**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, 2006**





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 000-19404**




**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.)




**Koerberki
      út 36. Budapest, Hungary 1112**


(Address
      of principal executive offices)





Issuer’s
      telephone number, including area code: + 36-
      1-248-2880





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 $.001 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 $2,426,954 for the year ended December 31, 2006. As
      of April 9 2007, 49,696,101 shares of Common Stock were outstanding of
      which 31,143,707 were held by non-affiliates of the Company. The aggregate
      market value of the Common Stock held by non-affilaites of the Comapny as of
      April 9, 2007 was $23,357,780.25.




Transitional
      Small Business Disclosure Format (check one):





Yes
o
      No x












**TABLE
      OF CONTENTS**


**Page****PART
                  I**
              
              
              3**ITEM
                  1.**
              **DESCRIPTION
                  OF BUSINESS**
              
              3***Sales and Project management***
              
              7**ITEM
                  2.**
              **DESCRIPTION
                  OF PROPERTIES**
              
              8**ITEM
                  3.**
              **LEGAL
                  PROCEEDINGS**
              
              8**ITEM
                  4.**
              **SUBMISSION
                  OF MATTERS TO A NOTE SECURITY HOLDERS**
              
              9**PART
                  II**
              
              
              9**ITEM
                  5.**
              **MARKET
                  FOR REGISTRANT’S COMMON EQUITY AND RELATED****STOCKHOLDER
                  MATTERS**
              
              9Market
                  Information
              
              9Holders
                  of Common Stock
              
              10Dividends
              
              10**ITEM
                  6**
              **MANAGEMENT'S
                  DISCUSSION AND ANALYSIS OF FINANCIAL****CONDITION
                  AND RESULTS OF OPERATIONS**
              
              12Commitments
                  and contingencies
              
              14Results
                  of Operations
              
              15Year Ended
                December 31,
                2006 compared to Year Ended December 31, 2005
              
              15Liquidity
                  and Capital Resources
              
              17Inflation
                  and Foreign Currency
              
              17Effect
                  of Recent Accounting Pronouncements
              
              18Risk
                  Factors
              
              19Forward-Looking
                  Statements
              
              28**ITEM
                  7.**
              **FINANCIAL
                  STATEMENTS.**
              
              29**ITEM
                  8.**
              **CHANGES
                  IN AND DISAGREEMENTS WITH ACCOUNTANTS ON****ACCOUNTING
                  AND FINANCIAL DISCLOSURE**
              
              29**ITEM
                  8A**
              **CONTROLS
                  AND PROCEDURES**
              
              30**ITEM
                  8A(T)**
              **CONTROLS
                AND
                PROCEDURES**
              
              31**PART
                  III**
              
              
              32**ITEM
                  9.**
              **DIRECTORS,
                  EXECUTIVE OFFICERS, PROMOTERS AND CONTROL****PERSONS;
                  COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE****ACT**
              
              32**ITEM
                  10.**
              **EXECUTIVE
                  COMPENSATION**
              
              34**ITEM
                  11.**
              **SECURITY
                  OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND****MANAGEMENT**
              
              40**ITEM
                  12.**
              **CERTAIN
                  RELATIONSHIPS AND RELATED TRANSACTIONS**
              
              40**ITEM
                  13.**
              **EXHIBITS**
              
              41Item
                    14.
              PRINCIPAL
                  ACCOUNTANT FEES AND SERVICES
              
              43




i


**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 Rt., 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 and,
      as a result, Kraft is now a majority-owned subsidiary of the Company. As a
      result of the acquistion, there was a change in control of the Registrant.
      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”). The Preferred Shares 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 and, prior to such conversion, the
      Preferred Shares will have the same voting rights of the shares of common stock
      and vote together with the shares of common stock on all matters.




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. There
      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 symbol changed to
      SLTN.OB.




3


Organizational
      History




Solar
      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 and, as a result, now conducts its operations via Kraft, the
      majority-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.




Business
      Overview




The
      Company conducts its business operations via the recently acquired
      majority-owned subsidiary, Kraft. Kraft is an equipment design and manufacturing
      company headquartered in Budapest, Hungary and historically has been engaged
      in
      the design, development and manufacturing 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. The Company is currently focusing substantially all
      of
      its efforts on the design, development and construction of turnkey thin-film
      PV
      manufacturing plants that produce photovoltaic thin-film modules and expects
      most of its near term growth to develop through the delivery of its turnkey
      PV
      facilities.




Through
      the Company’s association with strategic partners, STF is seeking to secure a
      leading position as the primary supplier of turnkey PV facilities to manufacture
      thin-film based photovoltaic modules. Such turnkey facility 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 is the equipment supplier through its
      partner to the buyer. STF also has a right to market and sell such turnkey
      PV
      production facilities.




4




The
      main
      strategic partners of the Company, in the sale of turnkey thin-film photovoltaic
      module manufacturing facility, are TerraSolar Global, Inc. (“TerraSolar”) and
      Renewable Energy Solutions, Inc. (“RESI”). TerraSolar, Inc. (“TSI”) owns
      approximately 49% of the outstanding securities of TerraSolar. Zoltan Kiss,
      a
      director and shareholder of the Company, through TSI, is a shareholder of
      TerraSolar. Zoltan Kiss, a director and shareholder of the Company, is also
      the
      majority owner of RESI.




Products
      and product development




PV
      Modules on Glass Substrate




The
      Company has developed manufacturing equipment used in its turnkey manufacturing
      facilities that produce thin-film based modules on glass substrates. By 2006,
      Kraft constructed four turnkey manufacturing facilities, and is currently in
      the
      process of completing a fifth facility, to manufacture amorphous silicon based
      photovoltaic modules. The PV industry and other industries using thin-film
      PV
      technology are changing very rapidly, and it is imperative that we carry on
      R&D activities to develop the next generation deposition equipment. To
      accomplish this, the Company commenced R&D activity, either internally or
      through our relationship with RESI, to develop:




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




-
      manufacturing technology for thin-film based PV modules that will be able to
      use
      substrate size 4ft x 8ft; and




-
      automated glass handling and robotic processes to eliminate labor costs from
      PV
      module production.




Architectural
      Glass Applications




One
      large
      existing market for thin-films on a glass substrate has been used in the
      architectural glass industry to create low-e coated windows with reflective
      properties to enhance the insulation. Similar coated glass using different
      color
      films has been used as architectural glass on the sides of skyscrapers. The
      Company’s technology is capable of preparing such glass, and, in some cases, can
      add a photovoltaic component to it. There is ongoing R&D effort to extend
      the application of building integrated photovoltaics or so-called BIPV modules
      to window glass in high-rise buildings.




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 and the
      economics of the PV industry. STF believes the strongest force in causing the
      move from fossil fuels to PV is the economics of PV. Since the cost of the
      PV
      module represents more that 70% of the cost of installed PV systems, to
      manufacture the lowest cost PV modules secures the greatest competitive edge
      and
      advantage in the market place.




