE PRICE. The purchase price of the Common Shares subject to each ISO
      shall not be less than the fair market value (as set forth in the 2001 Incentive
      Plan), or in the case of the grant of an ISO to a Principal Stockholder. The
      purchase price of the Common Shares subject to each Non-ISO shall be determined
      at the time such Option is granted, but in no case less than 85% of the fair
      market value of such Common Shares at the time such Option is
      granted.




40




(b)
      VESTING. The dates on which each Option (or portion thereof) shall be
      exercisable and the conditions precedent to such exercise, if any, shall be
      fixed by the Board of Directors, in its discretion, at the time such Option
      is
      granted.





(c)
      EXPIRATION. The expiration of each Option shall be fixed by the Comittee, in
      its
      discretion, at the time such Option is granted; however, unless otherwise
      determined by the Comittee at the time such Option is granted, an Option shall
      be exercisable for ten(10) years after the date on which it was granted (the
      "Grant Date"). Each Option shall be subject to earlier termination as expressly
      provided in the 2001 Incentive Plan or as determined by the Board of Directors,
      in its discretion, at the time such Option is granted.





(d)
      TRANSFERABILITY. No Option shall be transferable, except by will or the laws
      of
      descent and distribution, and any Option may be exercised during the lifetime
      of
      the Optionee only by him. No Option granted under the Plan shall be subject
      to
      execution, attachment or other process.





(e)
      OPTION ADJUSTMENTS. The aggregate number and class of shares as to which Options
      may be granted under the Plan, the number and class shares covered by each
      outstanding Option and the exercise price per share thereof (but not the total
      price), and all such Options, shall each be proportionately adjusted for any
      increase decrease in the number of issued Common Shares resulting from split-up
      spin-off or consolidation of shares or any like Capital adjustment or the
      payment of any stock dividend.





Except
      as
      otherwise provided in the 2001 Incentive Plan, any Option granted hereunder
      shall terminate in the event of a merger, consolidation, acquisition of property
      or stock, separation, reorganization or liquidation of the Company. However,
      the
      Optionee shall have the right immediately prior to any such transaction to
      exercise his Option in whole or in part notwithstanding any otherwise applicable
      vesting requirements.





(f)
      TERMINATION, MODIFICATION AND AMENDMENT. The 2001 Incentive Plan (but not
      Options previously granted under the Plan) shall terminate ten (10) years from
      the earlier of the date of its adoption by the Board of Directors or the date
      on
      which the Plan is approved by the affirmative vote of the holders of a majority
      of the outstanding shares of capital stock of the Company entitled to vote
      thereon, and no Option shall be granted after termination of the Plan. Subject
      to certain restrictions, the Plan may at any time be terminated and from time
      to
      time be modified or amended by the affirmative vote of the holders of a majority
      of the outstanding shares of the capital stock of the Company present, or
      represented, and entitled to vote at a meeting duly held in accordance with
      the
      applicable laws of the State of Delaware.





**STOCK
      OPTION PLAN**




**2007** **Stock Option plan**





**General**





The 2007 Stock
      Option Plan (“Plan”, “Incentive Plan”) was adopted by the Board of Directors in
      October 2007 .
      The
      Board of Directors has initially reserved 5,000,000 shares
      of Common Stock for issuance under the 2007 Stock
      Option Plan. Under the Plan, options may be granted which are intended to
      qualify as Incentive Stock Options ("ISOs") under Section 422 of the Internal
      Revenue Code of 1986 (the "Code") or which are not ("Non-ISOs") intended to
      qualify as Incentive Stock Options thereunder.





The 2007 Incentive Plan and the right of participants to make purchases thereunder are
      intended to qualify as an "employee stock purchase plan" under Section 423
      of
      the Internal Revenue Code of 1986, as amended (the "Code"). The 2007 Incentive Plan is not a qualified deferred compensation plan under Section
      401(a) of the Internal Revenue Code and is not subject to the provisions of
      the
      Employee Retirement Income Security Act of 1974 ("ERISA").





**Purpose**





The
      primary purpose of the 2007 Incentive Plan is to attract and retain the best available personnel for the
      Company in order to promote the success of the Company's business and to
      facilitate the ownership of the Company's stock by employees.





**Administration**





The 2007 Incentive Plan is administered by a committee (the "Committee") consisting
      of
      not less than two members of the Board of Directors of the Company (the "Board
      of Directors"), who are selected by the Board of Directors. If, at any time,
      there are less than two members of the Committee, the Board of Directors shall
      appoint one or more other members of the Board of Directors to serve on the
      Committee. All Committee members shall serve, and may be removed by the Board
      of
      Directors.




41





A
      majority of the members of the Committee (but not less than two) shall
      constitute a quorum, and any action taken by a majority of such members present
      at any meeting at which a quorum is present, or acts approved in writing by
      all
      such members shall be the acts of the Committee.





Subject
      to the other provisions of the Plan, the Committee shall have full authority
      to
      decide the date or dates on which options (the "Options") to acquire shares
      of
      Common Stock will be granted under the Plan to determine whether the Options
      to
      be granted shall be Incentive Options or Non qualified Options, or a combination
      of both, to select the persons to whom the Options will be granted and to
      determine the number of shares of Common Stock to be covered by each Option,
      the
      price at which such shares may be purchased upon the exercise of such option
      (the "Option Exercise Price"), and other terms and conditions of the Options.
      In
      making those determinations, the Committee shall solicit the recommendations
      of
      the President and Chairman of the Board of the Company and may take into account
      the proposed optionee's present and potential contributions to the Company's
      business and any other factors which the Committee may deem relevant. Subject
      to
      the other provisions of the Plan, the Committee shall also have full authority
      to interpret the Plan and any stock option agreements evidencing Options granted
      hereunder, to issue rules for administering the Plan, to change, alter, amend
      or
      rescind such rules, and to make all other determinations necessary or
      appropriate for the administration of the Plan. All determinations,
      interpretations and constructions made by the Committee pursuant to this Section
      3 shall be final and conclusive. No member of the Board of Directors or the
      Committee shall be liable for any action, determination or omission taken or
      made in good faith with respect to this Plan or any Option granted
      hereunder





Members
      of the Board of Directors who are eligible employees are permitted to
      participate in the 2007 Incentive Plan, provided that any such eligible member may not vote on any
      matter affecting the administration of the 2007 Incentive Plan or the grant of any option pursuant to it, or serve on a
      committee appointed to administer the 2007 Incentive Plan. In the event that
      any
      member of the Board of Directors is at any time not a "disinterested person",
      as
      defined in Rule 16b-3(c)(3)(i) promulgated pursuant to the Securities Exchange
      Act of 1934, the Plan shall not be administered by the Board of Directors,
      and
      may only by administered by a Committee, all the members of which are
      disinterested persons, as so defined.





**Eligibility**





Under
      the 2007 Incentive Plan, options may be granted to key employees, officers, directors
      or
      consultants of the Company, as provided in the 2007 Incentive Plan.





**Terms
      of Options**





The
      term
      of each Option granted under the Plan shall be contained in a stock option
      agreement between the Optionee and the Company and such terms shall be
      determined by the Committee consistent with the provisions of the Plan,
      including the following:





(a)
      PURCHASE PRICE. The purchase price of the Common Shares subject to each ISO
      shall not be less than the fair market value (as set forth in the 2007 Incentive
      Plan), or in the case of the grant of an ISO to a Principal Stockholder. The
      purchase price of the Common Shares subject to each Non-ISO shall be determined
      at the time such Option is granted, but in no case less than 85% of the fair
      market value of such Common Shares at the time such Option is
      granted.




(b)
      VESTING. The dates on which each Option (or portion thereof) shall be
      exercisable and the conditions precedent to such exercise, if any, shall be
      fixed by the Board of Directors, in its discretion, at the time such Option
      is
      granted.





(c)
      EXPIRATION. The expiration of each Option shall be fixed by the Committee,
      in
      its discretion, at the time such Option is granted; however, unless otherwise
      determined by the Comittee at the time such Option is granted, an Option shall
      be exercisable for ten (10) years after the date on which it was granted (the
      "Grant Date"). Each Option shall be subject to earlier termination as expressly
      provided in the 2007 Incentive Plan or as determined by the Board of Directors,
      in its discretion, at the time such Option is granted.





(d)
      TRANSFERABILITY. No Option shall be transferable, except by will or the laws
      of
      descent and distribution, and any Option may be exercised during the lifetime
      of
      the Optionee only by him. No Option granted under the Plan shall be subject
      to
      execution, attachment or other process.





(e)
      OPTION ADJUSTMENTS. The aggregate number and class of shares as to which Options
      may be granted under the Plan, the number and class shares covered by each
      outstanding Option and the exercise price per share thereof (but not the total
      price), and all such Options, shall each be proportionately adjusted for any
      increase decrease in the number of issued Common Shares resulting from split-up
      spin-off or consolidation of shares or any like Capital adjustment or the
      payment of any stock dividend.




42





Except
      as
      otherwise provided in the 2007 Incentive Plan, any Option granted hereunder shall terminate in the event of
      a
      merger, consolidation, acquisition of property or stock, separation,
      reorganization or liquidation of the Company. However, the Optionee shall have
      the right immediately prior to any such transaction to exercise his Option
      in
      whole or in part notwithstanding any otherwise applicable vesting
      requirements.





(f)
      TERMINATION, MODIFICATION AND AMENDMENT. The 2007 Incentive Plan (but not Options previously granted under the Plan) shall
      terminate ten (10) years from the earlier of the date of its adoption by the
      Board of Directors or the date on which the Plan is approved by the affirmative
      vote of the holders of a majority of the outstanding shares of capital stock
      of
      the Company entitled to vote thereon, and no Option shall be granted after
      termination of the Plan. Subject to certain restrictions, the Plan may at any
      time be terminated and from time to time be modified or amended by the
      affirmative vote of the holders of a majority of the outstanding shares of
      the
      capital stock of the Company present, or represented, and entitled to vote
      at a
      meeting duly held in accordance with the applicable laws of the State of
      Delaware.





**ITEM
              11.**
            **SECURITY
                OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
                MANAGEMENT**




The
      following table sets forth certain information, as of March 24, 2008 with
      respect to the beneficial ownership of the Company's outstanding common stock
      following the acquisition of Kraft by (i) any holder of more than five (5%)
      percent; (ii) each of the named executive officers, directors and director
      nominees; and (iii) our directors, director nominees and named executive
      officers as a group. Except as otherwise indicated, each of the stockholders
      listed below has sole voting and investment power over the shares beneficially
      owned. The below table is based on 57,607,601 shares of common stock outstanding
      as of March 24, 2008.




Name
                of Beneficial Owner
            
            Common Stock
                Beneficially
              Owned
                (1)
            
            Percentage
                of Common Stock (1)Peter
                Lewis (2)
            
            
            750,000
            (5)
            
            1.3
            %Zoltan
                Kiss (2)(6)
            
            
            12,001,575
            (3)
            
            20.8
            %Robert
                Rubin (2)
            
            
            -0-
            
            
            *Michael
                Metter (2)
            
            
            75,000
            
            
            *Rubin
                Family Irrevocable Trust
            
            
            6,117,113
            (4)
            
            10.6
            %Laszlo
                Farkas
            
            
            1,975,000
            
            
            3.4
            %Joseph
                Gregory Kiss
            
            
            4,050,000
            
            
            7.9
            %Maria
                Gabriella Kiss
            
            
            4,684,304
            
            
            9.1
            %All
                officers and directors as a group (3 people)
            
            
            6,942,113
            
            
            12.0
            %




*
      less
      than 1%,




(1)
      Beneficial ownership is determined in accordance with the Rule 13d-3(d)(1)
      of
      the Exchange Act, as amended and generally includes voting or investment power
      with respect to securities. Pursuant to the rules and regulations of the
      Securities and Exchange Commission, shares of common stock that an individual
      or
      group has a right to acquire within 60 days pursuant to the exercise of options
      or warrants are deemed to be outstanding for the purposes of computing the
      percentage ownership of such individual or group, but are not deemed to be
      outstanding for the purposes of computing the percentage ownership of any other
      person shown in the table.




(2)
      Officer and/or director of the Company.




43





(3)
      Represents 10,951,575 shares of common stock held by Mr. Kiss and 1,050,000
      shares of common stock held by Mr. Kiss’ wife.





(4)
      The
      Rubin Family Irrevocable Stock Trust (the "Trust") was created by Robert M.
      Rubin, a director, for the benefit of his wife Margery Rubin and their children.
      Mr. Rubin disclaims beneficial interest in all securities of our company held
      by
      the Trust.





(5)
      Represents shares issuable upon exercise of a common stock option.





(6)
      Mr.
      Kiss resigned as a director effective December 2007.





**ITEM
              12.**
            **CERTAIN
                RELATIONSHIPS AND RELATED
                TRANSACTIONS**




The
      Company entered into an Agreement of Settlement with The Rubin Family Trust
      (the
“Trust”) pursuant to which STF agreed to (i) transfer 716,667 shares of common
      stock of Spongetech Delivery Systems, Inc., 125,000 shares of common stock
      of
      Scanteck Medical, Inc., and 104,000 shares of common stock of Infomedix, Inc.
      (“Infomedix”) and an option to purchase 50,000 shares of Informedix at $0.50 per
      share and (ii) issue an aggregate of 2,317,000 shares of common stock of the
      Company to the Trust of which 439,000 shares were shares that were to be issued
      in lieu of interest on loans aggregating $439,000 provided by the Trust to
      the
      Company (the “Loans”). In consideration of the aforementioned securities, the
      Trust has agreed to forgive all amounts due under the Loans and pledge 1,000,000
      shares of common stock of our company in the event that certain liabilities
      are
      claimed by certain debt holders of our company. The Trust is a shareholder
      of
      our company. Margery Rubin, the wife of Robert Rubin, the CEO and director
      of
      our company, is a trustee of the Trust.





The
      Company entered into an Agreement of Settlement with Robert Rubin pursuant
      to
      which Mr. Rubin received 1,552,928 shares of common stock as consideration
      for
      providing a guaranty in connection with various financing arrangements. Mr.
      Rubin assigned all such shares to the Rubin Family Trust.




The
      Company signed a cooperative Research and Development as well as a Marketing
      and
      Manufacturing Facility Turn On Function Contract with RESI in December 20,
      2006
      and January 30 2007, respectively. Zoltan Kiss, the Company’s Chairman of the
      Board, is Chairman and majority shareholder of RESI. RESI’s ability to pay the
      Company is pending successful completion of the acceptance testing for the
      project. In addition, there is currently a dispute as to the rights to certain
      technology under the Research and Development contract.





In
      connection with the acquisition of Kraft, the Company entered into consulting
      agreements with Robert Rubin and Zoltan Kiss pursuant to which each consultant
      will receive an annual salary of $160,000 per annum and major medical benefits
      in consideration for services performed on behalf of the company. Each of these
      agreements is for a term of three years. Mr. Rubin’s salary was increased to
      $225,000 upon his assumption of duties as Chief Financial Officer of the
      Company.




**ITEM
              13.**
            **EXHIBITS**




Exhibit
                No.
            
            Description
                of Exhibit3(i)1
            
            Certificate
                of Incorporation of the Company. (7).3(ii)1
            
            By-laws
                of the Company (7).