5




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 by this major cost difference, Kraft believes that the ratio of
      crystalline to thin-film in the product mix will substantially shift in the
      next
      decade.




Most
      of
      this growth has taken place using crystalline modules. The Company’s management
      believes the emergence of thin-films as a lower cost alternative is now being
      absorbed by the market.




Competition




Crystalline
      silicon PV technologies currently represent substantially 90% of PV market.
      Demand for crystalline silicon has grown very rapidly over the past decade,
      but
      the photovoltaic module prices remained relatively unchanged. The competitors
      of
      the Company, through their own research and development, have been developing
      their own pilot lines for thin-films PV module manufacturing. As a result,
      STF
      believes its competitors will consist of companies that decide to build their
      own PV plants utilizing their internal technology and know how. Most of the
      players are specialized on the sale of individual pieces of equipment which
      are
      only a part of the thin-films module production line. STF believes that the
      marketing and sale of turnkey manufacturing facilities is substantially more
      profitable than the marketing of particular pieces of equipment. However, in
      case a customer requests only pieces of equipments, Kraft fulfills the order
      seamlessly as well.




Strategy




The
      Company’s strategy is to market complete turnkey manufacturing equipment to
      manufacture thin-film based PV modules. Kraft intends to develop its strategy
      by
      developing the following areas:




Sale
      of
      Turnkey Facilities




The
      Company’s main focus is on developing the photovoltaic business. The large PV
      companies with technical background have been developing their own thin-film
      manufacturing pilot lines. STF believes these players will buy individual
      machines and components from Kraft. In addition to the large technical or energy
      companies, there are companies that desire to sell PV modules, which on their
      own do not have the technical expertise to define a manufacturing process and
      assemble thin-film factories through the purchase of stand alone
      components.




Together
      with strategic partners such as Resi and Terrasolar, STF offers a turnkey
      manufacturing facility that is sold installed together with guarantees of the
      manufacturing line, such as throughput, module efficiency, and in some cases,
      even manufacturing cost. Such turnkey facility 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 by its strategic partners. In this arrangement, TerraSolar has
      historically been the main contractor guaranteeing process performance to the
      buyer, and STF is the developer of the facility through TerraSolar to the
      buyer.




STF
      also
      has a right to sell such turnkey facilities. In cases, where the turnkey
      facility is sold by STF, either the Company will be the main contractor, with
      its strategic partner subcontranting to deliver their know-how and soft costs,
      or the strategic partner will be the main contractor but in this case, the
      Company will receive additional remuneration for its marketing
      efforts.




6




In
      addition to the sale of the turnkey facilities, STF may commence to build and
      operate the turn key facilities and, in turn, sell the PV modules as well as
      installing the thin-film photovoltaic modules and managing solar power
      plants.




Sale
      of
      Individual Machines




Some
      of
      the individual products can be sold for a specific, limited function. These
      products include a tin-oxide deposition system that could be offered to
      architectural or so-called low-e coating deposition architectural glass
      manufacturers. The Company can also offer for sale various components for vacuum
      systems (for example, gate valves, chambers, etc.)




Customers




Currently
      the Company has two key customers, which count for over 90% of the total
      revenue. 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, Taiwan).





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, 2006, the Company employed 48 full-time and 2 part-time employees,
      neither of whom is a member of a union or work council.




*Sales
      and Project management*




STF
      employs approximately four people in sales and project management, who are
      mainly responsible for finding and contacting potential customers,
      bid-management and operations service management activities. Their main task
      involves creating business offers and interaction with engineering and
      production departments within the Company. The sales force works closely with
      the equipment manufacturing group, which is responsible for the timely
      production and deliveries.





*Engineering*





Equipment
      is designed by the engineering department. Three engineers are employed for
      the
      mechanical design activites of the equipment. Seven electrical engineers are
      responsible for the design of the electrical parts of the manufactured
      equipments. Both engineering groups work closely with the manufacturing
      unit.





*Production
      (Equipment manufacturing)*





The
      biggest unit in the Company is the production (equipment manufacturing)
      department, consisting of 25 employees. These people are performing the actual
      assembly of the equipment, including the activities related the the mechanical,
      vacuum system and electrical parts of the product. The manufacturing activities
      are also supported by the input provided by engineers in close
      cooperation.





7





**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
                Zrt.
            
            1112
                Budapest,
              Kőérberki
                út 36.
                Hungary
            
            General
                operation
              stockholder
                relations, general executive
            
            20,063
            
            USD
                14,200
            
            3
                years from November,2005
              non-cancelableKraft
                Zrt.
            
            Körmend
            
            Equipment
                manufacturing plant
            
            10,760
            
            USD
                1300
            
            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, 2006 and 2005 are $123,043
      and $81,038, respectively. The increase in the rent expense for the year ended
      December 31, 2006 as compared to the year ended December 31, 2005 was the result
      of a 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.




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.




8




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 minority shareholders in a PLC may offer their
      shares to the new majority owner for acquisition. In the case of offering,
      the
      Company is obliged to purchase those shares on market value valid on the date
      when the majority owner acquired interest. The remaining shareholders of Kraft
      RT representing 4.5% indicated their intention to offer their shares for
      purchase by the Company; the majority shareholder of Kraft RT. The Company
      offered the acquisition of 4.5% of Kraft with the same term than provided to
      any
      other shareholder in the form of issuing 1,575,000 shares of common stock of
      the
      Company. The party did not accept the offer and has requested cash payment.
      The
      parties are currently in discussion about the fair market price of 4.5%
      ownership of Kraft RT which was valid on June 14, 2006 when the acquisition
      of
      majority ownership was acquired. The Company has yet to determine what the
      final
      settlement will be.




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, 2006.




**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.PK".




Listed
      below are the high and low sale prices for the shares of Company’s common stock
      during the years ended December 31, 2006 and 2005. These quotations reflect
      inter-dealer prices, without mark-up, mark-down or commission and may not
      represent actual transactions.




**High
                ($)**
            
            **Low
                ($)****Quarter
                Ending:****2005**March
                31, 2005
            
            
            1.65
            
            
            0.65June
                30, 2005
            
            
            1.20
            
            
            0.72September
                30, 2005
            
            
            2.25
            
            
            0.70December
                31, 2005
            
            
            2.50
            
            
            1.50




9




**2006**March
                31, 2006
            
            
            2.00
            
            
            0.86June
                30, 2006
            
            
            1.86
            
            
            0.85September
                30, 2006
            
            
            1.75
            
            
            1.20December
                31, 2006
            
            
            1.40
            
            
            0.98





On
      April
      9, 2007 the closing bid price on the OTC Bulletin Board for the Company’s common
      stock was **** $0.97.




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.




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




On
      April
      9, 2007, there were approximately 240 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.