44




4.1
            
            Securities
                Purchase Agreement dated June 14, 2006 by and among the Company and
                the
                June 2006 Investors (2)4.2
            
            Registration
                Rights Agreement dated June 14, 2006 by and among the Company and
                the June
                2006 Investors (2)4.3
            
            Form
                of Senior Secured Convertible Note dated June 14, 2006
                (2)4.4
            
            Form
                of Series A Common Stock Purchase Warrant dated June 14,
                2006(2)4.5
            
            Form
                of Series B Common Stock Purchase Warrant dated June 14,
                2006(2)4.6
            
            Form
                of Series C Common Stock Purchase Warrant dated June 14,
                2006(2)4.7
            
            Form
                of Series D Common Stock Purchase Warrant dated June 14,
                2006(2)4.8
            
            Security
                Agreement dated June 14, 2006 by and between the Company and Smithfield
                Fiduciary LLC asCollateral
                Agent (2)4.9
            
            Guaranty
                dated as of June 14, 2006 by and between Kraft Rt. and Smithfield
                Fiduciary LLC asCollateral
                Agent(2)4.10
            
            Pledge
                Agreement dated as of June 14, 2006 by and between the Company and
                Smithfield Fiduciary LLC asCollateral
                Agent(2)4.11
            
            Account
                Receivables Lien Agreement entered by and between Kraft Rt. and the
                Investors dated June 12, 2006(2)4.12
            
            Mortgage
                Agreement entered by and between Kraft Rt. and the Investors dated
                June
                12, 2006 (2)4.13
            
            Security
                Agreement entered by and between Kraft Rt. and the Investors dated
                June
                12, 2006 (2)4.14
            
            Securities
                Purchase Agreement dated September 22, 2005 by and among the Company
                and
                Iroquois Master Fund Ltd., Smithfield Fiduciary LLC and Lilac Ventures
                Master Fund (4)4.15
            
            Form
                of Senior Secured Convertible Note September 23, 2005
                (4)4.16
            
            Security
                Agreement dated September 22, 2005 by and among the Company and Iroquois
                Master Fund Ltd., Smithfield Fiduciary LLC and Lilac Ventures Master
                Fund
                (4)4.17
            
            Guaranty
                of Payment (4)4.18
            
            Form
                of Amended and Restated Note issued on due March 20, 2007
                (8)4.19
            
            Form
                of Warrant issued on March 16, 2006(1)4.20
            
            Securities
                Purchase Agreement dated March 16, 2006(8)4.21
            
            Amendment
                No. 1 to the Securities Purchase Agreement dated May 18,
                2006(8)4.22
            
            Amendment
                No. 1 to the Senior Secured Convertible Note (8)4.23
            
            Amendment
                No. 1 to the Subscription Agreement for the purchase of shares of
                common
                stock. (8)4.24
            
            Form
                of Subscription Agreement - Solar Thin Power Offering
                (11)4.25
            
            Form
                of Series E Warrant (11)




45




10.1
            
            Securities
                Purchase Agreement dated March 16, 2006 by and between the Company,
                Kraft
                Rt., Zoltan Kiss and Dr. Laszlo Farkas (1)10.2
            
            Securities
                Purchase Agreement dated March 20, 2006 by and between the Company,
                Kraft
                Rt., Nagyezsda Kiss, Joseph Gregory Kiss, Maria Gabriella Kiss and
                Gyula
                Winkler (1)10.3
            
            Securities
                Purchase Agreement dated May 20, 2006 by and between the Company,
                Kraft
                Rt., Joel Spival and Jacqueline Spivak(2)10.4
            
            Secured
                Promissory Note made by Kraft Rt. dated September 28, 2005
                (4)10.5
            
            Security
                Interest and Pledge Agreement entered by and between American United
                Global, Inc., Kraft Rt. and Zoltan Kiss. (4)10.6
            
            Agreement
                of Settlement entered on September 27, 2005 by and among American
                United
                Global, Inc., North Sound Legacy International Ltd. and North Sound
                Legacy
                Institutional Fund LLC (4)10.7
            
            Supplemental
                Agreement entered on September 22, 2005 by and among Altitude Group,
                LLC,
                Birch Associates, Inc., and D.C. Capital LLC and American United
                Group,
                Inc. (4)10.8
            
            Amendment
                No. 1 to the Share Purchase Agreement dated December 29, 2005
                (5)10.9
            
            Letter
                Agreement by and between the Company and Kraft Rt. (5)10.10
            
            Cooperative
                R&D Contract Between Renewable Energy Solutions Inc. and Solar Thin
                Films Inc. dated December 19, 2006 (10)14.1
            
            Code
                of Ethics. (6)21.1
            
            List
                of Subsidiaries of the Company.(9)31.1
            
            Certification
                of the Chief Executive Officer and the PrincipalAccounting/Financial
                Officer pursuant to Section 302 of theSarbanes-Oxley
                Act of 2002.32.1
            
            Certification
                of the Chief Executive Officer and the PrincipalAccounting/Financial
                Officer pursuant to 18 U.S.C. Section 1350, AsAdopted
                Pursuant to Section 906 of the Sarbanes-Oxley Act of
                2002.




(1)
            Incorporated
                by reference to the Form 8-K Current Report filed on March 23,
                2006




(2)
            Incorporated
                by reference to the Form 8-K Current Report filed on June 19,
                2006




(3)
            Incorporated
                by reference to the Form 8-K Current Report filed with the Securities
                and
                Exchange Commission on August 15, 2005




(4)
            Incorporated
                by reference to the Form 8-K Current Report filed with the Securities
                and
                Exchange Commission on September 30, 2005




(5)
            Incorporated
                by reference to the Form 8-K Current Report filed with the Securities
                and
                Exchange Commission on December 30,
                2005.




(6)
            Incorporated
                by reference to the Form 10-K Annual Report filed with the Securities
                and
                Exchange Commission on July 16,
                2004.




(7)
            Incorporated
                by reference to the Registration Statement filed on Form S-1 with
                the
                Securities and Exchange Commission on January 4,
                2002.




(8)
            Incorporated
                by reference to the Form 8-K Current Report filed with the Securities
                and
                Exchange Commission on July 17,
                2006.




46




(9)
            Incorporated
                by reference to the Form SB-2 Registration Statement filed with the
                Securities and Exchange Commission on July 25,
                2006.




(10)
            Incorporated
                by reference to the Form 8-K Current Report filed with the Securities
                and
                Exchange Commission on December 21,
                2006.




(11)
            Incorporated
                by reference to the Form 8-K Current Report filed with the Securities
                and
                Exchange Commission on December 28,
                2007




**ITEM
                14.**
              **PRINCIPAL
                  ACCOUNTANTS FEES AND SERVICES**




The
      following is a summary of the fees billed to STF by RBSM LLP for professional
      services rendered for the fiscal years ended December 31, 2007 and
      2006:




**Fee
                Category**
            
            **Fiscal
                2007**
              **Fees**
            
            **Fiscal
                2006**
              **Fees**Audit
                Fees
            
            $
            133,350
            
            $
            71,367Audit-Related
                Fees
            
            
            —
            
            
            —Tax
                Fees
            
            
            —
            
            
            —All
                Other Fees
            
            
            —
            
            
            —Total
                Fees
            
            $
            133,350
            
            $
            71,367




AUDIT
      FEES. Consists of fees billed for professional services rendered for the audit
      of Solar thin Films, Inc’s consolidated financial statements and review of the
      interim consolidated financial statements included in quarterly reports and
      services that are normally provided by RBSM LLP in connection with statutory
      and
      regulatory filings or engagements.





AUDIT-RELATED
      FEES. Consists of fees billed for assurance and related services that are
      reasonably related to the performance of the audit or review of Solar thin
      Films, Inc’s consolidated financial statements and are not reported under "Audit
      Fees." There were no Audit-Related services provided in fiscal 2007 or
      2006.





TAX
      FEES.
      Consists of fees billed for professional services for tax compliance, tax advice
      and tax planning. There were no tax services provided in fiscal 2007 or
      2006.





ALL
      OTHER
      FEES. Consists of fees for products and services other than the services
      reported above. There were no management consulting services provided in fiscal
      2007 or 2006.





**POLICY
      ON AUDIT COMMITTEE PRE-APPROVAL OF AUDIT AND PERMISSIBLE NON-AUDIT SERVICES OF
      INDEPENDENT AUDITORS**





The
      Company currently does not have a designated Audit Committee, and accordingly,
      the Company's Board of Directors' policy is to pre-approve all audit and
      permissible non-audit services provided by the independent auditors. These
      services may include audit services, audit-related services, tax services and
      other services. Pre-approval is generally provided for up to one year and any
      pre-approval is detailed as to the particular service or category of services
      and is generally subject to a specific budget. The independent auditors and
      management are required to periodically report to the Company's Board of
      Directors regarding the extent of services provided by the independent auditors
      in accordance with this pre-approval, and the fees for the services performed
      to
      date. The Board of Directors may also pre-approve particular services on a
      case-by-case basis.





The
      Board
      of Directors has considered whether the provision of non-audit services is
      compatible with maintaining the principal accountant's
      independence.




47




**SIGNATURES**





Pursuant
      to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
      1934, as amended, the Registrant has duly caused this Report to be signed on
      its
      behalf by the undersigned, thereunto duly authorized, in Dix Hills, New York,
      on
      the 31th day of March 2008.




**SOLAR
                THIN FILMS, INC**By:
            /s/
              Peter LewisPeter
              LewisChief
              Executive Officer and director


By:
            /s/
              Robert M. RubinChief Financial Officer (Principal Financial Officer andPrincipal Accounting Officer) and Director




Pursuant
      to the requirements of the Securities Exchange of 1934, as amended, this Report
      has been signed below by the following persons in the capacities and on the
      dates indicated:






**SIGNATURE**
            
            **TITLE**
            
            **DATE**By:
            /s/
                Peter Lewis
            
            Chief
                Executive Officer and Director
            
            March
                31, 2008Peter
                LewisBy:
            /s/
                Robert M. Rubin
            
            Chief Financial Officer (Principal Financial Officer and
            
            March
                31, 2008Robert
                M. Rubin
            
            Principal Accounting Officer) and Director





48




**SOLAR
      THIN FILMS, INC.**




**Index
      to Financial Statements**




Page
                No.Report
                of Independent Registered Public Accounting Firm
            
            
            F-1Consolidated
                Balance Sheets at December 31, 2007 and 2006
            
            
            F-2Consolidated Statements of Operations
                and Comprehensive Income (Loss) for the years ended December 31, 2007
                and 2006
            
            
            F-3Consolidated Statements
                of Stockholders' Deficit for the two years ended December 31,
                2007
            
            
            F-4
                to F-5Consolidated Statements
                of Cash Flows for the years ended December 31, 2007 and
                2006
            
            
            F-6Notes
                to Consolidated Financial Statements
            
            
            F-7
                to F-33







**REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**





To
      the
      Board of Directors and Shareholders


Solar
      Thin Films, Inc.


Dix
      Hills, New York





We
      have
      audited the consolidated balance sheets of Solar Thin Films, Inc. and
      Subsidiaries (the “Company”) as of
      December 31, 2007 and 2006, and the related statements of operations
      and comprehensive income (loss), stockholders' deficit and cash flows
      for each of the two years in the period ended December 31, 2007 and 2006. These
      financial statements are the responsibility of the Company's management. Our
      responsibility is to express an opinion on these financial statements based
      on
      our audits.





We
      conducted our audits in accordance with the standards of the Public Company
      Accounting Oversight Board (United States). Those standards require that we
      plan
      and perform the audit to obtain reasonable assurance about whether the financial
      statements are free of material misstatement. The Company is not required to
      have, nor were we engaged to perform, an audit of its internal control over
      financial reporting. Our audits included consideration of internal control
      over
      financial reporting as a basis for designing audit procedures that are
      appropriate in the circumstances, but not for the purpose of expressing an
      opinion on the effectiveness of the Company’s internal control over financial
      reporting. Accordingly, we express no such opinion. An audit also includes
      examining, on a test basis, evidence supporting the amounts and disclosures
      in
      the financial statements, assessing the accounting principles used and
      significant estimates made by management, as well as evaluating the overall
      financial statement presentation. We believe that our audits provide a
      reasonable basis for our opinion.





As
      discussed in Note 1 to the consolidated financial statements, the Company
      adopted the provisions of Statement of Financial Accounting Standards No.
      123(R), “Share-Based Payment”, and effective January 1, 2006.





In
      our
      opinion, the consolidated financial statements referred to above present fairly,
      in all material respects, the financial position of Solar Thin Films, Inc.
      and
      Subsidiaries as of December 31, 2007 and 2006, and the results of its
      operations and its cash flows for each of the two years in the period ended
      December 31, 2007 and 2006 in conformity with accounting principles generally
      accepted in the United States of America.





The
      accompanying financial statements have been prepared assuming that the Company
      will continue as a going concern. As discussed in Note 15 to the consolidated
      financial statements, the Company has suffered recurring losses from operations
      that raise substantial doubt about its ability to continue as a going concern.
      Management's plans in regard to these matters are also described in Note 15.
      The
      financial statements do not include any adjustments that might result from
      the
      outcome of this uncertainty.




/s/
                RBSM LLPNew
                York, New York
              March
                25, 2008




F-1







**SOLAR
                THIN FILMS, INC****CONSOLIDATED
                BALANCE SHEETS****DECEMBER
                31, 2007 AND 2006**2007
            
            2006ASSETSCurrent
                assets:Cash
                and cash equivalents
            
            $
            4,157,476
            
            $
            2,667,483Accounts
                receivable, net of allowance for doubtful accounts of $-0-
            
            
            459,574
            
            
            335,017Accounts
                receivable, related party (Note 9)
            
            
            1,456,863
            
            
            880,130Inventory
                (Note 2)
            
            
            191,715
            
            
            1,511,239Prepaid
                expenses
            
            
            -
            
            
            655,717Advances
                and other current assets
            
            
            169,888
            
            
            39,966Total
                current assets
            
            
            6,435,516
            
            
            6,089,552Property,
                plant and equipment, net of accumulated depreciation and amortization
                of
                $341,896 and $129,583, respectively (Note 3)
            
            
            595,030
            
            
            629,317Other
                assets:Deferred
                financing costs, net of accumulated amortization of
                $110,959
            
            
            100,704
            
            
            496,541Other
                assets
            
            
            7,682
            
            
            10,024Total
                other assets
            
            
            108,386
            
            
            506,565Total
                assets
            
            $
            7,138,932
            
            $
            7,225,434LIABILITIES
                AND STOCKHOLDERS' DEFICITCurrent
                liabilities:Accounts
                payable and accrued liabilities (Note 4)
            
            $
            3,072,799
            
            $
            2,559,666Advances
                received from customers
            
            
            -
            
            
            309,512Note
                payable-other (Note 5)
            
            
            1,500,000
            
            
            1,500,000Convertible
                Notes Payable, Current Portion, net of unamortized discount (Note
                7)
            
            
            -
            
            
            448,899Notes
                payable-related parties (Note 9)
            
            
            -
            
            
            157,472Total
                current liabilities
            
            
            4,572,799
            
            
            4,975,549Convertible
                notes payable, net of unamortized discount (Note 7)
            
            
            1,773,746
            
            
            1,447,150Warrant
                liability (Note 7 )
            
            
            -
            
            
            1,465,500Dividends
                payable (Note 6)
            
            
            156,522
            
            
            187,314Total
                long term debt
            
            
            1,930,268
            
            
            3,099,964Commitments
                and contingencies (Note 11)Minority
                interest ( Note 10)
            
            
            999,496
            
            
            (43,916
            )Stockholders’
                DeficitPreferred
                stock, par value $0.01 per share; 1,200,000 shares authorized; -0-
                issued
                and outstanding
            
            
            -
            
            
            -Series
                B-1 Preferred stock, par value $0.01 per share, 1,000,000 shares
                authorized, 228,652 shares issued and outstanding
            
            
            2,286
            
            
            2,286Series
                B-3 Preferred stock, par value $0.01 per share, 232,500 shares authorized,
                47,518 shares issued and outstanding
            
            
            475
            
            
            475Series
                B-4 Preferred stock, par value $0.01 per share, 1,000,000 shares
                authorized, 0 and 95,500 shares issued and outstanding,
                respectively
            
            
            -
            
            
            955Common
                stock, par value $0.01 per share, 150,000,000 shares authorized,
                57,012,601 and 16,269,597 shares issued and outstanding,
                respectively (Note 8)
            
            
            570,126
            
            
            162,696Additional
                paid in capital (Note 8)
            
            
            22,857,742
            
            
            3,627,872Treasury
                stock, at cost
            
            
            (80,000
            )
            
            (80,000
            )Deferred
                compensation
            
            
            (79,750
            )
            
            -Accumulated
                deficit
            
            
            (24,075,554
            )
            
            (4,790,109
            )Accumulated
                other comprehensive income
            
            
            441,044
            
            
            269,662Total
                stockholders' deficit
            
            
            (363,631
            )
            
            (806,163
            )Total
                Liabilities and Stockholders' Deficit
            
            $
            7,138,932
            
            $
            7,225,434





The
      accompanying notes are an integral part of these consolidated financial
      statements