10




**Equity
      Compensation Plans**




Plan
                Category
            
            Number
                of shares to be issued upon exercise of outstanding options and
                warrants
            
            Weighted-average
                exercise price of outstanding options and warrants
            
            Number
                of shares remaining available for future issuance under equity
                compensation plansApproved
                by security holders
            
            
            —
            
            
            —
            
            
            —Not
                approved by security holders
            
            
            2,046,875
            
            
            2.16
            
            
            2,640,625Total
            
            
            2,046,875
            
            
            2.16
            
            
            2,640,625




The
      equity compensation plans are discussed in Note 11 of the 2006 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, 2006 that have not
      been previously included in a Quarterly Report on Form 10-QSB or a Current
      Report on Form 8-K.




11


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




Overview





The
      Company operates in Hungary through its majority 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 turnkey manufacturing plants
      that
      produce photovoltaic thin film modules. The Company expects the primary use
      of
      such photovoltaic thin film modules is to be used by corporations and
      governments in the development and construction of solar power plants.





STF,
      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.





**Acquisition
      - Kraft**





Commencing
      in March 2006 through June 2006, STF 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”).
      The Preferred Shares are each automatically convertible 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 will have the same voting rights of the shares of common
      stock and vote 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 and charged
      to
      accumulated deficit. 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


-
      Allowance for doubtful accounts


-
      Research and development


-
      Warrant
      liability




12




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.





Currently,
      there are no warranties provided with the purchase of the Company’s products.
      The cost of replacing defective products and product return have been immaterial
      and within management’s expectations. In the future, when the company deems
      warranty reserves are appropriate that such costs will be accrued to reflect
      anticipated warranty costs.





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.





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.





13




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.





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 future oil and gas revenues and oil and gas
      properties, 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.




On
      October 31, 2006, the Board of Directors appointed Csaba Toro as the Chief
      Executive Officer of the Company. His renumeration includes: (1) base salary
      of
      $200,000 per year; (2) issuance of 45,956 shares of common stock per year;
      (3) a
      bonus paid pursuant to the Executive Officer Incentive Plan as determined by
      the
      Board of Directors; (4) ten year option to purchase 1,875,000 shares of common
      stock at an exercise price of $2.18 per share on a cashless basis on a post
      reverse split basis. Although the option has vested immediately, Mr. Toro is
      only permitted to sell 52,084 shares per month on a cumulative basis; (5)
      participation in all employee benefit plans and programs; and (6) reimbursement
      of reasonable expenses.




14




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. Rental
      expenses charged to operations for the year ended December 31, 2006 and 2005
      were $157,505 and $81,038, respectively. The 3 year minimum future cash flow
      for
      the leases at December 31, 2006 is as follows:





Fiscal
                Year:
            
            Amount:December
                31, 2007
            
            $
            185,196December
                31, 2008
            
            
            185,196




The
      following table summarizes the cash commitments described above:




Contractual
                  Cash Obligations
              
              2007
              
              2008
              
              2009
              
              2010
              
              After
                  2010Operational
                  leases
              
              $
              185,196
              
              $
              185,196
              
              
              -
              
              
              -
              
              
              -Employment
                  agreements (1)
              
              $
              520,000
              
              $
              520,000
              
              $
              327,000
              
              
              -
              
              
              -Total
                  Contractual Cash Obligations
              
              $
              705,196
              
              $
              705,196
              
              $
              327,000
              
              
              -
              
              
              -




(1)
        base
        salary of CEO and the directors without bonus




**Results
      of Operations** ****





**Year
      Ended December 31, 2006** **compared
      to Year Ended December 31, 2005**





*Revenues*





The
      following table summarizes our revenues for the year ended December 31, 2006
      and
      2005:





Year
                ended December 31,
            
            **2006**
            
            **2005**Total
                Revenues
            
            $
            2,426,954
            
            $
            691,213




For
      the
      year ended December 31, 2006, revenues were increased by 251% or $1,735,741
      as
      compared to the similar period in 2005. This increase in revenue was due to
      increased volume of export sales in 2006 as compared to a more domestic base
      in
      2005.





*Cost
      of good sold*





The
      following table summarizes our cost of goods sold for the year ended December
      31, 2006 and 2005:





Year
                ended December 31,
            
            **2006**
            
            **2005**Total
                cost of goods sold
            
            $
            1,766,806
            
            $
            402,204





15




Our
      cost
      of goods sold for year ended December 31, 2006 were $1,766,806 or 72.8% of
      our
      sales as compared to $402,204, or 58.18% of our sales for the year ended
      December 31, 2005. 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 year ended December 31, 2006 and 2005:





Year
                ended December 31,
            
            **2006**
            
            **2005**Compensation
                and related costs
            
            $
            5,531,590
            
            $
            790,348




For
      the
      year ended December 31, 2006 selling, general and administrative expenses were
      $5,531,590 as compared to $790,348 of sales in 2005. The increase in selling,
      general and administrative expenses of $4,741,243 are attributable to the
      additional staff/consultants (legal, audit) supporting the recapitalization
      along with stock based compensation issued in 2006 of $2,831,353 and accrued
      penalty on late registration of shares of $480,000 as compared with $-0- in
      2005.





*Research
      and development*





The
      following table summarizes our research and development expenses for the year
      ended December 31, 2006 and 2005:





Year
                ended December 31
            
            **2006**
            
            **2005**Research
                and development expenses
            
            $
            11,600
            
            $
            97,475





Our
      research and development for year ended December 31, 2006 were $11,600 compared
      to $97,475 for the year ended December 31, 2005. 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*





The
      following table summarizes our depreciation and amortization for the year ended
      December 31, 2006 and 2005:





Year
                ended December 31,
            
            **2006**
            
            **2005**Depreciation
            
            $
            55,328
            
            $
            12,687




Depreciation
      has increased by $42,641 in the year ended December 31, 2006 compared to the
      same period in 2005. The increase can be attributed to the acquisition of new
      equipments purchased in 2006.





16





**Liquidity
      and Capital Resources**




As
      of
      December 31, 2006, our cash, cash equivalents and marketable securities were
      approximately $2,667,483, an increase of $2,634,402 from the end of fiscal
      year
      2005.





As
      of
      December 31, 2006, we had working capital of $1,114,003. We generated a deficit
      in cash flow from operations of $3,280,318 for the year ended December 31,
      2006.
      This deficit is primarily attributable to our net income from operations of
      $2,858,765, partially increased by depreciation and amortization of $1,697,086
      as well as $2,831,353 fair value of options issued and $468,750 in stock based
      compensation for services offset by the gain in the fair value warrants issued
      of $9,356,400 and to changes in the balances of current assets and liabilities.
      Accounts payable, advances and accrued expenses increased by $1,157,707, and
      inventory, receivables, prepaid expenses and other current assets increased
      (net) by $2,917,029.





Cash
      flows provided by investing activities for the year ended December 31, 2006
      was
      $4,699,068, primarily due to cash received through merger of $5,258,503 net
      with
      the purchase of property and equipment of $559,435.





We
      met
      our cash requirements during the period through net proceeds from the issuance
      of debt of $977,987.