F-2








**SOLAR
                THIN FILMS, INC****CONSOLIDATED
                STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
                (LOSS)****YEARS
                ENDED DECEMBER 31, 2007 AND 2006**2007
            
            2006REVENUE:
            
            $
            5,779,578
            
            $
            2,426,954Cost
                of sales
            
            
            4,779,962
            
            
            1,766,806Gross
                profit
            
            
            999,616
            
            
            660,148OPERATING
                EXPENSES:General,
                selling and administrative expenses
            
            
            4,243,401
            
            
            5,531,590Research
                and development
            
            
            360,000
            
            
            11,600Depreciation
                and amortization
            
            
            220,860
            
            
            55,328Total
                operating expenses
            
            
            4,824,261
            
            
            5,598,518NET
                LOSS FROM OPERATIONS
            
            
            (3,824,645
            )
            
            (4,938,370
            )Other
                income/(expense)Foreign
                exchange loss
            
            
            (105,503
            )
            
            (86,033
            )Unrealized
                gain relating to adjustment of warrant liability to fair
                value
            
            
            -
            
            
            9,356,400Interest
                expense, net
            
            
            (4,527,940
            )
            
            (1,476,599
            )Debt
                acquisition costs
            
            
            (395,837
            )
            
            (110,959
            )Other
                income
            
            
            89,041
            
            
            114,326Net
                (loss) income before provision for income taxes
            
            
            (8,764,884
            )
            
            2,858,765Income
                taxes
            
            
            -
            
            
            -Net
                Income (loss) before minority interest
            
            
            (8,764,884
            )
            
            2,858,765Minority
                interest (Note 1)
            
            
            17,089
            
            
            -NET
                (LOSS) INCOME
            
            $
            (8,747,795
            )
            $
            2,858,765Foreign
                currency translation gain
            
            
            171,382
            
            
            237,665Comprehensive
                (Loss) Income
            
            $
            (8,576,413
            )
            $
            3,096,430Net
                (loss) income per common share (basic)
            
            $
            (0.21
            )
            $
            0.18Net
                loss per common share (fully diluted)-Note 1
            
            $
            (0.21
            )
            $
            (0.24
            )Weighted
                average shares outstanding (basic)
            
            
            42,452,053
            
            
            16,106,497Weighted
                average shares outstanding (assuming fully diluted)
            
            
            42,452,053
            
            
            20,733,570





The
      accompanying notes are an integral part of these consolidated financial
      statements




F-3







**SOLAR
                THIN FILMS, INC****CONSOLIDATED
                STATEMENTS OF STOCKHOLDERS' DEFICIT****YEARS
                ENDED DECEMBER 31, 2007 AND 2006**Preferred
              Series
                B-1
            
            Preferred
              Series
                B-3
            
            Preferred
              Series
                B-4
            
            Common
              sharesShares
            
            Amount
            
            Shares
            
            Amount
            
            Shares
            
            Amount
            
            Shares
            
            AmountBalance
                at December 31, 2005, as adjusted for Securities Purchase Agreement
                (Note
                1) and reverse stock split (Note 8)
            
            
            -
            
            $
            -
            
            
            -
            
            $
            -
            
            
            -
            
            $
            -
            
            
            16,035,222
            
            $
            240,400Shares
                issued to Kraft shareholders in exchange for 95.5% of issued and
                outstanding Kraft shares in connection with Securities Purchase Agreement
                on June 14, 2006 (Note 1)
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            95,500
            
            
            955
            
            
            -
            
            
            -Reclassification
                of Kraft equity with Share Exchange Agreement Transfer
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (240,400
            )Effect
                of merger with Solar Thin Films, Inc. (formerly American Global United)
                and assumption of liabilities on June 14, 2006 (Note 1)
            
            
            228,652
            
            
            2,286
            
            
            47,518
            
            
            475
            
            
            -
            
            
            -
            
            
            -
            
            
            160,352Common
                stock issued in September 2006 for services rendered at $2.00 per
                share
                (Notes 1 and 8)
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            234,375
            
            
            2,344Fair
                value of 1,890,625 options issued an officer and director
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -Fair
                value of 156,250 options issued to a consultant for services
                rendered
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -Net
                Income at December 31, 2006
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -Balance
                at December 31, 2006
            
            
            228,652
            
            
            2,286
            
            
            47,518
            
            
            475
            
            
            95,500
            
            
            955
            
            
            16,269,597
            
            
            162,696Fractional
                shares issued upon 1.6 to 1 reverse split on February 9,
                2007
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            1,504
            
            
            15Effect
                of adoption of EITF 00-19-2 change in accounting principle (Note
                1)
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -Issuance
                of 33,425,000 shares of common stock for conversion of 95,500 Preferred
                B-4 shares
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (95,500
            )
            
            (955
            )
            
            33,425,000
            
            
            334,250Issuance
                of 1,312,500 shares of common stock in exchange for convertible notes
                payable
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            1,312,500
            
            
            13,125Common
                stock issued in June 2007 for services rendered at $0.48 per
                share
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            400,000
            
            
            4,000Fair
                value of warrants issued in conjunction with settlement of convertible
                debt
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -Fair
                value of vested portion of 3,000,000 options issued to an
                officer
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -Issuance
                of 1,575,000 shares of common stock to acquire minority interest
                in
                subsidiary at $0.75 per share
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            1,575,000
            
            
            15,750Issuance
                of 4,029,000 shares of common stock in exchange for convertible notes
                payable
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            4,029,000
            
            
            40,290Issuance
                of majority owned subsidiary common stock in exchange for services
                to be
                rendered
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -Issuance
                of majority owned subsidiary common stock in exchange for services
                rendered
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -Sale
                of majority owned subsidiary common stock by subsidiary
            
            
            -
            
            
            --
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -Amortization
                of deferred compensation
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -Foreign
                currency translation gain
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -Net
                loss, December 31, 2007
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -Balance,
                December 31, 2007
            
            
            228,652
            
            $
            2,286
            
            
            47,518
            
            $
            475
            
            
            -
            
            $
            -
            
            
            57,012,601
            
            $
            570,126





The
      accompanying notes are an integral part of these consolidated financial
      statements ****


F-4





**SOLAR
                THIN FILMS, INC.****CONSOLIDATED
                STATEMENTS OF STOCKHOLDERS' DEFICIT****YEARS
                ENDED DECEMBER 31, 2007 AND
                2006**





Additional
            
            
            
            
            
            Other
            
            
            
            TotalPaid
                in
            
            Deferred
            
            Treasury
            
            Comprehensive
            
            Accumulated
            
            Stockholders'Capital
            
            Compensation
            
            Stock
            
            Income
                (loss)
            
            Deficit
            
            DeficiencyBalance
                at December 31, 2005, as adjusted for Securities Purchase Agreement
                (Note
                1) and reverse stock split (Note 8)
            
            $
            253,781
            
            $
            -
            
            $
            -
            
            $
            31,997
            
            $
            (966,983
            )
            $
            (440,805
            )Shares
                issued to Kraft shareholders in exchange for 95.5% of issued and
                outstanding Kraft shares in connection with Securities Purchase Agreement
                on June 14, 2006 (Note 1)
            
            
            (955
            )
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -Reclassification
                of Kraft equity with Share Exchange Agreement Transfer
            
            
            240,400
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -Effect
                of merger with Solar Thin Films, Inc. (formerly American Global United)
                and assumption of liabilities on June 14, 2006 (Note 1)
            
            
            (163,113
            )
            
            -
            
            
            (80,000
            )
            
            -
            
            
            (6,681,891
            )
            
            (6,761,891
            )Common
                stock issued in September 2006 for services rendered at $2.00 per
                share
                (Notes 1 and 8)
            
            
            466,406
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            468,750Fair
                value of 1,890,625 options issued an officer and director
            
            
            2,720,228
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            2,720,228Fair
                value of 156,250 options issued to a consultant for services
                rendered
            
            
            111,125
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            111,125Net
                Income at December 31, 2006
            
            
            -
            
            
            -
            
            
            -
            
            
            237,665
            
            
            2,858,765
            
            
            3,096,430Balance
                at December 31, 2006
            
            
            3,627,872
            
            
            -
            
            
            (80,000
            )
            
            269,662
            
            
            (4,790,109
            )
            
            (806,163
            )Fractional
                shares issued upon 1.6 to 1 reverse split on February 9,
                2007
            
            
            (15
            )
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -Effect
                of adoption of EITF 00-19-2 change in accounting principle (Note
                1)
            
            
            10,821,900
            
            
            -
            
            
            -
            
            
            -
            
            
            (9,356,400
            )
            
            1,465,500Issuance
                of 33,425,000 shares of common stock for conversion of 95,500 Preferred
                B-4 shares
            
            
            (333,295
            )
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -Issuance
                of 1,312,500 shares of common stock in exchange for convertible notes
                payable
            
            
            511,875
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            525,000Common
                stock issued in June 2007 for services rendered at $0.48 per
                share
            
            
            188,000
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            192,000Fair
                value of warrants issued in conjunction with settlement of convertible
                debt
            
            
            61,767
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            61,767Fair
                value of vested portion of 3,000,000 options issued to an
                officer
            
            
            356,618
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            356,618Issuance
                of 1,575,000 shares of common stock to acquire minority interest
                in
                subsidiary at $0.75 per share
            
            
            1,165,500
            
            
            -
            
            
            -
            
            
            -
            
            
            (1,181,250
            )
            
            -Issuance
                of 4,029,000 shares of common stock in exchange for convertible notes
                payable
            
            
            3,988,710
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            4,029,000Issuance
                of majority owned subsidiary common stock in exchange for services
                to be
                rendered
            
            
            87,000
            
            
            (87,000
            )
            
            -
            
            
            -
            
            
            -
            
            
            -Issuance
                of majority owned subsidiary common stock in exchange for services
                rendered
            
            
            50,000
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            50,000Sale
                of majority owned subsidiary common stock by subsidiary
            
            
            2,331,810
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            2,331,810Amortization
                of deferred compensation
            
            
            -
            
            
            7,250
            
            
            -
            
            
            -
            
            
            -
            
            
            7,250Foreign
                currency translation gain
            
            
            -
            
            
            -
            
            
            -
            
            
            171,382
            
            
            -
            
            
            171,382Net
                loss, December 31, 2007
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (8,747,795
            )
            
            (8,747,795
            )Balance,
                December 31, 2007
            
            $
            22,857,742
            
            $
            (79,750
            )
            $
            (80,000
            )
            $
            441,044
            
            $
            (24,075,554
            )
            $
            (363,631
            )





The
      accompanying notes are an integral part of these consolidated financial
      statements


F-5





**SOLAR
                THIN FILMS, INC****CONSOLIDATED
                STATEMENT OF CASH FLOWS****YEARS
                ENDED DECEMBER 31, 2007 AND 2006**2007
            
            2006CASH
                FLOWS FROM OPERATING ACTIVITIES:Net
                Income (Loss)
            
            $
            (8,747,795
            )
            $
            2,858,765Adjustments
                to reconcile net loss to net cash used in operating
                activities:Depreciation
            
            
            220,860
            
            
            55,328Minority
                interest
            
            
            (17,089
            )
            
            (43,916
            )Common
                stock issued for services rendered
            
            
            242,000
            
            
            468,750Fair
                value of options issued to officer and director
            
            
            356,618
            
            
            2,720,228Fair
                value of options issued for services rendered
            
            
            -
            
            
            111,125Fair
                value of warrants issued in settlement of debenture
            
            
            61,767
            
            
            -Amortization
                of deferred financing costs
            
            
            395,837
            
            
            110,959Amortization
                of debt discounts
            
            
            4,431,697
            
            
            1,530,799Amortization
                of deferred compensation cost
            
            
            7,250
            
            
            -Unrealized
                gain on change in fair value of warrant liabilities
            
            
            -
            
            
            (9,356,400
            )Loss
                on disposal of fixed assets
            
            
            11,184
            
            
            23,366Changes
                in operating activities:Accounts
                receivable
            
            
            (124,557
            )
            
            (323,986
            )Accounts
                receivable, related party
            
            
            (576,733
            )
            
            (880,130
            )Inventory
            
            
            1,319,524
            
            
            (1,129,865
            )Prepaid
                expenses
            
            
            655,717
            
            
            (622,940
            )Advances
                and other current assets
            
            
            (129,922
            )
            
            45,596Other
                assets
            
            
            2,342
            
            
            (5,704
            )Accounts
                payable and accrued liabilities
            
            
            526,257
            
            
            949,978Advances
                received from customers
            
            
            (309,512
            )
            
            210,274Other
                current liabilities
            
            
            -
            
            
            (2,545
            )Net
                cash used in operating activities
            
            
            (1,674,555
            )
            
            (3,280,318
            )CASH
                FLOWS FROM INVESTING ACTIVITIES:Net
                cash acquired in connection with merger with American United
                Global
            
            
            -
            
            
            5,258,503Acquisition
                of property, plant and equipment
            
            
            (197,757
            )
            
            (559,435
            )Net
                cash provided by (used in) investing activities
            
            
            (197,757
            )
            
            4,699,068CASH
                FLOWS FROM FINANCING ACTIVITIES:Proceeds
                from notes payable, other-net
            
            
            -
            
            
            979,948Proceeds
                from sale of common stock by majority owned subsidiary
            
            
            3,348,395
            
            
            -Repayments
                of notes payable
            
            
            -
            
            
            (1,961
            )Repayment
                of notes payable, related party
            
            
            (157,472
            )
            
            -Net
                cash provided by financing activities
            
            
            3,190,923
            
            
            977,987Effect
                of currency exchange rate on cash
            
            
            171,382
            
            
            237,665Net
                increase in cash and cash equivalents
            
            
            1,489,993
            
            
            2,634,402Cash
                and cash equivalents at beginning of period
            
            
            2,667,483
            
            
            33,081Cash
                and cash equivalents at end of period
            
            $
            4,157,476
            
            $
            2,667,483SUPPLEMENTAL
                DISCLOSURES OF CASH FLOW INFORMATION:Cash
                paid during the period for interest
            
            $
            4,933
            
            $
            12,910Cash
                paid during the period for income taxes
            
            $
            -
            
            $
            -NON
                CASH INVESTING AND FINANCING ACTIVITIESCommon
                stock issued for services rendered
            
            $
            242,000
            
            $
            468,750Options
                issued for services rendered
            
            $
            356,618
            
            $
            2,831,353





The
      accompanying notes are an integral part of these consolidated financial
      statements





F-6


**SOLAR
      THIN FILMS, INC**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**DECEMBER
      31, 2007 and 2006**





**NOTE
      1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**




A
      summary
      of the significant accounting policies applied in the presentation of the
      accompanying financial statements follows:





Business
      and Basis of Presentation





The
      Company is incorporated under the laws of the State of Delaware, and is in
      the
      business of designing, manufacturing and marketing Solar Panel equipment on
      a
      world wide basis.





The
      consolidated financial statements include the accounts of the Company and its
      wholly owned subsidiaries, Superior Ventures Corp. and Kraft Elektronikai
      Zrt. (“Kraft”) and majority owned subsidiary, Solar Thin Power, Inc. All
      significant intercompany balances and transactions have been eliminated in
      consolidation.





Merger
      and Corporate Restructure





On
      June
      14, 2006, the Company entered into a Securities Purchase Agreement (“Agreement”
or “Merger”) with Kraft, a company formed under the laws of the country of
      Hungary. As a result of the Merger, there was a change in control of the public
      entity. In accordance with SFAS No. 141, Kraft was the acquiring entity. While
      the transaction is accounted for using the purchase method of accounting, in
      substance the Agreement is a recapitalization of Kraft's capital
      structure.





For
      accounting purposes, the Company accounted for the transaction as a reverse
      acquisition and Kraft is the surviving entity. The total purchase price and
      carrying value of net assets acquired was $(6,681,891). The Company did not
      recognize goodwill or any intangible assets in connection with the transaction.
      Prior to the Agreement, the Company was an inactive corporation with no
      significant assets and liabilities.