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 have sufficient cash
      on
      hand as of December 31, 2006 to meet our working capital needs and requirements
      for the next twelve (12) months only if the Company is able to collect
      receivables in 2007 on the projects under completion as of December 31, 2006
      from our major customers. 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.




**Off
      Balance Sheet Arrangements**





We
      do not
      have any off balance sheet arrangements as of December 31, 2006 or as of the
      date of this report.




**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
      majority 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.





17


The
        translation of the Company’s subsidiaries forint denominated balance sheets into
        U.S. dollars, as of December 31, 2006, has been affected by the weakening
        of the
        U.S. dollar against the Hungarian forint from 212.99 as of December 31, 2005,
        to
        191.57 as of December 31, 2006, 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, 2006 and 2005 were 198.80 and 210.52,
        respectively.




**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 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 FASB Statement No. 156, Accounting for Servicing of
      Financial Assets - an amendment to FASB Statement No. 140. Statement 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 and results
      of
      operations.





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 5, “ *Accounting
      for Contingencies”.* FIN 48
      is effective for fiscal years beginning after December 15, 2006. We have not
      yet
      evaluated the impact of adopting FIN 48 on our consolidated financial position,
      results of operations and cash flows.





In
      September 2006 the Financial Account Standards Board (the “FASB”) issued its
      Statement of Financial Accounting Standards 157, Fair Value Measurements. This
      Statement defines fair value, establishes a framework for measuring fair value
      in generally accepted accounting principles (GAAP), and expands disclosures
      about fair value measurements. This Statement 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, this Statement does not require
      any
      new fair value measurements. However, for some entities, the application of
      this
      Statement will change current practice. FAS 157 effective date is 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, operations
      or cash flows.


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
        has
        not yet determined the impact that the adoption of FSP 00-19-2 will have
        on its
        financial statements.




18




In
      September 2006 the FASB issued its Statement of Financial Accounting Standards
      158 “Employers’ Accounting for Defined Benefit Pension and Other Postretirement
      Plans”. This Statement 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. This Statement 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. The Company does not expect adoption
      of this standard will have a material impact on its financial position,
      operations or cash flows.





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
      condition or results of operations.




**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.




Risks
      Related to Our Business




**·**
            **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.**




Solar
      Thin Films has reported a net loss of $4,938,370 from operations for the year
      ended December 31, 2006 and a net loss of $611,501 from operations for the
      year
      ended December 31, 2005.




The
      Company has suffered operating losses and negative cash flows from operations
      since inception and, at December 31, 2006, the Company had an accumulated
      deficit $4,790,109. 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.




19




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




For
      the
      year ended December 31, 2006, Kraft derived 92% of its total revenues from
      two
      major customers and purchased 32% of its total materials to three vendors.
      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.**




The
      Company has generated limited revenues of $2,426,954 and $691,213 for the year
      ended December 31, 2006 and December 31, 2005, respectively, and the Company
      incurred losses from operations of $4,938,370 and $611,501, 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.




**·**
            **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.




20




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
      TerarSolar and 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;




-
            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.




21




**·**
            **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.




**·**
            **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 TerrarSolar. 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;




22




-
            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.




**·**
            **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




23




**·**
            **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 and TerrarSolar 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 TerraSolar and RESI. However, a loss of any of these relationships,
      especially our relationship with TerraSolar, 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.




**·**
            **Our
                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 Kraft 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;




24




-
            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 Csaba Toro, our Chief Executive Officer, Robert Rubin, a director
                and a
                consultant, or Zoltan Kiss, a director and a consultant, could impair
                our
                ability to operate.**




If
      we
      lose our key employees, Csaba Toro, Robert Rubin or Zoltan Kiss, 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, Csaba
      Toro,
      our Chief Executive Officer, Robert Rubin, a director and a consultant, and
      Zoltan Kiss, a director and a consultant of our company, who are all critical
      to
      the development of our financing arrangements, technologies and business. The
      employment agreement entered with Mr. Toro and our company is for a term of
      three years through October 2009.The agreement had a termination clause,
      excercisable by Mr. Toro, which has now expired. The consulting agreements
      entered between our company and Messrs. Rubin and Kiss expire in June 2009.
      The
      loss of the services of Messrs. Toro, Rubin or Kiss 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.




25




**·**
            **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
      April 9, 2007, we had 49,696,101 shares of common stock issued and outstanding,
      and outstanding warrants to purchase additional 12,625,000 shares of common
      stock. In the offering pursuant to this registration statement, the selling
      stockholders may sell up to 8,562,500 shares of common stock underlying
      convertible notes and 3,625,000 shares of common stock underlying the
      warrants.




**·**
            **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 pink sheets under the symbol " SLTF".
      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.




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 Registration Statement, the
      market price for our common stock has ranged from $0.70 to $2.50. 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.




26




·
            **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.




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




27




-
            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.




**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;




28




(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.




29




The
      Company will provide SG with a copy of this disclosure and requested that it
      furnish a letter to the Company, addressed to the SEC, stating that it agreed
      with the statements made herein or the reasons why it disagreed.





On
      July
      12, 2006, the board of directors of STF approved the engagement of the firm
      of
      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 Russell Bedford Stefanou Mirchandani, LLP, the Company had
      not
      consulted Russell Bedford Stefanou Mirchandani, LLP regarding any of the
      accounting or auditing concerns stated in Item 304(a)(2) of Regulation
      S-B.





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





Evaluation
      of Disclosure Controls and Procedures





The
      Company maintains disclosure controls and procedures (as defined in Rule
      13a-15(e) and Rule 15d-15(e) under the Securities Exchange Act of 1934, as
      amended) that are designed to ensure that information required to be disclosed
      in our periodic reports filed under the Exchange Act is recorded, processed,
      summarized and reported within the time periods specified in the SEC's rules
      and
      forms, and that such information is accumulated and communicated to our
      management, including our principal executive/financial officer, to allow timely
      decisions regarding required disclosure.





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 Untited Global, Inc. as an 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, we have determined that our disclosure controls were not effective
      as of
      the end of the period covered by this report.





We
      implemented the following remedial measures to address the identified material
      weaknesses.





·
            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.





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 quarter to which
      this report relates that has materially affected, or is reasonably likely to
      materially affect, our internal control over financial
      reporting.




30




**ITEM
      8A(T).**  **CONTROLS
      AND PROCEDURES**





Not
      applicable





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





None.




31




**PART
      III**




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




The
      following table sets forth certain information regarding the executive officers
      and directors of the Company as of April 9, 2007






**Name**
            
            **Age**
            
            **Position
              with Company**Csaba Törő
            
            40
            
            Chief Executive Officer and
              DirectorZoltan Kiss
            
            72
            
            Chairman of the BoardRobert M. Rubin
            
            66
            
            DirectorMichael Metter
            
            54
            
            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.