Effective
      with the Agreement, 95.5% of previously outstanding shares of its common stock
      owned by the Kraft’s shareholders were exchanged for an aggregate of 95,500
      shares of the Company’s newly issued Series B-4 Preferred Stock (the “Series B-4
      Preferred”). The Series B-4 Preferred are each automatically convertible into
      350 shares of common stock or an aggregate of 33,425,000 shares of the Company’s
      common stock. The conversion is subject to the Company increasing its authorized
      shares of common stock. Under the Agreement, prior to such conversion, each
      Series B-4 Preferred share will have the voting rights equal to 350 shares
      of
      common stock and vote together with the shares of common stock on all
      matters.





The
      value
      of the stock that was issued was the historical cost of the Company's net
      tangible assets, which did not differ materially from their fair
      value.





The
      accompanying financial statements present the historical financial condition,
      results of operations and cash flows of Kraft prior to the merger with American
      United Global.




F-7




**SOLAR
      THIN FILMS, INC**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**DECEMBER
      31, 2007 and 2006**





**NOTE
      1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)**





The
      total
      consideration paid was $(6,681,891) and the significant components of the
      transaction are as follows:





American
                United Global, Inc.
              Summary
                Statement of Financial Position
              At
                June 14, 2006Current
                Assets:Cash
            
            $
            5,258,503Other
                assets:Deferred
                loan costs, net of accumulated amortization of $-0-
            
            
            607,500Notes
                receivable-Kraft RT
            
            
            1,500,000Current
                Liabilities:Note
                payable - unsecured
            
            
            (1,500,000
            )Accrued
                interest and other
            
            
            (1,435,200
            )Long
                Term liabilities:$525,000
                Convertible debenture; less unamortized debt discount of
                $266,935
            
            
            (258,065
            )$1,250,000
                Convertible debenture; less unamortized debt discount of
                $1,140,988
            
            
            (109,012
            )$6,000,000
                Convertible debenture; less unamortized debt discount of
                $6,000,000
            
            
            -0-Warrant
                liability
            
            
            (10,821,900
            )Preferred
                stock: series B-1
            
            
            (2,287
            )Preferred
                stock: series B-3
            
            
            (475
            )Preferred
                stock: series B-4
            
            
            (955
            )Treasury
                stock, at cost
            
            
            80,000Net
                liabilities assumed
            
            $
            (6,681,891
            )





The
      net
      liabilities assumed is accounted for as a recapitalization of the Company’s
      capital structure and , accordingly the Company has charged the $ 6,681,891
      to
      accumulated deficit during the year ended December 31, 2006.





Subsequent
      to the date of the merger, the Company changed its name from American United
      Global Inc. to Solar Thin Films, Inc.





In
      July
      2007, the Company issued 1,575,000 shares of its common stock to acquire the
      remaining 4.5% of the outstanding common shares of Kraft. Accordingly, the
      Company has charged the fair value, based on the underlying common stock issued,
      of $1,181,250 to accumulated deficit in the year ended December 31,
      2007.





Change
      in Accounting Principle for Registration Payment Arrangements .





In
      December 2006, the Financial Accounting Standards Board (“FASB”) issued
      FASB Staff Position on No. EITF 00-19-2, *Accounting for Registration Payment Arrangements* (“FSP
      EITF 00-19-2”). FSP EITF 00-19-2 provides that the contingent obligation to make
      future payments or otherwise transfer consideration under a registration payment
      arrangement should be separately recognized and measured in accordance with
      Statement of Financial Accounting Standards (“FAS”) No. 5, *Accounting for Contingencies* , which
      provides that loss contingencies should be recognized as liabilities if they
      are
      probable and reasonably estimable. Subsequent to the adoption of FSP EITF
      00-19-2, any changes in the carrying amount of the contingent liability will
      result in a gain or loss that will be recognized in the consolidated statement
      of operations in the period the changes occur. The guidance in FSP EITF 00-19-2
      is effective immediately for registration payment arrangements and the financial
      instruments subject to those arrangements that are entered into or modified
      subsequent to the date of issuance of FSP EITF 00-19-2. For registration payment
      arrangements and financial instruments subject to those arrangements that were
      entered into prior to the issuance of FSP EITF 00-19-2, this guidance is
      effective for the consolidated financial statements issued for the year
      beginning January 1, 2007, and interim periods within that
      year.


F-8




**SOLAR
      THIN FILMS, INC**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**DECEMBER
      31, 2007 and 2006**





**NOTE
      1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)**





On
      January 1, 2007, the Company adopted the provisions of FSP EITF 00-19-2 to
      account for the registration payment arrangement associated with our June 2006
      financing (see note 7). On February 13, 2007 the Company became effective with
      their SB-2 and as such management determined that it was not probable that
      we
      would have any additional payment obligations under the June 2006 Registration
      Payment Arrangement; therefore, additional accrual for contingent obligation
      is
      not required under the provisions of FSP EITF 00-19-2. Accordingly, the warrant
      liability account was eliminated and the comparative consolidated financial
      statements of prior periods and as of December 31, 2006 have been adjusted
      to apply the new method retrospectively. The following financial statement
      line
      items for the years ended December 31, 2007 and 2006 by the change in accounting
      principle:





Consolidated
      Statements of Operations





As
                Computed
            
            As
                Reportedunder
            
            under
                FSP
            
            Effect
                ofEITF
                00-19
            
            EITF
                00-19-2
            
            Change******Year
                ended December 31, 2007Loss
                from operations
            
            $
            (3,824,645
            )
            $
            (3,824,645
            )
            $
            —Other
                income (loss)
            
            
            (4,940,239
            )
            
            (4,940,239
            )
            
            —Loss
                on fair value of warrants
            
            
            (3,972,600
            )
            
            —
            
            
            3,972,600Net
                loss
            
            
            (12,720,395
            )
            
            (8,747,795
            )
            
            3,972,600Net
                loss per share
            
            $
            (0.30
            )
            $
            (0.21
            )
            $
            0.09





As
                Originally
            
            
            
            Effect
                ofReported
            
            As
                Adjusted
            
            ChangeYear
                ended December 31, 2006Loss
                from operations
            
            $
            (4,938,370
            )
            $
            (4,938,370
            )
            $
            —Other
                income (loss)
            
            
            (1,559,265
            )
            
            (1,559,265
            )
            
            —Gain
                on fair value warrants
            
            
            9,356,400
            
            
            —
            
            
            (9,356,400
            )Net
                income (loss)
            
            
            2,858,765
            
            
            (6,497,635
            )
            
            (9,356,400
            )Net
                income (loss) per share
            
            $
            0.18
            
            $
            (0.32
            )
            $
            (0.50
            )





Consolidated
      Balance Sheet





As
                Computed
            
            As
                Reportedunder
            
            under
                FSP
            
            Effect
                ofEITF
                00-19
            
            EITF
                00-19-2
            
            ChangeDecember
                31, 2007Warrant
                liability
            
            $
            5,438,100
            
            $
            —
            
            $
            (5,438,100
            )Total
                liabilities
            
            
            11,941,167
            
            
            6,503,067
            
            
            (5,438,100
            )Additional
                paid-in capital
            
            
            12,035,842
            
            
            22,857,742
            
            
            10,821,900Deficit
            
            
            (14,719,154
            )
            
            (24,075,554
            )
            
            (9,356,400
            )Total
                stockholders’ deficit
            
            
            (5,801,731
            )
            
            (363,631
            )
            
            5,438,100








F-9







**SOLAR
      THIN FILMS, INC**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**DECEMBER
      31, 2007 and 2006**





**NOTE
      1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)**





Consolidated
      Statements of Cash Flows





As
                Computed
            
            As
                Reportedunder
            
            under
                FSP
            
            Effect
                ofEITF
                00-19
            
            EITF
                00-19-2
            
            ChangeYear
                ended December 31, 2007Net
                loss
            
            $
            (12,720,395
            )
            $
            (8,747,795
            )
            $
            3,972,600Loss
                on value of warrant liability
            
            
            3,972,600
            
            
            —
            
            
            (3,972,600
            )





As
                Originally
            
            
            
            Effect
                ofReported
            
            As
                Adjusted
            
            ChangeYear
                ended December 31, 2006Net
                income (loss)
            
            $
            2,858,765
            
            $
            (6,497,635
            )
            $
            (9,356,400
            )Gain
                on value of warrant liability
            
            
            (9,356,400
            )
            
            —
            
            
            9,356,400





Accounts
      Receivable





The
      Company assesses the realization of its receivables by performing ongoing credit
      evaluations of its customers' financial condition. Through these evaluations,
      the Company may become aware of a situation where a customer may not be able
      to
      meet its financial obligations due to deterioration of its financial viability,
      credit ratings or bankruptcy. The Company’s reserve requirements are based on
      the best facts available to the Company and are reevaluated and adjusted as
      additional information is received. The Company’s reserves are also based on
      amounts determined by using percentages applied to certain aged receivable
      categories. These percentages are determined by a variety of factors including,
      but not limited to, current economic trends, historical payment and bad debt
      write-off experience. Allowance for doubtful accounts was $0 for the years
      ended
      December 31, 2007 and 2006.





Revenue
      Recognition





For
      revenue from product/contract sales, the Company recognizes revenue in
      accordance with Staff Accounting Bulletin No. 104, Revenue Recognition (“SAB
      104"), which superseded Staff Accounting Bulletin No. 101, Revenue Recognition
      in Financial Statements (“SAB 101"). SAB 101 requires that four basic criteria
      must be met before revenue can be recognized: 1) Persuasive evidence of an
      arrangement exists; 2) delivery has occurred; 3) the selling price is fixed
      and
      determinable; and 4) collectibility is reasonably assured.




Determination
      of criteria (3) and (4) are based on management’s judgments regarding the fixed
      nature of the selling prices of the products delivered and the collectibility
      of
      those amounts. Provisions for discounts and rebates to customers, estimated
      returns and allowances, and other adjustments are provided for in the same
      period the related sales are recorded. The Company defers any revenue for which
      the product has not been delivered or is subject to refund until such time
      that
      the company and the customer jointly determine that the product has been
      delivered or no refund will be required. Deferred revenues as of December 31,
      2007 and 2006 amounted to $0 and $309,512, respectively. SAB 104 incorporates
      Emerging Issues Task Force 00-21 (“EITF 00-21"), Multiple-Deliverable Revenue
      Arrangements. EITF 00-21 addresses accounting for arrangements that may involve
      the delivery or performance of multiple products, services and/or rights to
      use
      assets. The effect of implementing EITF 00-21 on the Company’s financial
      position and results of operations was not significant.




F-10




**SOLAR
      THIN FILMS, INC**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**DECEMBER
      31, 2007 and 2006**





**NOTE
      1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)**





The
      Company recognizes revenue when persuasive evidence of an arrangement exists,
      the price to the customer is fixed, collectibility is reasonable assured and
      title and risk of ownership is passed to the customer, which is usually upon
      shipment. However, certain customers traditionally have requested to take title
      and risk of ownership prior to shipment. Revenue for these transactions is
      recognized only when:





1.
      Title
      and risk of ownership have passed to the customer;




2.
      The
      Company has obtained a written fixed purchase commitment;




3.
      The
      customer has requested the transaction be on a bill and hold basis;




4.
      The
      customer has provided a delivery schedule;




5.
      All
      performance obligations related to the sale have been completed;




6.
      The
      product has been processed to the customer’s specifications, accepted by the
      customer and made ready for shipment;




7.
      The
      product is segregated and is not available to fill other orders.





The
      remittance terms for these “bill and hold” transactions are consistent with all
      other sale by the company. There were no bill and hold transactions at December
      31, 2007 and 2006.





Percentage-of-Completion
      Accounting: in accordance with the provisions of the American Institute of
      Certified Public Accountants (AICPA) Statement of Position No. 81-1, "Accounting
      for Performance of Construction-Type and Certain Production-Type Contracts."
      (“SOP 81-1”), sales - derived from long-term fixed-priced contracts to design,
      develop and construct of complete or just part of turnkey manufacturing plants
      that produce photovoltaic thin film modules in accordance with customer
      specifications - are recorded using the percentage of completion method as
      the
      compounds are delivered (under the units of delivery method). The contract
      costs
      related to delivered compounds are recorded to cost of revenue as the compounds
      are delivered and revenue is recognized.





Product
      Warranty costs





The
      Company provides for estimated costs to fulfill customer warranty obligations
      upon recognition of the related revenue in accordance with Financial Accounting
      Standards Board (FASB) Interpretation No. 45, Guarantors Accounting and
      Disclosure Requirements for Guarantees as a charge in the current period cost
      of
      goods sold. The range for the warranty coverage for the Company’s products is up
      to 18 to 24 months. The Company estimates the anticipated future costs of
      repairs under such warranties based on historical experience and any known
      specific product information. These estimates are reevaluated periodically
      by
      management and based on current information, are adjusted accordingly. The
      Company’s determination of the warranty obligation is based on estimates and as
      such, actual product failure rates may differ significantly from previous
      expectations.





The
      Company accrued a provision for product warranty of approximately $180,000
      during 2007; of which approximately $85,000 was utilized during the year ended
      December 31, 2007. No warranty liability was accrued in 2006.





Research
      and Development





The
      Company accounts for research and development costs in accordance with the
      Financial Accounting Standards Board’s Statement of Financial Accounting
      Standards No. 2 (“SFAS 2"), “Accounting for Research and Development Costs.”
Under SFAS 2, all research and development cost must be charged to expense
      as
      incurred. Accordingly, internal research and developments cost is expensed
      as
      incurred.




F-11







**SOLAR
      THIN FILMS, INC**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**DECEMBER
      31, 2007 and 2006**





**NOTE
      1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)**





Third-party
      research and developments costs are expensed when the contracted work has been
      performed or as milestone results have been achieved. Company-sponsored research
      and development costs related to products are expensed in the period incurred.
      The Company incurred expenditures of $360,000 and $11,600 on research and
      product development for the years ended December 31, 2007 and 2006,
      respectively.





Reclassification





Certain
      reclassifications have been made to conform to prior periods’ data to the
      current presentation. These reclassifications had no effect on reported income
      or losses.




Property,
      plant and equipment




Property,
      plant and equipment are stated at cost less accumulated depreciation and
      impairment losses. Depreciation is computed using the straight-line method
      over
      the estimated useful lives of the respective assets.




The
      estimated useful lives of property, plant and equipment are as follows:




Land
                and buildings
            
            3 to 50 yearsFunitures
                and fixtures
            
            3 to 7 yearsMachinery,
                plant and equipment
            
            3 to 7 years




We
      evaluate the carrying value of items of property, plant and equipment to be
      held
      and used whenever events or changes in circumstances indicate that the carrying
      amount may not be recoverable. The carrying value of an item of property, plant
      and equipment is considered impaired when the projected undiscounted future
      cash
      flows related to the asset are less than its carrying value. We measure
      impairment based on the amount by which the carrying value of the respective
      asset exceeds its fair value. Fair value is determined primarily using the
      projected future cash flows discounted at a rate commensurate with the risk
      involved.





Stock
      Based Compensation





In
      December 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based
      Compensation-Transition and Disclosure-an amendment of SFAS 123.” This statement
      amended SFAS 123, “Accounting for Stock-Based Compensation,” to provide
      alternative methods of transition for a voluntary charge to the fair value
      based
      method of accounting for stock-based employee compensation. In addition, this
      statement amended the disclosure requirements of SFAS No. 123 to require
      prominent disclosures in both annual and interim financial statements about
      the
      method of accounting for stock-based employee compensation and the effect of
      the
      method used on reported results. Effective for the year beginning January 1,
      2006 the Company has adopted SFAS 123 (R), “Share-Based
      Payment” which
      supersedes APB Opinion No. 25, “Accounting for Stock Issued to Employees” and
      eliminates the intrinsic value method that was provided in SFAS 123 for
      accounting of stock-based compensation to employees. The Company made no
      employee stock-based compensation grants before December 31, 2005 and therefore
      has no unrecognized stock compensation related liabilities or expense unvested
      or vested prior to 2006.




F-12




**SOLAR
      THIN FILMS, INC**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**DECEMBER
      31, 2007 and 2006**





**NOTE
      1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)**





For
      the
      year ended December 31, 2006, the Company granted 1,875,000 (See Note 8) stock
      options to Csaba Toro, an officer of the Company with an exercise price of
      $2.18
      (See Note 8) per share expiring ten years from the date of issuance. The fair
      value of the options was determined using the Black-Scholes option pricing
      model
      with the following assumptions: expected dividend yield: 0%; volatility 49.48%;
      risk free interest rate: 4.61%. The fair value of $2,720,228 was recorded as
      a
      charge to earnings in 2006.





For
      the
      year ended December 31, 2006, the Company granted 15,625 (See Note 8) stock
      options to Michael Metter, a director of the Company with an exercise price
      of
      $2.06 (See Note 8) per share expiring three years from the date of issuance.
      The
      fair value of the options was determined using the Black-Scholes option pricing
      model with the following assumptions: expected dividend yield: 0%; volatility
      63.22%; risk free interest rate: 4.80%. The fair value of $14,828 was recorded
      as a charge to earnings in 2006.





For
      the
      year ended December 31, 2007, the Company granted 3,000,000 stock options to
      Peter Lewis, an officer of the Company with an exercise price of $0.533 per
      share vesting over two years and expiring ten years from the date of issuance.
      The fair value of the options was determined using the Black-Scholes option
      pricing model with the following assumptions: expected dividend yield: 0%;
      volatility 82.53%; risk free interest rate: 5.14%. The fair value of the vested
      portion of $356,618 was charged to operations for the year ended December 31,
      2007.





Use
      of
      Estimates





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





Comprehensive
      Income (Loss)





The
      Company adopted Statement of Financial Accounting Standards No. 130; “Reporting
      Comprehensive Income” (SFAS) No. 130 establishes standards for the reporting and
      displaying of comprehensive income and its components. Comprehensive income
      is
      defined as the change in equity of a business during a period from transactions
      and other events and circumstances from non-owners sources. It includes all
      changes in equity during a period except those resulting from investments by
      owners and distributions to owners. SFAS No. 130 requires other comprehensive
      income (loss) to include foreign currency translation adjustments and unrealized
      gains and losses on available for sale securities.




Foreign
      Currency Translation





The
      Company translates the foreign currency financial statements into US Dollars
      using the year end or average exchange rates in accordance with the requirements
      of SFAS No. 52, “Foreign Currency Translation” *.* Assets,
      liabilities and equity of these subsidiaries were translated at exchange rates
      as of the balance sheet date. Revenues, expenses and retained earnings are
      translated at average rates in effect for the periods presented. The cumulative
      translation adjustment is included in the accumulated other comprehensive gain
      (loss) within shareholders’ equity. Foreign currency transaction gains and
      losses arising from exchange rate fluctuations on transactions denominated
      in a
      currency other than the functional currency are included in the consolidated
      results of operations.




F-13




**SOLAR
      THIN FILMS, INC**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**DECEMBER
      31, 2007 and 2006**





**NOTE
      1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)**





Net
      income (loss) per share





The
      Company computes earnings per share under Statement of Financial Accounting
      Standards No. 128, "Earnings Per Share" (“SFAS 128”). Net earnings (losses) per
      common share is computed by dividing net income (loss) by the weighted average
      number of shares of common stock and dilutive common stock equivalents
      outstanding during the period. Dilutive common stock equivalents consist of
      shares issuable upon conversion of convertible preferred shares and the exercise
      of the Company's stock options and warrants (calculated using the treasury
      stock
      method). During the year ended December 31, 2007, common stock equivalents
      are
      not considered in the calculation of the weighted average number of common
      shares outstanding because they would be anti-dilutive, thereby decreasing
      the
      net loss per common share.





The
      following reconciliation of net income and share amounts used in the computation
      of income (loss) per share for year ended December 31, 2006:





Year
                ended
              December
                31, 2006Net
                income used in computing basic net income per share
            
            $
            2,858,765Impact
                of assumed assumptions:Amortization
                of debt discount (interest expense) on convertible
                debentures
            
            
            1,530,799Impact
                of equity classified as liability:Gain
                on warrant liability marked to fair value
            
            
            (9,356,400
            )Net
                loss in computing diluted net loss per share:
            
            $
            (4,966,836
            )





The
      weighted average shares outstanding used in the basic net earnings (loss) per
      share computations for the years ended December 31, 2007 and 2006 were
      42,452,053 and 16,106,497 shares respectively. In determining the number of
      shares used in computing diluted loss per share, the Company added approximately
      -0- and 4,627,073 potentially dilutive shares for the years ended December
      31,
      2007 and 2006, respectively. The potentially dilutive shares added were
      attributable to the warrants and convertible debt issued in connection with
      the
      private placement of the Company’s convertible notes (see Note 7 and
      11)





For
      the
      calculation of earnings per share, such stock warrants are considered equity
      and
      are included in diluted shares as their effect is dilutive. In accordance with
      Emerging Issues Task Force, EITF, Topic D-72 and paragraph 29 of
      SFAS 128, we adjusted net income (the basic earnings per share numerator)
      for purpose of computing diluted net earnings per share.





As
      a
      result, the diluted loss per share for the year ended December 31, 2006 was
      $(0.24).





Options
      and warrants to purchase 11,046,875 and 0 shares of our common stock were
      excluded from the 2007 and 2006 computation of diluted earnings per share,
      respectively, because the effect would be antidilutive.




Liquidity





The
      Company has incurred net loss of $8,747,795 and negative cash flows from
      operating activities of $1,674,555 for the year ended December 31, 2007.
      Although the Company has a positive working capital of $1,862,717 and a cash
      balance of $4,157,476 at December 31, 2007, there can be no assurance such
      amounts will be sufficient to meet the Company's cash flows needs from its
      operating activites for the next twelve months.




F-14




**SOLAR
      THIN FILMS, INC**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**DECEMBER
      31, 2007 and 2006**





**NOTE
      1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)**





Recent
      accounting pronouncements





In
      February 2006, the FASB issued SFAS No. 155. “ *Accounting
      for certain Hybrid Financial Instruments an amendment of FASB Statements No.
      133
      and 140,”* or SFAS
      No. 155. SFAS No. 155 permits fair value remeasurement for any hybrid financial
      instrument that contains an embedded derivative that otherwise would require
      bifurcation, clarifies which interest-only strips and principal-only strips
      are
      not subject to the requirements of Statement No. 133, establishes a requirement
      to evaluate interests in securitized financial assets to identify interests
      that
      are freestanding derivatives or that are hybrid financial instruments that
      contain an embedded derivative requiring bifurcation, clarifies that
      concentrations of credit risk in the form of subordination are not embedded
      derivatives, and amends SFAS No. 140 to eliminate the prohibition on a
      qualifying special purpose entity from holding a derivative financial instrument
      that pertains to a beneficial interest other than another derivative financial
      instrument. SFAS No. 155 is effective for all financial instruments acquired
      or
      issued after the beginning of an entity’s first fiscal year that begins after
      September 15, 2006. We did not have a material impact on our consolidated
      financial position, results of operations or cash flows.





In
      March
      2006, the FASB issued SFAS No. 156, Accounting for Servicing of Financial Assets
      - an amendment to FASB Statement No. 140. SFAS No. 156 requires that an entity
      recognize a servicing asset or servicing liability each time it undertakes
      an
      obligation to service a financial asset by entering into a service contract
      under certain situations. The new standard is effective for fiscal years
      beginning after September 15, 2006. The adoption of SFAS No.156 did not have
      a
      material impact on the Company's financial position, results of operations
      or
      cash flows.





In
      July
      2006, the FASB issued Interpretation No. 48 (FIN 48). “ *Accounting* *for
      uncertainty in Income Taxe* s *-
      an
      interpretation of FASB Statement 109* *”* (“FIN
      No.
      48”) *.* FIN 48
      clarifies the accounting for Income Taxes by prescribing the minimum recognition
      threshold a tax position is required to meet before being recognized in the
      financial statements. It also provides guidance on derecognition, measurement,
      classification, interest and penalties, accounting in interim periods,
      disclosure and transition and clearly scopes income taxes out of SFAS No. 5,
“ *Accounting
      for Contingencies”.* FIN 48
      is effective for fiscal years beginning after December 15, 2006. We did not
      have
      a material impact on our consolidated financial position, results of operations
      or cash flows.





In
      September 2006, FASB issued its SFAS No. 157, “Fair Value Measurements” (“SFAS
      No. 157”). SFAS No. 157 defines fair value, establishes a framework for
      measuring fair value in generally accepted accounting principles (GAAP), and
      expands disclosures about fair value measurements. SFAS No.157 applies under
      other accounting pronouncements that require or permit fair value measurements,
      the Board having previously concluded in those accounting pronouncements that
      fair value is the relevant measurement attribute. Accordingly, SFAS No. 157
      does
      not require any new fair value measurements. However, for some entities, the
      application of SFAS No. 157 will change current practice. SFAS No. 157 is
      effective for fiscal years beginning after November 15, 2007. The Company does
      not expect adoption of this standard will have a material impact on its
      financial position, results of operations or cash flows.





In
      September 2006 the FASB issued its SFAS No. 158, “Employers’ Accounting for
      Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB
      Statements No. 87, 88, 106 and 132(R)” (“SFAS No. 158”). SFAS No. 158 improves
      financial reporting by requiring an employer to recognize the overfunded or
      underfunded status of a defined benefit postretirement plan (other than a
      multiemployer plan) as an asset or liability in its statement of financial
      position and to recognize changes in that funded status in the year in which
      the
      changes occur through comprehensive income of a business entity or changes
      in
      unrestricted net assets of a not-for-profit organization. SFAS No. 158 also
      improves financial reporting by requiring an employer to measure the funded
      status of a plan as of the date of its year-end statement of financial position,
      with limited exceptions. The effective date for an employer with publicly traded
      equity securities is as of the end of the fiscal year ending after December
      15,
      2006. SFAS No. did not have a material impact on the Company's financial
      position, results of operations or cash flows as the Company does not have
      any
      defined benefit pension and other postretirement plans at December 31,
      2007.




F-15




**SOLAR
      THIN FILMS, INC**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**DECEMBER
      31, 2007 and 2006**





**NOTE
      1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)**





In
      December 2006, the FASB issued FSP EITF 00-19-2, Accounting for Registration
      Payment Arrangements (" FSP
      00-19 -2")
      which addresses accounting for registration payment arrangements. FSP
      00-19 -2
      specifies that the contingent obligation to make future payments or otherwise
      transfer consideration under a registration payment arrangement, whether issued
      as a separate agreement or included as a provision of a financial instrument
      or
      other agreement, should be separately recognized and measured in accordance
      with
      FASB Statement No. 5, Accounting for Contingencies. FSP
      00-19 -2
      further clarifies that a financial instrument subject to a registration payment
      arrangement should be accounted for in accordance with other applicable
      generally accepted accounting principles without regard to the contingent
      obligation to transfer consideration pursuant to the registration payment
      arrangement. For registration payment arrangements and financial instruments
      subject to those arrangements that were entered into prior to the issuance
      of
      EITF 00-19-2, this guidance shall be effective for financial statements issued
      for fiscal years beginning after December 15, 2006 and interim periods within
      those fiscal years. The Company adopted FSP 00-19-2 in the preparation of the
      financial statements (see Note 1).





In
      February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
      Financial Assets and Financial Liabilities.” SFAS
      159
      permits entities to choose to measure many financial instruments, and certain
      other items, at fair value. SFAS
      159
      applies to reporting periods beginning after November 15, 2007. The adoption
      of
      SFAS 159 is not expected to have a material impact on the Company’s financial
      position, results of operations, or cash flows.





In
      June 2007, the Accounting Standards Executive Committee issued Statement of
      Position 07-1, “Clarification of the Scope of the Audit and Accounting Guide
      Investment Companies and Accounting by Parent Companies and Equity Method
      Investors for Investments in Investment Companies” (“SOP 07-1”). SOP 07-1
      provides guidance for determining whether an entity is within the scope of
      the
      AICPA Audit and Accounting Guide Investment Companies (the “Audit Guide”). SOP
      07-1 was originally determined to be effective for fiscal years beginning on
      or
      after December 15, 2007, however, on February 6, 2008, FASB issued a
      final Staff Position indefinitely deferring the effective date and prohibiting
      early adoption of SOP 07-1 while addressing implementation issues.





In
      June
      2007, the FASB ratified the consensus in EITF Issue No. 07-3, “Accounting
      for Nonrefundable Advance Payments for Goods or Services to be Used in Future
      Research and Development Activities” (EITF 07-3), which requires that
      nonrefundable advance payments for goods or services that will be used or
      rendered for future research and development (R&D) activities be deferred
      and amortized over the period that the goods are delivered or the related
      services are performed, subject to an assessment of recoverability.
      EITF 07-3 will be effective for fiscal years beginning after
      December 15, 2007. The Company does not expect that the adoption of
      EITF 07-3 will have a material impact on our consolidated financial
      position, results of operations or cash flows.





In
      December 2007, the FASB issued SFAS No. 141(R), *"Business
      Combinations"* ("SFAS No. 141(R)"), which establishes principles and requirements for how
      an acquirer recognizes and measures in its financial statements the identifiable
      assets acquired, the liabilities assumed, and any noncontrolling interest in
      an
      acquiree, including the recognition and measurement of goodwill acquired in
      a
      business combination. SFAS No. 141(R) is effective as of the beginning of the
      first fiscal year beginning on or after December 15, 2008. Earlier adoption
      is prohibited and the Company is currently evaluating the effect, if any, that
      the adoption will have on its financial position, results of operations or
      cash
      flows.





In
      December 2007, the FASB issued SFAS No. 160, *"Noncontrolling
      Interest in Consolidated Financial Statements, an amendment of ARB
      No. 51"* ("SFAS
      No. 160"), which will change the accounting and reporting for minority
      interests, which will be recharacterized as noncontrolling interests and
      classified as a component of equity within the consolidated balance sheets.
      SFAS
      No. 160 is effective as of the beginning of the first fiscal year beginning
      on
      or after December 15, 2008. Earlier adoption is prohibited and the Company
      is currently evaluating the effect, if any, that the adoption will have on
      its
      financial position, results of operations or cash flows.




F-16




**SOLAR
      THIN FILMS, INC**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**DECEMBER
      31, 2007 and 2006**





**NOTE
      1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)**





In
      December 2007, the FASB ratified the consensus in EITF Issue No. 07-1,
“Accounting for Collaborative Arrangements” (EITF 07-1). EITF 07-1
      defines collaborative arrangements and requires collaborators to present the
      result of activities for which they act as the principal on a gross basis and
      report any payments received from (made to) the other collaborators based on
      other applicable authoritative accounting literature, and in the absence of
      other applicable authoritative literature, on a reasonable, rational and
      consistent accounting policy is to be elected. EITF 07-1 also provides for
      disclosures regarding the nature and purpose of the arrangement, the entity’s
      rights and obligations, the accounting policy for the arrangement and the income
      statement classification and amounts arising from the agreement. EITF 07-1
      will be effective for fiscal years beginning after December 15, 2008, which
      will be the Company’s fiscal year 2009, and will be applied as a change in
      accounting principle retrospectively for all collaborative arrangements existing
      as of the effective date. The Company has not yet evaluated the potential impact
      of adopting EITF 07-1 on our consolidated financial position, results of
      operations or cash flows.





Other
      recent accounting pronouncements issued by the FASB (including its Emerging
      Issues Task Force), the AICPA, and the SEC did not, or are not believed by
      management to, have a material impact on the Company’s present or future
      consolidated financial statements.




F-17


**SOLAR
      THIN FILMS, INC**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**DECEMBER
      31, 2007 and 2006**





**NOTE
      2 - INVENTORIES**





Inventories
      are stated at the lower of cost or market determined by the first-in, first-out
      (FIFO) method. Components of inventories as of December 31, 2007 and 2006
      consist of the following.





2007
            
            2006Finished
                Goods
            
            $
            -
            
            $
            498,200Work
                in Progress
            
            
            103,416
            
            
            983,982Raw
                Materials
            
            
            88,299
            
            
            29,057$
            191,715
            
            $
            1,511,239


**NOTE
      3 - PROPERTY, PLANT AND EQUIPMENT**





The
      Company's property and equipment at December 31, 2007 and 2006 consist of the
      following:




2007
            
            2006Land
                and buildings
            
            $
            239,019
            
            $
            209,305Furniture
                and fixture
            
            
            92,434
            
            
            62,524Machinery,
                plant and equipment
            
            
            605,473
            
            
            487,071Total
            
            
            936,926
            
            
            758,900Accumulated
                depreciation
            
            
            341,896
            
            
            129,583Property
                and equipment
            
            $
            595,030
            
            $
            629,317





Property
      and equipment are recorded on the basis of cost. For financial statement
      purposes, property, plant and equipment are depreciated using the straight-line
      method over their estimated useful lives.