Csaba
      Toro. Mr. Toro has served as the Company’s Chief Executive Officer since October
      31, 2006. In 1995, Mr. Toro founded and served as the managing director of
      one
      of the first Hungarian internet service providers, E-Net Co. In 1997, E-Net
      and
      other Internet service providers were combined to create EuroWeb Hungary Ltd.
      (“Euroweb Hungary”), a wholly-owed subsidiary of Euroweb International Corp., a
      Nasdaq listed company (“Euroweb International”). Mr. Toro served as the
      President and Chief Executive Officer of Euroweb Hungary. In 1998, Mr. Toro
      was
      appointed as the Chief Operational Officer of EuroWeb International. In 2002,
      Mr. Toro was appointed as Chairman and until recently Chief Executive Officer
      of
      Euroweb International. During his leadership, in addition to its subsidiary
      in
      Hungary, EuroWeb made several acquisitions of other internet service providers
      in Romania, Slovakia and the Czech Republic resulting in EuroWeb International
      becoming a leading Internet service provider in the Central Eastern European
      region. In February 2001, in addition to his employment with Euroweb
      International, Mr. Toro served as the Operational Deputy CEO, and then the
      Chief
      Executive Officer, of PanTel Telecommunications and Communications Company
      (“Pantel”), an alternative telecom provider in Hungary. Mr. Toro resigned from
      Euroweb in June 2006 after assisting the company dispose of its Internet related
      assets.




In
      1990,
      Mr. Törő graduated from the Hungarian Technical University as a transportation
      engineer. Between 1991 and 1995 he lived and studied in New York City, and
      received his sec ond
      diploma from New York University. Mr. Toro is one of the founders and also
      the
      President of the Association of Alternative Telecommunications Service
      Providers. In 2005, Mr. Törõ received the Tivadar Puskas award from the Ministry
      of Informatics and Communications of Hungary and in March 2006 he received
      the
      KNIGHT’S CROSS ORDER OF MERIT OF THE REPUBLIC OF HUNGARY - honoring his intense
      contribution to the development of the information society, the liberalization
      of the telecommunication market and the penetration of the Internet within
      Hungary.




Zoltan
      Kiss. Mr. Kiss has served as the Chairman of the Board since June 2006. Mr.
      Kiss
      is also a member of the board of directors and a shareholder of TerraSolar
      and
      RESI. Mr. Kiss is a founder and President of several hi-tech companies. Since
      2001, Mr. Kiss has been employed by RESI, Terrasolar and Kraft as a director
      and
      executive officer. He has Research and Development Experience at RCA Research
      Laboratories in Princeton, NJ for nine years. Mr. Kiss also serves as the
      Chairman of the Board of Directors of China Solar Energy, a public Hong Kong
      corporation. Mr. Kiss received his Bachelor of Applied Science and Engineering,
      his Master Degree in Spectroscopy and his PhD in Physics from the University
      of
      Toronto in 1956, 1957 and 1959, respectively. He also was a National Research
      Council Postdoctoral Fellow at Oxford University in 1960.




32




Robert
      M.
      Rubin. Mr. Rubin has served as the Chairman of our Board of Directors since
      May
      1991, and was our Chief Executive Officer from May 1991 to January 1, 1994.
      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 to the present, Mr.
      Rubin served as Chairman of the Board, President and Chief Executive Officer.
      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.
      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).




Michael
      Metter. Mr. Metter has served as a Director since December 14, 2001. Mr. Metter
      resigned as a member of our board of directors effective on June 17, 2003,
      but
      was reappointed to our board of directors upon the effectiveness of the
      rescission agreement with NY Medical on May 27, 2004. Since April 2001, Mr.
      Metter has been the President of RME International, Ltd. (RME). Mr. Metter
      also
      currently consults to a broad range of businesses, including IT communications
      and media businesses, on mergers, acquisitions, restructuring, financing and
      other matters. From October 1998 to February 2001, Mr. Metter was a principal
      of
      Security Capital Trading, Inc., and was a principal at Madison Capital from
      September 1997 to October 1998. Prior thereto, Mr. Metter was President of
      First
      Cambridge Securities from October 1994 to August 1997. Effective with a merger
      of a division of R.M. Enterprises International, Ltd into Azurel, Ltd., in
      October 2002, Mr. Metter became President and COO of Azurel. He resigned as
      President in February 2003 and subsequently resigned the position of COO which
      he held from February 2003 until June 28, 2003. Mr. Metter is also President
      and
      CEO of BusinessTalkRadio.net (a private company). BTR is a syndicated radio
      network based in Greenwich, Connecticut. He has held this position since June
      2002. He is also chairman of Tiburon Capital Group, a privately held holding
      corporation. Mr. Metter is a director for Western Power & Equipment Corp. (a
      public company) since February 2003 and has been the CEO for Spongetech Delivery
      Systems since February 2001.




Directors
      are elected annually and hold office until the next annual meeting of the
      stockholders of the Company and until their successors are elected and
      qualified.  Officers are elected annually and serve at the discretion of
      the Board of Directors.




**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.




33




**2006
      BOARD MEETINGS**





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





**BOARD
      COMMITTEES**





We
      have
      not established an audit committee, compensation commitee 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 2006. 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, 2006, 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, 2006 and 2005.




34


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, 2006
        and
        2005 to our Chief Executive Officer and our most highly compensated officers
        other than the Chief Executive Officer at December 31, 2006 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
                ($)Csaba
                Toro
            
            
            2006
            
            $
            73,560
            
            
            —
            
            $
            100,000(2
            )
            $
            2,705,400(3
            )
            
            —
            
            
            —
            
            
            —
            
            $
            2,878,960Chief
                Executive Officer (1)
            
            
            2005
            
            
            N/A
            
            
            N/A
            
            
            N/A
            
            
            N/A
            
            
            N/A
            
            
            N/A
            
            
            N/A
            
            
            N/AZoltan
                Kiss
            
            
            2006
            
            $
            100,800
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            
            
            $
            100,800Director
                (4)
            
            
            2005(6
            )
            $
            2,000
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            $
            2,000Robert
                Rubin
            
            
            2006
            
            $
            255,972
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            $
            255,972Director
                (5)
            
            
            2005
            
            $
            275,000
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            $
            275,000




(1)
      Mr.
      Toro was appointed as Chief Executive Officer of our company on October 31,
      2006.





(2)
      In
      accordance with Mr. Toro’s employment agreement, Mr. Toro is 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.





(3)
      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%.




(4)
      In
      June 2006, Mr. Kiss was appointed as a director and consultant.





(5)
      Mr.
      Rubin serves as a director and consultant.





(6)
      Represents compensation paid to Mr. Kiss by Kraft.




**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
              ($)Csaba
                Toro (1)
            
            
            1,875,000(2
            )
            
            —
            
            
            —
            
            $
            2.18
            
            
            10/31/16
            
            
            147,058
                (3
            )
            $
            145,587(3
            )
            
            —
            
            
            —




(1)
            Mr.
                Toro was appointed as Chief Executive Officer of our company on October
                31, 2006.(2)
            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.(3)
            In
                accordance with Mr. Toro’s employment agreement, Mr. Toro is entitled to
                receive 73,529 shares of common stock per year. The 147,058 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
                $1.58 as of December 29, 2006 (the last trading day of
                2006).