Depreciation
      and amortization expense was $220,860 and $55,328 for the year ended December
      31, 2007 and 2006, respectively.




**NOTE
      4 - ACCOUNTS PAYABLE AND ACCRUED LIABILITIES**





Accounts
      payable and accrued liabilities at December 31, 2007 and 2006 were as
      follows:




2007
            
            2006Accounts
                payable
            
            $
            166,814
            
            $
            213,077Other
                accrued expenses, including a penalty in the amount of $720,000 and
                $480,000 in connection with liquidating charges as of December 31,
                2007
                and 2006, respectively (Note 7)
            
            
            1,245,785
            
            
            836,389Accrued
                interest
            
            
            1,660,200
            
            
            1,510,200$
            3,072,799
            
            $
            2,559,666




**NOTE
      5 - NOTES PAYABLE OTHER**




A
      summary
      of notes payable other at December 31, 2007 and 2006 consists of the
      following:




2007
            
            2006Demand
                note payable: interest payable at 10.0 % per annum; in default and
                unsecured
            
            $
            1,500,000
            
            $
            1,500,000$
            1,500,000
            
            $
            1,500,000




F-18




**SOLAR
      THIN FILMS, INC**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**DECEMBER
      31, 2007 and 2006**





**NOTE
      6- DIVIDENDS PAYABLE**





In
      2000
      and 2001, the Company declared a dividend to its shareholders. However based
      on
      the Company’s limited financial resources it has been unable to pay it. The
      shareholders have conceded the deferment of this dividend until the company
      financially can afford paying it. At December 31, 2007 and 2006 the outstanding
      balance was $156,522 and $187,314, respectively.





**NOTE
      7- PRIVATE PLACEMENT OF CONVERTIBLE NOTES**





A
      summary
      of convertible notes payable at December 31, 2007 and 2006 are as
      follows:




2007
              
              
              2006Convertible
                  notes payable (“September 2005”), non-interest bearing interest; secured
                  and due March 2007; Noteholder has the option to convert unpaid
                  note
                  principal to the Company’s common stock at a conversion price equal to 50%
                  of the closing price on the day prior to the submission of the
                  conversion
                  notice, however, the conversion price may not be lower than $0.40
                  per
                  share (Note 8)
              
              $
              -
              
              $
              525,000Debt
                  Discount - beneficial conversion feature, net of accumulated amortization
                  of $448,898
              
              
              -
              
              
              (76,102
              )Net
              
              
              -
              
              
              448,898Convertible
                  notes payable (“March 2006”) non-interest bearing; secured and due March
                  2009
              
              
              1,250,000
              
              
              1,250,000Debt
                  Discount, net of accumulated amortization of $793,363 and $351,260,
                  respectively
              
              
              (456,637
              )
              
              (898,740
              )Net
              
              
              793,363
              
              
              351,260Convertible
                  notes payable (“June 2006”), non- interest bearing; secured and due June
                  2009; Noteholder has the option to convert unpaid note principal
                  to the
                  Company’s common stock at a rate of $1.00 per share (Note
                  8).
              
              
              1,971,000
              
              
              6,000,000Debt
                  Discount, net of accumulated amortization of $980,383 and $1,095,891,
                  respectively
              
              
              (990,617
              )
              
              (4,904,109
              )Net
              
              
              980,383
              
              
              1,095,891Total
              
              
              1,773,746
              
              
              1,896,049Less
                  Current Maturities
              
              
              (         
                  -
              )
              
              (448,899
              )Net
              
              $
              1,773,746
              
              $
              1,447,150





September
      2005 Financing





The
      Company entered a Securities Purchase Agreement (the “September 2005 Agreement”)
      with Iroquois Master Fund Ltd., Smithfield Fiduciary LLC and Lilac Ventures
      Master Fund (collectively, the “September 2005 Investors”) dated September 22,
      2005 for the sale of (i) $525,000 in senior secured convertible notes (the
      “September 2005 Notes”) and (ii) 525,000 (Note 8) shares of common stock of the
      Company (the “September 2005 Shares”). On September 26, 2005, the September 2005
      Investors purchased the September 2005 Notes and September 2005
      Shares.




The
      Notes
      are interest free, mature in March 2007 and are convertible into the Company’s
      common stock, at the September 2005 Investors' option, at a conversion price
      equal to 50% of the closing price on the day prior to the submission of the
      conversion notice, however, the conversion price may not be lower than $0.40
      (Note 8)(the “Floor Price”).




F-19




**SOLAR
      THIN FILMS, INC**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**DECEMBER
      31, 2007 and 2006**





**NOTE
      7- PRIVATE PLACEMENT OF CONVERTIBLE NOTES (continued)**





Upon
      maturity of the Notes, the Company, at the option of the September 2005
      Investors, may pay the principal of the September 2005 Notes in cash or shares.
      The Company may only pay in shares if proper notice has been sent to the
      September 2005 Investors indicating that the Company intends to pay in shares,
      the number of authorized but un-issued shares is sufficient for issuance, the
      shares are registered for resale and the Company is not in default under the
      transaction documents. If the September 2005 Notes are paid in shares upon
      maturity, then the number issuable is determined by dividing the principal
      then
      payable by the lower of (i) 50% of the closing price on the day prior to the
      submission of the conversion notice or (ii) 85% of the arithmetic average of
      the
      VWAP for the 20 trading days immediately prior to the date of conversion.
      However, in no event shall the conversion price be less than the Floor
      Price.





We
      have
      granted the September 2005 Investors a security interest in all of our assets
      as
      well as registration rights. We are required to file a registration statement
      registering the shares of common stock issuable upon conversion of the September
      2005 Notes and the September 2005 Shares on the earlier of (i) 30 days from
      acquiring Kraft or (ii) 90 days from closing, and we are required to have such
      registration statement declared effective within 135 days from closing. Further,
      Robert Rubin, a director of the Company, has personally guaranteed payment
      of
      the September 2005 Notes.





The
      September 2005 Investors have contractually agreed to restrict their ability
      to
      convert the September 2005 Notes and receive shares of our common stock such
      that the number of shares of the Company common stock held by them and their
      affiliates after such conversion does not exceed 4.99% of the Company’s then
      issued and outstanding shares of common stock.





In
      accordance with *Emerging
      Issues Task Force Issue 98-5, Accounting For Convertible Securities With a
      Beneficial Conversion Feature or Contingently Adjustable Conversion Ratios
      (EITF
      98-5)* , the
      Former Holding Company, American United Global, Inc. (the “Former”)
      allocated, on a
      relative fair value basis, the net proceeds amongst the common stock and
      convertible notes issued to the investors. The Former recognized a discount
      to
      the notes in the amount of $ 221,519 during the year ended December 31, 2005.
      The note discount is being amortized over the maturity period of the notes,
      being eighteen months. The Former recognized an imbedded beneficial conversion
      feature present in the Convertible Notes and allocated a portion of the proceeds
      equal to the intrinsic value of that feature to additional paid-in capital.
      As
      of December 31, 2005 the Former recognized $ 303,481 of the proceeds, which
      is
      equal to the intrinsic value of the imbedded beneficial conversion feature,
      to
      additional paid-in capital and a discount against the Convertible Note. The
      debt
      discount attributed to the beneficial conversion feature is amortized over
      the
      Convertible Notes’ maturity period, being eighteen months, as interest
      expense.





In
      June
      2007, the September 2005 investors converted the notes into the Company’s common
      stock at a conversion price equal of $0.40 (Note 8) (the “Floor Price”). As an
      inducement to convert, the Company granted to the noteholders 333,334 warrants
      with a right to purchase the Company’s common stock at $1.00 per share for a
      period of three years from the date of issuance. The warrants were valued using
      the “Black-Scholes” option pricing method with the following assumptions:
      dividend yield: $-0-; volatility: 82.53%; risk free rate: 4.98%. The fair value
      of the warrants of $61,767 was charged to current period operations in
      2007.





The
      Company amortized the Convertible Notes’ debt discount and recorded non-cash
      interest expense of $76,102 and $158,945 during the years ended December 31,
      2007 and 2006, respectively.





March
      2006 Financing





In
      connection with the merger and corporate restructure on June 14, 2006 (see
      Note
      1), the Company assumed a financing arrangement dated March 16, 2006,
      subsequently amended on May 18, 2006, with several investors (the "March
      Investors") for the sale of (i) $1,250,000 in notes (the "Notes"), (ii) 625,000
      (Note 8) shares of common stock of the Company (the "Shares") (Note 8) and
      (iii)
      common stock purchase warrants to purchase 625,000 shares of common stock at
      $1.00 price per share for a period of five years (the "Warrants"). The warrants
      and warrant agreement provide for certain anti-dilution rights through December
      31, 2007 in the event of a reverse split.





F-20


**SOLAR
      THIN FILMS, INC**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**DECEMBER
      31, 2007 and 2006**





**NOTE
      7- PRIVATE PLACEMENT OF CONVERTIBLE NOTES (continued)**





The
      March
      2006 Notes are interest free and mature on the earlier of (i) March 16, 2009
      or
      (ii) the Company closing on a financing in the aggregate amount of $12,000,000.
      The Company granted the March 2006 Investors piggyback registration rights
      with
      respect to the March 2006 Shares and the shares of common stock underlying
      the
      warrants. Further, Robert M. Rubin, CEO and a Director of the Company, has
      personally guaranteed payment of the March 2006 Notes.





The
      March
      2006 Investors have contractually agreed to restrict their ability to convert
      the March 2006 Notes and exercise the March 2006 Warrants and receive shares
      of
      our common stock such that the number of shares of the Company common stock
      held
      by them and their affiliates after such conversion does not exceed 4.99% of
      the
      Company’s then issued and outstanding shares of common stock.





The
      sale
      of the Notes was completed on March 16, 2006. As of the date hereof, the Company
      is obligated on $1,250,000 in face amount of Notes issued to the March
      investors.





In
      accordance with *Emerging
      Issues Task Force Issue 98-5, Accounting For Convertible Securities With a
      Beneficial Conversion Feature or Contingently Adjustable Conversion Ratios
      (EITF
      98-5)* , the
      Company allocated, on a relative fair value basis, the net proceeds amongst
      the
      common stock, warrants and the convertible notes issued to the investors. The
      accounting predecessor recognized and measured $519,491 of the proceeds, which
      equals to the intrinsic value of the imbedded beneficial conversion feature,
      to
      additional paid in capital and a discount against the March 2006
      Notes.





In
      accordance with *Emerging
      Issues Task Force Issue 00-27, Application of Issue No. 98-5 to Certain
      Convertible Instruments* (“EITF -
      0027”), the Company recognized the relative value attributable to the warrants
      in the amount of $231,797 to additional paid in capital and a discount against
      the March 2006 Notes. The Company valued the warrants in accordance with EITF
      00-27 using the Black-Scholes pricing model and the following assumptions:
      (1)
      dividend yield of 0%; 2) expected volatility of 93.03%, (3) risk-free interest
      rate of 5.08% to 5.10%, and (4) expected life of 5 years. The Company also
      recognized the relative value attributable to the common stock issued in the
      amount of $498,712 to additional paid in capital and a discount against the
      March 2006 Notes. Total debt discount to the March 2006 Notes amounted
      $1,250,000. The note discount is being amortized over the maturity period of
      the
      Notes, being thirty-four (34) months.




The
      Company amortized the Convertible Notes’ debt discount and recorded non-cash
      interest expense of $442,103 and $109,012, respectively, during the years ended
      December 31, 2007 and 2006, respectively.





June
      2006 Financing




In
      connection with the merger and corporate restructure on June 14, 2006 (see
      Note
      1), the Company entered into a financing arrangement with several investors
      (the
“June 2006 Investors”) pursuant to which it sold various securities in
      consideration of an aggregate purchase price of $6,000,000 consisting of the
      following securities:





·
            $
                6,000,000 in senior secured convertible notes (“June 2006
                Notes”);





·
            3,000,000
                (Note 8) shares of the Company’s common
                stock;





·
            Series
                A Common Stock Purchase Warrants to purchase 3,000,000 shares of
                common
                stock at $2.00 per share for a period of three years (“Series A
                Warrants”);





·
            Series
                B Common Stock Purchase Warrants to purchase 3,000,000 shares of
                common
                stock at $2.20 per share for a period of four years (“Series B
                Warrants”);





F-21




**SOLAR
      THIN FILMS, INC**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**DECEMBER
      31, 2007 and 2006**





**NOTE
      7- PRIVATE PLACEMENT OF CONVERTIBLE NOTES (continued)**





·
            Series
                C Common Stock Purchase Warrants to purchase 3,000,000 shares of
                common
                stock at $3.00 per share for a period of three years (“Series C
                Warrants”); and




·
            Series
                D Common Stock Purchase Warrants to purchase 3,000,000 shares of
                common
                stock at $3.30 per share for a period of four years (“Series D
                Warrants”).





The
      warrants and warrant agreement provide for certain anti-dilution rights through
      December 31, 2007 in the event of a reverse stock split.





The
      Series B Warrants and the Series D Warrants are exercisable only following
      the
      exercise of the Series A Warrants and the Series C Warrants, respectively,
      on a
      share by share basis.




The
      June
      2006 Notes are interest free and mature in June 2009 and are convertible into
      the Company’s common stock, at the June 2006 Investors’ option, at a conversion
      price equal to $1.00 per share (Note 8). The Company granted the June 2006
      Investors a first priority security interest in all of its assets subject only
      to the secured convertible notes in the amount of $525,000 previously issued
      in
      September 2005. In addition, the Company pledged one hundred percent (100%)
      of
      the shares held its majority owned subsidiary , Kraft Rt, as collateral to
      the
      June 2006 Investors.





The
      Company granted the June 2006 Investors registration rights with respect to
      the
      June 2006 Shares, and the shares of common stock underlying the June 2006 Notes,
      Series A Warrants, Series B Warrants, the Series C Warrants and Series D
      Warrants. The Company is required to file a registration statement within 30
      days from closing and have such registration statement declared effective within
      90 days from closing if the registration statement is not reviewed or, in the
      event that the registration statement is reviewed, within 120 days from closing.
      If the Company fails to have the registration statement filed or declared
      effective by the required dates, it will be obligated to pay a liquidated
      damages equal to 2% of the aggregate financing to each investor upon any such
      registration failure and for each thirty days that such registration failure
      continues in cash.





The
      June
      2006 Investors have contractually agreed to restrict their ability to convert
      the June 2006 Notes, Series A Warrants, Series B Warrants, Series C Warrants
      and
      Series D Warrants and receive shares of the Company’s common stock such that the
      number of shares of the Company’s common stock held by them and their affiliates
      after such conversion does not exceed 4.99% of the Company’s then issued and
      outstanding shares of common stock.





In
      accordance with *Emerging
      Issues Task Force Issue 98-5, Accounting For Convertible Securities With a
      Beneficial Conversion Feature or Contingently Adjustable Conversion Ratios
      (EITF
      98-5)* , the
      Company allocated, on a relative fair value basis, the net proceeds amongst
      the
      common stock and Convertible Notes issued to the investors. As of December
      31,
      2006, the Company recognized $2,777,778 of the proceeds, which is equal to
      the
      intrinsic value of the imbedded beneficial conversion feature, to additional
      paid-in capital and a discount against the Convertible Note. The debt discount
      attributed to the beneficial conversion feature is amortized over the
      Convertible Notes’ maturity period, being three (3) years, as interest expense.
      In accordance with *Emerging
      Issues Task Force Issue 00-27, Application of Issue No. 98-5 to Certain
      Convertible Instruments* (“EITF
      -
      0027”), the Company also recognized the relative value attributable to the
      common stock issued in the amount of $3,222,222 to additional paid in capital
      and a discount against the June 2006 Notes. Total debt discount to the June
      2006
      Notes amounted $6,000,000. The note discount is amortized over the maturity
      period of the notes, being (3) years.