Except
      as
      set forth above, no other named executive officer has received an equity
      award.




35


**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, 2006.


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
            
            
            —
            
            
            —
            
            $
            14,828(2
            )
            
            —
            
            
            —
            
            
            —
            
            $
            14,828




(1)
            All
                compensation earned by Messrs. Rubin and Kiss is fully reflected
                in the
                Summary Compensation Table above.




(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%.




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**





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.




36




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 an
      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.





On
      October 31, 2006, our Board of Directors appointed Csaba Toro as the Chief
      Executive Officer of our company. In addition, our Board of Directors also
      approved Mr. Toro’s employment agreement, which contains the following
      terms:





base
                salary of $200,000 per year;the
                issuance of 45,956 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 1,875,000 shares of common stock at an
                exercise price of $2.18 per share 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;participation
                in all employee benefit plans and programs; andreimbursement
                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. Mr. Toro may
      terminate this agreement for any reason whatsoever through December 15, 2006
      (the “Limited Termination Date”). In the event that Mr. Toro terminates the
      agreement prior to the Limited Termination Date, then Mr. Toro will not be
      entitled to any further compensation and all securities issued to Mr. Toro
      shall
      be terminated and/or cancelled.




**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").





**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.





37




**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.




38




(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.




39


**ITEM
        11.**  **SECURITY
        OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT**
  The
        following table sets forth certain information, as of February 12, 2007 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 49,696,101 shares of common stock outstanding
        as of April 11, 2007.


Name
                of Beneficial Owner
            
            Common
                Stock Beneficially Owned (1)
            
            Percentage
                of Common Stock (1)Csaba
                Toro (2)
            
            
            1,920,956(5
            )
            
            3.7
            %Zoltan
                Kiss (2)
            
            
            12,251,575(3
            )
            
            19.8
            %Robert
                Rubin (2)
            
            
            -0-
            
            
            *Michael
                Metter (2)
            
            
            75,000
            
            
            *Rubin
                Family Irrevocable Trust
            
            
            6,117,113(4
            )
            
            12.3
            %Laszlo
                Farkas
            
            
            2,975,000
            
            
            6.0
            %Joseph
                Gregory Kiss
            
            
            4,550,000
            
            
            9.2
            %Maria
                Gabriella Kiss
            
            
            5,250,000
            
            
            10.6
            %All
                officers and directors as a group (4 people)
            
            
            14,247,531
            
            
            28.7
            %




*
      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.





(3)
      Represents 11,201,575 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 45,956 shares of common stock and 1,875,000 shares issuable upon
      exercise of a common stock option.




**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.




40




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.





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.




**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).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)




41




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)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)16.1
            Letter
                from Seligson and Giannattasio, LLP (to be filed by
                amendment)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.




42




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.




(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.




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




The
      following is a summary of the fees billed to STF by Russell Bedford Stefanou
      Mirchandani LLP for professional services rendered for the fiscal years ended
      December 31, 2006 and 2005:




**Fee
                Category**
            
            **Fiscal
                2006**
              **Fees**
            
            **Fiscal
                2005**
              **Fees**Audit
                Fees
            
            $
            71,367
            
            $
            37,802Audit-Related
                Fees
            
            
            —
            
            
            —Tax
                Fees
            
            
            —
            
            
            —All
                Other Fees
            
            
            —
            
            
            —Total
                Fees
            
            $
            71,367
            
            $
            37,802




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 Russell Bedford Stefanou Mirchandani
      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 2006 or
      2005.




43




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 2006 or
      2005





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
      2006 or 2005.





**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.




44





**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 the City of New York,
      State of New York, on the 16th day of April 2007.




**SOLAR
                THIN FILMS, INC**By:
            /s/ Csaba
              TörőCsaba
              TörőChief
                Executive Officer(Principal
                Executive and Principal Financial
                Officer)




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:




45




**SIGNATURE**
            
            **TITLE**
            
            **DATE**By:
            /s/
                Csaba Toro
              Csaba
                Toro
            
            Chief
                Executive Officer, Principal Financial Officer and
                Director
            
            April
                16, 2007By:
            /s/
                Zoltan Kiss
              Zoltan
                Kiss
            
            Chairman
                of the Board
            
            April
                16, 2007By:
            /s/
                Robert M. Rubin
              Robert
                M. Rubin
            
            Director
            
            April
                16, 2007By:
            Michael
                Metter
            
            Director
            
            April
                16, 2007




46
 
  **SOLAR
        THIN FILMS, INC.**
  Index
        to Financial
        Statements
 
  Page
                  No.Report
                  of Independent Registered Public Accounting Firm
              F-1Consolidated
                  Balance Sheet at December 31, 2006
              F-2Consolidated Statements of Operations
                  and Comprehensive Income for the years ended December 31, 2006 and
                  2005
              F-3Consolidated Statements
                  of Deficiency in Stockholders' Equity for the two years
                  ended December 31, 2006
              F-4
                  to F-5Consolidated Statements
                  of Cash Flows for the years ended December 31, 2006 and
                  2005
              F-6Notes
                  to Consolidated Financial Statements
              F-7
                  to F-21




**REPORT
        OF INDEPENDENT REGISTERED CERTIFIED PUBLIC ACCOUNTING** **FIRM**
 
 The
        Board
        of Directors
 Solar
        Thin Films, Inc.
 Budapest,
        Hungary
 
 We
        have
        audited the consolidated balance sheet of Solar Thin Films, Inc. and its
        wholly
        owned subsidiaries (“The Company”) as of December 31, 2006, and the related
        statements of operations and comprehensive
        income (loss), deficiency in stockholders' equity and cash flows for each
        of the
        two years in the
        period ended December 31, 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 standards of the Public Company
        Accounting Oversight Board
        (United States of America). Those standards require that we plan and perform
        the
        audit to obtain reasonable assurance about whether the financial statements
        are
        free of material misstatement. An
        audit
        includes examining, on a test basis, evidence supporting the amounts and
        disclosures in the financial
        statements. An audit also includes 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”,
        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 as of December 31, 2006, and the results
        of its operations and its cash flows for each of the two years in the period
        ended December 31,
        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/
                  RUSSELL BEDFORD STEFANOU MIRCHANDANI LLP
                Russell
                  Bedford Stefanou Mirchandani LLP
                Certified
                  Public Accountants
   New
        York,
        New York February
        25, 2007
  F-1




**SOLAR
                THIN FILMS, INC****CONSOLIDATED
                BALANCE SHEET****December
                31, 2006**




ASSETSCurrent
                assets:Cash
                and cash equivalents
            
            $
            2,667,483Accounts
                receivable, net of allowance for doubtful accounts of $-0-
            
            
            335,017Accounts
                receivable, related party (Note 9)
            
            
            880,130Inventory
                (Note 2)
            
            
            1,511,239Prepaid
                expenses
            
            
            655,717Advances
                and other current assets
            
            
            39,966Total
                current assets
            
            
            6,089,552Property,
                plant and equipment, net of accumulated depreciation of $129,583
                (Note
                3)
            
            
            629,317Other
                assets:Deferred
                financing costs, net of accumulated amortization of
                $110,959
            
            
            496,541Other
                assets
            
            
            10,024Total
                other assets
            
            
            506,565Total
                assets
            
            $
            7,225,434LIABILITIES
                AND DEFICIENCY IN STOCKHOLDERS' EQUITYCurrent
                liabilities:Accounts
                payable and accrued liabilities (Note 4)
            
            $
            2,559,666Advances
                received from customers
            
            
            309,512Note
                payable-other (Note 5)
            
            
            1,500,000Convertible
                Notes Payable, Current Portion, net of unamortized discount (Note
                7)
            
            
            448,899Notes
                payable-related parties (Note 9)
            
            
            157,472Total
                current liabilities
            
            
            4,975,549Convertible
                notes payable, net of unamortized discount (Note 7)
            
            
            1,447,150Warrant
                liability (Note 7 )
            
            
            1,465,500Dividends
                payable (Note 6)
            
            
            187,314Total
                long term debt
            
            
            3,099,964Commitments
                and contingencies (Note 13)Deficiency
                in Stockholder's EquityPreferred
                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 issued and outstanding
            
            
            2,286Series
                B-3 Preferred stock, par value $0.01 per share, 232,500 shares authorized,
                47,518 issued and outstanding
            
            
            475Series
                B-4 Preferred stock, par value $0.01 per share, 1,000,000 shares
                authorized, 95,500 issued and outstanding
            
            
            955Common
                stock, par value $0.01 per share, 150,000,000 shares authorized,
                16,269,597 issued and outstanding (Note 8)
            
            
            162,696Additional
                paid in capital (Note 8)
            
            
            3,627,872Treasury
                stock, at cost
            
            
            (80,000
            )Accumulated
                deficit
            
            
            (4,790,109
            )Minority
                interest
            
            
            (43,916
            )Accumulated
                other comprehensive income (loss)
            
            
            269,662Total
                deficiency in stockholders' equity
            
            
            (850,079
            )Total
                Liabilities and Deficiency in Stockholders' Equity
            
            $
            7,225,434


See
        the
        accompanying notes to the consolidated financial statements
  F-2





**SOLAR
                THIN FILMS, INC****CONSOLIDATED
                STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
                (LOSS)****FOR
                THE YEARS ENDED DECEMBER 31, 2006 AND
                2005**




2006
            
            2005REVENUE:
            
            $
            2,426,954
            
            $
            691,213Cost
                of goods sold
            
            
            1,766,806
            
            
            402,204Gross
                profit
            
            
            660,148
            
            
            289,009OPERATING
                EXPENSES:General,
                selling and administrative expenses
            
            
            5,531,590
            
            
            790,348Research
                and development
            
            
            11,600
            
            
            97,475Depreciation
            
            
            55,328
            
            
            12,687Total
                operating expenses
            
            
            5,598,518
            
            
            900,510NET
                INCOME (LOSS) FROM OPERATIONS
            
            
            (4,938,370
            )
            
            (611,501
            )Other
                income/(expense)Foreign
                exchange loss:
            
            
            (86,033
            )
            
            (11,563
            )Unrealized
                gain relating to adjustment of warranty liability to fair
                value
            
            
            9,356,400
            
            
            -Interest
                expense, net
            
            
            (1,476,599
            )
            
            (20,728
            )Debt
                acquisition costs
            
            
            (110,959
            )
            
            -Other
                income/(expense)
            
            
            114,326
            
            
            373,774Net
                income (loss) before provision for income taxes
            
            
            2,858,765
            
            
            (270,018
            )Income
                taxes
            
            
            -
            
            
            -NET
                INCOME (LOSS)
            
            $
            2,858,765
            
            $
            (270,018
            )Net
                income (loss) per common share (basic)
            
            $
            0.18
            
            $
            (0.02
            )Net
                (loss) per common share (fully diluted)-Note 1
            
            $
            (0.24
            )
            $
            (0.02
            )Weighted
                average shares outstanding (basic) - Note 1
            
            
            16,106,497
            
            
            16,035,222Weighted
                average (assuming fully diluted) - Note 1
            
            
            20,733,570
            
            
            16,086,775Comprehensive
                losses:Net
                Income (Loss)
            
            $
            2,858,764
            
            $
            (270,018
            )Foreign
                currency transaction gain
            
            
            237,665
            
            
            38,051Comprehensive
                Income (Loss)
            
            $
            3,096,429
            
            $
            (231,967
            )


See
        the
        accompanying notes to the consolidated financial statements
  F-3


**SOLAR
                THIN FILMS, INC****CONSOLIDATED
                STATEMENT OF DEFICIENCY OF STOCKHOLDERS'
                EQUITY****FOR
                THE TWO YEARS ENDED DECEMBER 31,
                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, 2004, as adjusted for Securities Purchase Agreement
                (Note
                1) and reverse stock split (Note 8)
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            16,035,222
            
            $
            240,400Net
                loss at December 31, 2005
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -Balance
                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 RT shareholders in exchange for 95.5% of issued and
                outstanding Kraft RT 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
            )Minority
                interest
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -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
            
            $
            162,696


See
      the
      accompanying notes to the consolidated financial statements ****


F-4





**SOLAR
                THIN FILMS, INC****CONSOLIDATED
                STATEMENT OF DEFICIENCY OF STOCKHOLDERS'
                EQUITY****FOR
                THE TWO YEARS ENDED DECEMBER 31,
                2006**





Additional
                Paid
                  in Capital
            
            Treasury
                Stock
            
            Minority
                Interest
            
            Other
                  Comprehensive
                  Income
                    (loss)
            
            Accumulated
                Deficit
            
            Total
                  Stockholders'
                  DeficiencyBalance
                at December 31, 2004, as adjusted for Securities Purchase Agreement
                (Note
                1) and reverse stock split (Note 8)
            
            $
            253,781
            
            $
            -
            
            $
            -
            
            $
            (6,054
            )
            $
            (696,965
            )
            $
            (208,838
            )Net
                loss at December 31, 2005
            
            
            -
            
            
            -
            
            
            -
            
            
            38,051
            
            
            (270,018
            )
            
            (231,967
            )Balance
                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 RT shareholders in exchange for 95.5% of issued and
                outstanding Kraft RT 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
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -Minority
                interest
            
            
            -
            
            
            -
            
            
            (43,916
            )
            
            -
            
            
            -
            
            
            (43,916
            )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
            )
            $
            (43,916
            )
            $
            269,662
            
            $
            (4,790,109
            )
            $
            (850,079
            )




See
      the
      accompanying notes to the consolidated financial statements





F-5





**SOLAR
                THIN FILMS, INC****CONSOLIDATED
                STATEMENT OF CASH FLOWS****FOR
                THE YEARS ENDED DECEMBER 31, 2006 AND
                2005**