In
      the
      year ended December 31, 2007, certain June 2006 investors converted $4,029,000
      of convertible notes to 4,029,000 shares of the Company’s common
      stock.




F-22




**SOLAR
      THIN FILMS, INC**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**DECEMBER
      31, 2007 and 2006**





**NOTE
      7- PRIVATE PLACEMENT OF CONVERTIBLE NOTES (continued)**





The
      Company amortized and wrote off the Convertible Notes’ debt discount and
      recorded a non-cash interest expense of $3,913,493 and $1,095,890 for the years
      ended December 31, 2007 and 2006, respectively.





In
      conjunction with raising capital through the issuance of $6,000,000 Notes,
      the
      Company has issued warrants that have registration rights for the underlying
      shares.  As the contract must be settled by the delivery of registered
      shares and the delivery of the registered shares is not controlled by the
      Company, pursuant to EITF 00-19, “Accounting for Derivative Financial
      Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock”, the
      warrants were recorded as a derivative liability and valued at fair market
      value
      until the Company meets the criteria under EITF 00-19 for permanent equity.
      The
      net value of the warrants at the date of issuance was recorded as a warrant
      liability on the balance sheet in the amount of $10,821,900 and charged to
      operations as interest expense.  Upon the registration statement being
      declared effective, the fair value of the warrant on that date will be
      reclassified to equity. The Company initially valued the warrants using the
      Black-Scholes pricing model with the following assumptions: (1) dividend yield
      of 0%; (2) expected volatility of 93.03%, (3) risk-free interest rate of 5.08%
      to 5.10%, and (4) expected life of 5 years.





In
      connection with the merger and corporate restructure on June 14, 2006 (see
      Note
      1), the Company assumed as liability the fair value of $10,821,900 representing
      the warrants issued and outstanding as described above. At December 31, 2006,
      the Company revalued the warrants using the Black-Scholes option pricing model
      with the following assumptions: (1) dividend yield of 0%; (2) expected
      volatility of 51.21%, (3) risk-free interest rate of 4.62 to 4.82% to 5.10%,
      and
      (4) expected life of 2.45 to 3.44 years. And 5) a deemed fair value of common
      stock of $0.99. The decrease of $9,356,400 in the fair value of the warrants
      at
      December 31, 2006 has been recorded as a gain on revaluation of warrant
      liability for the year ended December 31, 2006. Warrant liability at December
      31, 2006 amounted to $1,465,500. On February 13, 2007, upon the registration
      statement being declared effective, the assumed liability of $10,821,900 was
      adjusted to additional paid in capital.




**NOTE
      8- CAPITAL STOCK**





Preferred
      Stock





The
      Company has authorized 1,200,000 shares of 12.5% cumulative preferred stock,
      with a par value of $.01 per share. The preferred stock is entitled to
      preference upon liquidation of $0.63 (see below) per share for any unconverted
      shares.




The
      Board
      of Directors has designated 1,000,000 shares of its preferred stock as Series
      B-1 Preferred Stock (“B-1 Preferred”). Each share of Series B-1 Preferred stock
      is entitled to preference upon liquidation of $2.19 (See below) per share for
      any unconverted shares. Each shares of the Series B-1 Preferred Stock shall
      be
      entitled to one (1) vote on all matters submitted to the stockholders for a
      vote
      together with the holders of the Common Stock as a single class. Seventeen
      (17)
      (See below) Series B-1 Preferred shares may be converted to one (1) share of
      the
      Company’s common stock. As of December 31, 2007, there were 228,652 shares of
      Series B-1 Preferred issued and outstanding.





The
      Board
      of Directors has designated 232,500 shares of its preferred stock as Series
      B-3
      Preferred Stock (“B-3 Preferred”). Each share of the Series B-3 Preferred Stock
      shall be entitled to thirty two (32) votes on all matters submitted to the
      stockholders for a vote together with the holders of the Common Stock as a
      single class. Each Series B-3 Preferred share may be converted to thirty two
      (32) shares of the Company’s common stock. As of December 31, 2007, there
      were 47,518 shares of Series B-3 Preferred issued and outstanding.




F-23




**SOLAR
      THIN FILMS, INC**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**DECEMBER
      31, 2007 and 2006**





**NOTE
      8- CAPITAL STOCK (continued)**





In
      June,
      2006 the Board of Directors designated 1,000,000 shares of its preferred stock
      as Series B-4 Preferred Stock (“B-4 Preferred”).  Upon the filing of
      an amendment which increased the number of authorized common shares such that
      there was an adequate amount of authorized common stock per issuance upon
      conversion of the Series B-4 Preferred, the Series B-4 shares automatically
      converted to shares of the Company's common stock at a rate of three hundred
      fifty (350) common shares for each share of Series B-4 Preferred. At
      December 31, 95,500 shares of Series B-4 Preferred stock were converted into
      33,425,000 shares of the Company’s common stock. As of December 31, 2007, there
      were no shares of Series B-4 Preferred issued and outstanding.





Common
      Stock





On
      February 9, 2007, the Company effected a one-for-one sixth (1 to 1.6) reverse
      stock split of it authorized and outstanding shares of common stock, $0.01
      par
      value (see Note 12). All references in the financial statements and the notes
      to
      financial statements, number of shares, and share amounts have been
      retroactively restated to reflect the reverse split. The Company has restated
      from 26,031,355 to 16,269,597 shares of common stock issued and outstanding
      as
      of December 31, 2006 to reflect the reverse split.





On
      February 9, 2007, the Company is authorized to issue 150,000,000 shares of
      common stock with a par value of $.01 per share (see Note 12). As of December
      31, 2007 and 2006, there were 57,012,601 and 16,269,597 shares of common stock
      issued and outstanding, respectively.





Common
      Stock





In
      September 2006, the Company issued 234,375 shares of its Common stock for
      services rendered at $2.00 per share.





In
      February 2007 The Company amended its Certificate of Incorporation increasing
      its authorized shares of common stock to issue 150,000,000 shares of common
      stock with a par value of $.01 per share.





In
      March
      2007, the Company issued 8,925,000 shares of its Common stock in exchange for
      25,500 shares of Series B-4 Preferred stock.





In
      April
      2007, the Company issued 18,200,000 shares of its Common stock in exchange
      for
      52,000 shares of Series B-4 Preferred stock.





In
      June
      2007, the Company issued 6,300,000 shares of its Common stock in exchange for
      18,000 shares of Series B-4 Preferred stock.





In
      June
      2007, the Company issued 400,000 shares of its Common stock for services valued
      at $192,000. The value of common stock issued for services was based upon the
      value of the services rendered, which did not differ materially from the fair
      value of the Company's common stock during the period the services were
      rendered.





In
      June
      2007, the Company issued 1,312,500 shares of its Common stock in exchange for
      convertible debentures of $525,000.





In
      July
      2007, the Company issued 1,575,000 shares of its Common stock in exchange for
      the outstanding minority interest in Kraft (See Note 1 above).





In
      August
      2007, the Company issued 100,000 shares of its Common stock in exchange for
      convertible debentures of $100,000.




F-24




**SOLAR
      THIN FILMS, INC**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**DECEMBER
      31, 2007 and 2006**





**NOTE
      8- CAPITAL STOCK (continued)**





In
      September 2007, the Company issued 16,000 shares of its Common stock in exchange
      for convertible debentures of $16,000.





In
      October 2007, the Company issued 2,467,600 shares of its Common stock in
      exchange for convertible debentures of $2,467,600.





In
      November 2007, the Company issued 1,096,400 shares of its Common stock in
      exchange for convertible debentures of $1,096,400.





In
      December 2007, the Company issued 349,000 shares of its Common stock in exchange
      for convertible debentures of $349,000.





**NOTE
      9- RELATED PARTY NOTES PAYABLE AND TRANSACTIONS**





A
      summary
      of notes payable to shareholders at December 31, 2007 and 2006 are as
      follows:





2007
              
              2006Note
                  payable to Company’s shareholder in monthly installments of interest only
                  at 5% per annum; unsecured; maturity date of August 31, 2005. The
                  Company
                  is in default under the terms of the note agreement
              
              $
              -
              
              $
              24,760Note
                  payable to Company’s shareholder in monthly installments of interest only
                  at 0% per annum; unsecured; maturity date of July 31, 2005. The
                  Company is
                  in default under the terms of the note agreement
              
              
              -
              
              
              12,875Note
                  payable to Company’s shareholder in monthly installments of interest only
                  at 5% per annum; unsecured; maturity date of March 29, 2005. The
                  Company
                  is in default under the terms of the note agreement
              
              
              -
              
              
              119,837Total
              
              
              -
              
              
              157,472Less
                  current portion
              
              
              -
              
              
              (157,472
              )Long
                  term
              
              $
              -
              
              $
              -







The
      main
      strategic partner of the Company in the sale of turnkey thin-film photovoltaic
      module manufacturing facilities is presently Renewable Energy Solutions, Inc.
      (“RESI”). Historically, the Company has also partnered with Terra Solar Global,
      Inc. (“Terra Solar”). Terra Solar, Inc. (“TSI”) owns approximately 49% of the
      outstanding securities of Terra Solar. Zoltan Kiss, a director and shareholder
      of the Company, is a shareholder of TSI. Zoltan Kiss, a director and shareholder
      of the Company, is also the Chairman and majority owner of RESI. Over the past
      two years, the Company has been supplying equipment for a large turnkey project
      with Blue Star Terra Corporation in China through its strategic partners -
      RESI
      and Terra Solar. The Blue Star contract was originally held by Terra Solar
      and
      in April 2007 RESI assumed right and obligations under the contract from Terra
      Solar. Revenues under the contract were $2,751,836 for the year ended December
      31, 2007. The Company currently has related party trade receivables of
      $1,456,863 from RESI as of December 31, 2007, primarily from the Blue Star
      Contract. While the Company’s liability is contractually limited to the delivery
      of equipment and not to turnkey manufacturing performance, there is some risk
      of
      non-payment until the facility has successfully passed an acceptance test,
      a
      RESI liability. Mr. Kiss resigned as Chairman and a Director of the Company
      effective December 20, 2007.




F-25




**SOLAR
      THIN FILMS, INC**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**DECEMBER
      31, 2007 and 2006**





**NOTE
      9- RELATED PARTY NOTES PAYABLE AND TRANSACTIONS
      (continued)**





The
      Company signed a cooperative Research and Development Contract, and a Marketing
      and Manufacturing Facility Turn On Function Contract with RESI on December
      20,
      2006 and January 30, 2007, respectively. Zoltan Kiss, the Company’s Chairman of
      the Board, is Chairman and majority shareholder of RESI. Payments made to RESI
      under the Research and Development Contract for the year ended December 31,
      2007
      amounted to $360,000 or $30,000 per month. No payments have been made to RESI
      under the Marketing and Manufacturing Facility Turn On Function Contract for
      the
      year ended December 31, 2007.





In
      addition, the Company entered into a contract with RESI as of June 2007 whereby
      the Company’s CEO, Peter Lewis, provides certain marketing and management
      services to RESI. The contract expired on December 31, 2007. Payments made
      to
      the Company under this contract for the year ended December 31, 2007 amounted
      to
      $35,000 or $5,000 per month. The services are primarily related to the
      structuring and sale of module manufacturing joint ventures an activity which
      management expects will result in equipment sales revenue for the
      Company.





Revenue
      from equipment production ordered by RESI reached $369,108 for the year ended
      December 31, 2007. Services utilized from RESI in connection with production
      and
      installation of the Company’s equipment was $99,329 for the year ended December
      31, 2007.





The
      Company has a dividend payment obligation due to the former shareholders valued
      at $156,522 and $187,314 as of December 31, 2007 and 2006,
      respectively.





**NOTE
      10 - MINORITY INTEREST AND PUT LIABILITY**





Formation
      of Subsidiary





On
      October 18, 2007, the Company organized a wholly owned subsidiary, Solar Thin
      Power, Inc under the laws of the state of Nevada. On October 24, 2007, Solar
      Thin Power, Inc. issued 50,000,000 shares of its common stock in exchange for
      services rendered to the Company and 14,500,000 common shares for services
      to be
      preformed. On December 19, 2007, Solar Thin Power, Inc. completed the sale
      of
      6,770,000 shares of its common stock at a net sales price of $0.4946 per share.
      In conjunction with the sale of the common stock of Solar Thin Power, Inc.,
      the
      Company issued 3,385,000 warrants to purchase shares in the Company’s common
      stock at $3.30 per share for five years. As of December 31, 2007; the Company
      is
      a 70.15% owner of Solar Thin Power, Inc.





Put
      Liability





Additionally,
      in conjunction with the sale of the common stock of Solar Thin Power, Inc.
      at
      December 19, 2007; the Company agreed to complete a Registration Statement
      with
      the Securities Exchange Commission and use its best efforts to have the
      Registration Statement declared effective within eighteen months (“listing
      date”) of closing. In the event that Solar Thin Power, Inc. is not a publicly
      listed company by listing date, the Company has agreed to re-acquire, at the
      option of the shareholders, half of the common stock issued at the aggregate
      purchase price (“Put Option”).







**NOTE
      11- ECONOMIC DEPENDENCY**





During
      the year ended December 31, 2007 approximately $5,779,578 or 100% of total
      revenues were derived from three customers; for the year ended December 31,
      2006; $2,086,844 or 86% were derived from two customers.




F-26




**SOLAR
      THIN FILMS, INC**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**DECEMBER
      31, 2007 and 2006**





**NOTE
      12 - STOCK OPTIONS AND WARRANTS**




Warrants




The
      following table summarizes the changes in warrants outstanding and related
      prices for the shares of the Company’s common stock at December 31,
      2007:


Exercise
                  Price
              
              Number
                  Outstanding
              
              Warrants
                  Outstanding Weighted Average Remaining Contractual Life
                  (years)
              
              Weighted
                  Average Exercise price
              
              Number
                  Exercisable
              
              Warrants
                  Exercisable Weighted Average Exercise Price$1.00
              
              
              333,334
              
              
              2.47
              
              $
              1.00
              
              
              333,334
              
              $
              1.001.20
              
              
              625,000
              
              
              1.21
              
              
              1.20
              
              
              625,000
              
              
              1.202.00
              
              
              3,000,000
              
              
              1.46
              
              
              2.00
              
              
              3,000,000
              
              
              2.002.20
              
              
              3,000,000
              
              
              2.46
              
              
              2.20
              
              
              3,000,000
              
              
              2.203.00
              
              
              3,000,000
              
              
              1.46
              
              
              3.00
              
              
              3,000,000
              
              
              3.003.30
              
              
              6,385,000
              
              
              3.81
              
              
              3.30
              
              
              6,385,000
              
              
              3.30


Transactions
      involving the Company’s warrant issuance are summarized as follows:




Number
                of Shares
            
            Weighted
                Average
              Price
                Per ShareOutstanding
                at December 31, 2005
            
            
            -
            
            $
            -Granted
            
            
            12,625,000
            
            
            2.56Exercised
            
            
            -
            
            
            -Canceled
                or expired
            
            
            -
            
            
            -Outstanding
                at December 31, 2006
            
            
            12,625,000
            
            
            2.56Granted
            
            
            3,718,334
            
            
            3.10Exercised
            
            
            -
            
            
            -Canceled
                or expired
            
            
            -
            
            
            -Outstanding
                at December 31, 2007
            
            
            16,343,334
            
            $
            2.68




Warrants
      granted during the year ended December 31, 2006 totaling 12,625,000 were issued
      in connection with debt financing. The warrants are exercisable until from
      three
      to five years after the date of issuance at a purchase price of $1.20 per share
      on 625,000 warrants, $2.00 per share on 3,000,000; $2.20 per share on 3,000,000
      warrants; $3.00 per share on 3,000,000 warrants and $3.30 per share on 3,000,000
      warrants.





The
      Company granted 333,334 warrants in connection with the conversion of debentures
      during the year ended December 31, 2007. The warrants are exercisable until
      three years after the date of issuance at a purchase price of $1.00. The
      warrants were valued using the “Black-Scholes” option pricing method with the
      following assumptions: dividend yield: $-0-; volatility: 82.53%; risk free
      rate:
      4.98%. The fair value of the warrants of $61,767 was charged to current period
      operations.





In
      conjunction with the sale of the Company’s majority owned subsidiary, Solar Thin
      Power, Inc. by the subsidiary, the Company issued 3,385,000 warrants to purchase
      the Company’s common stock at $3.30 per share exercisable until five years from
      the date of issuance. (see Note 10 above)




F-27




**SOLAR
      THIN FILMS, INC**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**DECEMBER
      31, 2007 and 2006**





**NOTE
      12 - STOCK OPTIONS AND WARRANTS (continued)**





The
      following table summarizes the changes in options outstanding and the related
      prices for the shares of the Company's common stock issued to employees and
      directors of the Company at December 31, 2007 (See Note 8
      above):




Options
                Outstanding
            
            
            Options
                ExercisableExercise
                Prices
            
            
            Number
                Outstanding
            
            
            Weighted
                Average Remaining Contractual Life (Years)
            
            
            Weighted
                Average Exercise Price
            
            
            Number
                Exercisable
            
            
            Weighted
                Average Exercise Price$0.533
            
            
            3,000,000
            
            
            9.47
            
            $
            0.533
            
            
            875,000
            
            $
            0.533$2.07
            
            
            15,625
            
            
            1.70
            
            $
            2.07
            
            
            15,625
            
            $
            2.07





Transactions
      involving stock options issued to employees are summarized as
      follows:




Weighted
                AverageNumber
                of Shares
            
            Price
                Per
              ShareOutstanding
                at December 31, 2005:
            
            
            -
            
            $
            -Granted
            
            
            1,890,625
            
            $
            2.18Exercised
            
            
            -
            
            
            -Canceled
                or expired
            
            
            -
            
            
            -Outstanding
                at December 31, 2006:
            
            
            1,890,625
            
            $
            2.18Granted
            
            
            3,000,000
            
            $
            0.533Exercised
            
            
            -
            
            
            -Canceled
                or expired
            
            
            (1,875,000
            )
            
            (2.18
            )Outstanding
                at December 31, 2007:
            
            
            3,015,625
            
            $
            0.55





During
      the year ended December 31, 2006, the Company granted 15,625 stock options
      to a
      director with an exercise price of $2.07 expiring three years from issuance.
      The
      fair value (determined as described below) of $14,828 was charged to earnings
      in
      2006.





The
      weighted-average fair value of stock options granted to a director during the
      year ended December 31, 2006 and the weighted-average significant assumptions
      used to determine those fair values, using a Black-Scholes option pricing model
      are as follows:





Significant
                assumptions (weighted-average):Risk-free
                interest rate at grant date
            
            
            4.80
            %Expected
                stock price volatility
            
            
            63.22
            %Expected
                dividend payout
            
            
            -Expected
                option life-years (a)
            
            
            3





(a)
      The
      expected option life is based on contractual expiration dates.





During
      the year ended December 31, 2006, the Company granted 1,875,000 stock options
      to
      an officer and employee with an exercise price of $2.18 expiring ten years
      from
      issuance. The fair value (determined as described below) of $2,705,400 was
      charged to earnings in 2006. In June 2007, the officer has resigned and his
      options expired unexercised.




F-28




**SOLAR
      THIN FILMS, INC**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**DECEMBER
      31, 2007 and 2006**





**NOTE
      12 - STOCK OPTIONS AND WARRANTS (continued)**





The
      weighted-average fair value of stock options granted to an officer and employee
      during the year ended December 31, 2006 and the weighted-average significant
      assumptions used to determine those fair values, using a Black-Scholes option
      pricing model are as follows:





Significant
                assumptions (weighted-average):Risk-free
                interest rate at grant date
            
            
            4.61
            %Expected
                stock price volatility
            
            
            49.48
            %Expected
                dividend payout
            
            
            -Expected
                option life-years (a)
            
            
            10





(a)The
      expected option life is based on contractual expiration dates.





During
      the year ended December 31, 2007, the Company granted 3,000,000 stock options
      to
      an officer and employee with an exercise price of $0.533 expiring ten years
      from
      issuance and vesting on a pro rata basis over two years. The fair value of
      the
      vested portion (determined as described below) of $356,618 was charged to
      earnings for the year ended December 31, 2007.





The
      weighted-average fair value of stock options granted to an officer and employee
      during the year ended December 31, 2007 and the weighted-average significant
      assumptions used to determine those fair values, using a Black-Scholes option
      pricing model are as follows:





Significant
                assumptions (weighted-average):Risk-free
                interest rate at grant date
            
            
            5.14
            %Expected
                stock price volatility
            
            
            82.53
            %Expected
                dividend payout
            
            
            -Expected
                option life-years (a)
            
            
            10





(a)The
      expected option life is based on contractual expiration dates.





**NOTE
      13 - INCOME TAXES**





The
      Company has adopted SFAS No. 109 “Accounting for Income Taxes” which requires
      the recognition of deferred tax liabilities and assets for the expected future
      tax consequences of events that have been included in the financial statement
      or
      tax returns. Under this method, deferred tax liabilities and assets are
      determined based on the difference between financial statements and tax bases
      of
      assets and liabilities using enacted tax rates in effect for the year in which
      the differences are expected to reverse. Temporary differences between taxable
      income reported for financial reporting purposes and income tax purposes are
      insignificant.





In
      June
      2006, the FASB issued FASB Interpretation No. 48, Accounting for
      Uncertainty in Income Taxes-an interpretation of FASB Statement No. 109
      ("FIN 48"). FIN 48 prescribes a recognition threshold and measurement attribute
      for the financial statement recognition and measurement of a tax position taken
      or expected to be taken in a tax return. FIN 48 also provides guidance on
      derecognition, classification, treatment of interest and penalties, and
      disclosure of such positions. Effective January 1, 2007, the Company
      adopted the provisions of FIN 48, as required. As a result of implementing
      FIN
      48, there has been no adjustment to the Company’s financial statements and the
      adoption of FIN 48 did not have a material effect on the Company’s consolidated
      financial statements for the year ended December 31, 2007.




F-29




**SOLAR
      THIN FILMS, INC**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**DECEMBER
      31, 2007 and 2006**





**NOTE
      13 - INCOME TAXES (continued)**





At
      December 31, 2007, the Company has available for federal income tax purposes
      a
      net operating loss carryforward of approximately $24,000,000, which starts
      to expire in the year 2023, that may be used to offset future taxable
      income. The Company has provided a valuation reserve against the full amount
      of
      the net operating loss benefit, since in the opinion of management based upon
      the earnings history of the Company; it is more likely than not that the
      benefits will not be realized. Due to significant changes in the Company's
      ownership, the future use of its existing net operating losses may be limited.
      Components of deferred tax assets as of December 31, 2007 are as
      follows:





Non
                current:Net
                operating loss carryforward
            
            $
            8,400,000Valuation
                allowance
            
            
            (8,400,000
            )Net
                deferred tax asset
            
            $
            —





For
      the
      years ended December 31, 2007 and 2006, the Company incurred losses once
      significant tax adjusting items are considered.





An
      income
      tax provision for the years ended December 31, 2007 and 2006 consists of the
      following:





2007
            
            2006Provision
                for income taxes
            
            $
            -0-
            
            $
            -0-




The
      Company paid local filing fees which are not deemed to be income taxes and
      have
      been included in SG&A expenses for the year ended December 31,
      2007.





**NOTE
      14 - COMMITMENTS AND CONTINGENCIES**





Lease
      agreement





In
      November 2005, the Company entered into a three year fixed term lease agreement
      for our corporate offices and facilities in Budapest, Hungary at a rate ranging
      from $4,543 to $15,433 per month as the lease has provisions for additional
      space for the period calendar year of 2006 and beyond. The lease agreement
      provides for moderate increases in rent after the first year in accordance
      with
      the inflationary index published by the Central Statistical Office. In November
      2007, the Company signed the modification of lease agreement resulted a charge
      of $20,800 per months from January 1, 2008 for three years period of time.
      The 3
      year minimum future cash flow for the leases at December 31, 2007 is as
      follows:





Fiscal
                Year:
            
            Amount:December
                31, 2008
            
            $
            249,600December
                31, 2009
            
            $
            249,600December
                31, 2010
            
            $
            249,600




Litigation





New
      York
      Medical, Inc. and Redwood Investment Associates, L.P. vs. American United
      Global, Inc., et al. (Supreme Court, New York State, New York County). In this
      suit, filed on December 12, 2003, plaintiffs seek a declaration that a series
      of
      transactions by which we allegedly acquired Lifetime Healthcare Services, Inc.
      ("Lifetime") and Lifetime acquired an interest in NY Medical from Redwood
      (collectively "Transactions") were properly rescinded or, alternatively, that
      because the Transactions were induced by fraudulent conduct of our company
      and
      others, that the Transactions should be judicially rescinded. In addition to
      the
      requests for equitable relief, plaintiffs also seek monitory damages in excess
      of $5 million and exemplary damages in the amount of $15 million.




F-30




**SOLAR
      THIN FILMS, INC**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**DECEMBER
      31, 2007 and 2006**





**NOTE
      14 - COMMITMENTS AND CONTINGENCIES (continued)**





Currently,
      the suit has not proceeded past the filing and service of the complaint. We
      have
      obtained an open-ended extension of time in which to answer and/or move with
      regard to the complaint. We are attempting to resolve the matter amicably.
      However, in the event litigation proceeds, it will be aggressively
      defended.




The
      Company's Act in Hungary prescribes that in the case of obtaining majority
      interest (over 50%) by a company in other Public Limited Companies by shares
      ("PLC") any of the remaining shareholders in a PLC may offer their shares to
      the
      new majority owner for acquisition. In the case of the offering, the Company
      is
      obligated to purchase those shares on market value valid on the date when the
      majority owner acquired interest. Commencing in March 2006 through June 2006,
      the company entered into securities purchase agreement with shareholders of
      Kraft that that together owned 95.5% of Kraft. The remaining shareholders of
      Kraft representing 4.5% requested cash payment. As of June 30, 2007, the
      partners were in discussion about the fair market price of the 4.5% interest.
      On
      August 3, 2007, the company entered into a share purchase agreement thereby
      the
      company acquired the remaining 4.5% interest in Kraft. In connection with the
      share purchase agreement, the remaining shareholders of Kraft released all
      planned and enforced claims against the Company under the Company's Act in
      Hungary.





On
      or
      about February 19, 2008, the Company was served with process by Hudson Bay
      Fund,
      L.P. (“Hudson Bay”). Hudson Bay is seeking in excess of registration delay
      payments. The Company intends to vigorously defend against such
      action.




From
      time
      to time, we are a party to litigation or other legal proceedings that we
      consider to be a part of the ordinary course of our business. We are not
      involved currently in legal proceedings that could reasonably be expected to
      have a material adverse effect on our business, prospects, financial condition
      or results of operations. We may become involved in material legal proceedings
      in the future **.**





Contingent
      Obligation





The
      Company remains contingently liable for certain capital lease obligations
      assumed by EGLOBE, Inc. ("EGLOBE") as part of the Connectsoft Communications
      Corp. asset sale which was consummated in June 1999. The lessor filed for
      bankruptcy in 2000 and the leases were acquired by another leasing organization
      which subsequently also filed for bankruptcy in 2001. In addition, EGLOBE filed
      for bankruptcy in 2001. The Company has been unable to obtain any further
      information about the parties but believes that in the normal course of the
      proceedings that another company most likely acquired the assets and related
      leases and that a mutually acceptable financial arrangement was reached to
      accomplish such a transfer.





To
      date,
      the Company has not been contacted and has not been notified of any delinquency
      in payments due under these leases. The original leases were entered into during
      early to mid 1997 each of which was for a five-year term. Extensions of an
      additional 20 months were negotiated with the original lessor in 1998 and 1999
      moving the ending date to approximately mid 2004. The balance due under the
      leases in June 1999 upon transfer and sale to EGLOBE was approximately
      $2,800,000 including accrued interest and the monthly payments were
      approximately $55,000. The balance that is currently due under the leases is
      unknown and there would most likely have been negotiated reductions of amounts
      due during the bankruptcy proceedings.





Product
      Warranty Obligation





The
      Company provides for estimated costs to fulfill customer warranty obligations
      upon recognition of the related revenue in accordance with the FASB
      Interpretation No. 45, “Guarantors Accounting and Disclosure Requirements for
      Guarantees.” The range for the warranty coverage for the Company’s products is
      up to 18 to 24 months. The Company estimates the anticipated future costs of
      repairs under such warranties based on historical experience and any known
      specific product information. These estimates are reevaluated periodically
      by
      management and based on current information, are adjusted accordingly. The
      Company’s determination of the warranty obligation is based on estimates and as
      such, actual product failure rates may differ significantly from previous
      expectations. Accrued provision for product warranty was approximately $95,000
      and $0 as of December 31, 2007 and 2006, respectively.


F-31


**SOLAR
      THIN FILMS, INC**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**DECEMBER
      31, 2007 and 2006**





**NOTE
      14 - COMMITMENTS AND CONTINGENCIES (continued)**





Employment
      and Consulting Agreements





The
      Company has consulting agreements with its key officers. In addition to
      compensation and benefit provisions, the agreements include non-disclosure
      and
      confidentiality provisions for the protection of the Company's proprietary
      information.





In
      connection with the merger with Kraft, the Company entered into consulting
      agreements with its Chairman of the Board of Directors and a director pursuant
      to which each will receive annual compensation of $160,000 per annum and major
      medical benefits in consideration for services performed on behalf of the
      Company. Each of these agreements is for a term of three years. For the year
      ended December 31, 2007, an aggregate of $381,000 have been paid to Robert
      Rubin, who serves as Chief Financial Officer, and Zoltan Kiss, exclusive of
      major medical benefits. In the case of Robert Rubin, the amounts paid for
      consulting services were grossed up to cover applicable taxes. Zoltan Kiss
      has
      elected not to participate in the Company's major medical plan.





The
      Company has consulting agreements with outside contractors to provide marketing
      and financial advisory services. The Agreements are generally for a term of
      12
      months from the inception and renewable automatically from year to year unless
      either the company or consultant terminates such engagement by written
      notice





**NOTE
      15 - GOING CONCERN**




The
      accompanying financial statements have been prepared on a going concern basis,
      which contemplates the realization of assets and the satisfaction of liabilities
      in the normal course of business. The Company has incurred significant losses
      and has negative cash flows from operations. In addition, the Company has
      incurred an accumulated deficit of $24,075,554 and stockholders’ deficit
      of
      $363,631 at December 31, 2007. These factors among others may indicate that
      the Company will be unable to continue as a going concern for a reasonable
      period of time.




The
      Company is actively pursuing additional equity financing through discussions
      with investment bankers and private investors. There can be no assurance that
      the Company will be successful in its effort to secure additional equity
      financing.




If
      operations and cash flows continue to improve through these efforts, management
      believes that the Company can continue to operate. However, no assurance can
      be
      given that management's actions will result in profitable operations or the
      resolution of its liquidity problems.




The
      Company's existence is dependent upon management's ability to develop profitable
      operations and resolve its liquidity problems. Management anticipates the
      Company will attain profitable status and improve its liquidity through the
      continued developing, marketing and selling of its products and services and
      additional equity investment in the Company. The accompanying financial
      statements do not include any adjustments that might result should the Company
      be unable to continue as a going concern.





**NOTE
      16 - SUBSEQUENT EVENTS**





On
      January 31, 2008, the Company entered into an Assignment and Assumption
      Agreement of Joint Venture Contract with RESI, pursuant to which the Company
      agreed to transfer the sum of $500,000 on behalf of RESI to the Weihai BlueStar
      Photovoltaic Co. Ltd. (“BlueStar) in exchange for a 5% equity interest in
      BlueStar. The Company acquired the 5% interest in February 2008.




F-32




**SOLAR
      THIN FILMS, INC**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**DECEMBER
      31, 2007 and 2006**





**NOTE
      16 - SUBSEQUENT EVENTS** **(continued)**





On
      March
      19, 2008, the Board of Directors granted options to employees of the Company
      under the 2007 Incentive Plan to purchase an aggregate of 670,000 shares of
      the
      Company’s common stock.  Such options are exercisable at $0.75 per share
      for a period of 18 months.





In
      the
      first quarter of 2008, the Company issued 595,000 shares of common stock
      utilized for conversion of 595,000 notes payable.




F-33