2006
            
            2005CASH
                FLOWS FROM OPERATING ACTIVITIES:Net
                Income (Loss)
            
            $
            2,858,765
            
            $
            (270,018
            )Adjustments
                to reconcile net loss to net cash provided by operating
                activities:Depreciation
            
            
            55,328
            
            
            12,687Provision
                for doubt accounts
            
            
            -
            
            
            (26,056
            )Minority
                interest
            
            
            (43,916
            )
            
            -Common
                stock issued for services rendered
            
            
            468,750
            
            
            -Fair
                value of options issued to officer and director
            
            
            2,720,228
            
            
            -Fair
                value of options issued for services rendered
            
            
            111,125
            
            
            -Forgiveness
                of debt-net
            
            
            -
            
            
            (263,949
            )Amortization
                of deferred financing costs
            
            
            110,959
            
            
            -Amortization
                of debt discounts
            
            
            1,530,799
            
            
            -Unrealized
                gain on change in fair value of warrant liabilities
            
            
            (9,356,400
            )
            
            -Loss
                on disposal of fixed assets
            
            
            23,366
            
            
            -(Increase)
                decrease in:Accounts
                receivable
            
            
            (323,986
            )
            
            247,746Accounts
                receivable, related party
            
            
            (880,130
            )
            
            -Inventory
            
            
            (1,129,865
            )
            
            10,004Prepaid
                expenses
            
            
            (622,940
            )
            
            (82,445
            )Advances
                and other current assets
            
            
            45,596
            
            
            9,700Other
                assets
            
            
            (5,704
            )
            
            322Increase
                (decrease) in:Accounts
                payable and accrued liabilities
            
            
            949,978
            
            
            (219,586
            )Advances
                received from customers
            
            
            210,274
            
            
            45,294Other
                current liabilities
            
            
            (2,545
            )
            
            (19,699
            )Net
                cash used in operations
            
            
            (3,280,318
            )
            
            (556,000
            )CASH
                FLOWS FROM INVESTING ACTIVITIES:Net
                cash acquired in connection with merger with American United
                Global
            
            
            5,258,503
            
            
            -Acquisition
                of property, plant and equipment
            
            
            (559,435
            )
            
            (93,493
            )Net
                cash provided by (used in) investing activities:
            
            
            4,699,068
            
            
            (93,493
            )CASH
                FLOWS FROM FINANCING ACTIVITIES:Cash
                provided by notes payable, other-net
            
            
            979,948
            
            
            21Proceeds
                from notes payable
            
            
            (1,961
            )
            
            500,000Cash
                provided (from) notes payable, related party
            
            
            -
            
            
            118,593Net
                cash provided by financing activities:
            
            
            977,987
            
            
            618,614Effect
                of currency rate change on cash
            
            
            237,665
            
            
            38,051Net
                increase in cash and cash equivalents
            
            
            2,634,402
            
            
            7,172Cash
                and cash equivalents at beginning of period
            
            
            33,081
            
            
            25,909Cash
                and cash equivalents at end of period
            
            $
            2,667,483
            
            $
            33,081SUPPLEMENTAL
                DISCLOSURES OF CASH FLOW INFORMATION:Cash
                paid during the period for interest
            
            
            12,910
            
            
            806Cash
                paid during the period for income taxes
            
            
            -
            
            
            -NON
                CASH INVESTING AND FINANCING ACTIVITIESCommon
                stock issued for services rendered
            
            
            468,750
            
            
            -Options
                issued for services rendered
            
            
            2,831,353Abandonment
                of fixed asset-net of book value, in exchange for forgiveness of
                debt
            
            
            -
            
            
            16,008




See
      the
      accompanying notes to the consolidated financial statements


F-6


**SOLAR
      THIN FILMS, INC**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**DECEMBER
      31, 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 it’s
      wholly and majority- owned subsidiaries, Kraft, Rt. and Superior Ventures Corp.
      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 Rt. ("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, Rt. prior to the merger with
      American United Global.




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
            )


F-7


**SOLAR
      THIN FILMS, INC**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**DECEMBER
      31, 2006**





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





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.





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,
      2006 are $309,512. 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.





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, 2006 and 2005.





Currently,
      there are no warranties provided with the purchase of the Company‘s products.
      The cost of replacing defective products and product returns have been
      immaterial and within management’s expectations. In the future, when the Company
      deems warranty reserves are appropriate that such costs will be accrued to
      reflect anticipated warranty costs.





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.





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. The Company incurred expenditures of $11,600 and $97,475
      on research and product development for the years ended December 31, 2006 and
      2005, respectively





Reclassification





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




F-8




**SOLAR
      THIN FILMS, INC**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**DECEMBER
      31, 2006**





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





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 ended December 31,
      2006
      the Company has adopted SFAS 123 (R) 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.





For
      the
      year ended December 31, 2006, the Company granted 1,875,000 (See Note 11) stock
      options to Csaba Toro, an officer of the Company with an exercise price of
      $2.18
      (See Note 11) 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 $2,705,400 was recorded as
      a
      current charge to earnings.





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 current charge to earnings.





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 in accordance
      with
      the requirements of Statement of Financial Accounting Standards No. 52, “Foreign
      Currency Translation”. Assets and liabilities are translated at current exchange
      rates in effect during the period. Resulting translation adjustments are
      recorded as a separate component in stockholder’s equity. Foreign currency
      transaction gains and losses are included in the statement of shareholders
      equity and the statement of operations when applicable.





Net
      income (loss) per share





The
      following reconciliation of net income and share amounts used in the computation
      of income (loss) per share for the years ended December 31, 2006 and
      2005:




Year
                Ended
              December
                31, 2006
            
            Year
                Ended
              December
                31, 2005Net
                income used in computing basic net income per share
            
            $
            2,858,765
            
            $
            (270,018
            )Impact
                of assumed assumptions:Amortization
                of debt discount (interest expense) on convertible
                debentures
            
            
            1,530,799
            
            
            -Impact
                of equity classified as liability:Gain
                on warrant liability marked to fair value
            
            
            (9,356,400
            )
            
            -Net
                Income (loss) in computing diluted net income (loss) per
                share:
            
            $
            (4,966,836
            )
            $
            (270,018
            )





F-9




**SOLAR
      THIN FILMS, INC**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**DECEMBER
      31, 2006**





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





Net
      income (loss) per share (continued)




The
      weighted average shares outstanding used in the basic net earnings (loss) per
      share computations for the years ended December 31, 2006 and 2005 were
      16,106,497 and 16,035,222 respectively. In determining the number of shares
      used
      in computing diluted loss per share, the Company added approximately 4,627,073
      and 0 potentially dilutive shares for the years ended December 31, 2006 and
      2005
      , 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
        our
        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 years ended December 31, 2006
        and
        2005 was $( 0.24) and $ (0.02), respectively.
 
 Options
        and warrants to purchase 11,046,875 and
        0 shares of our common stock were excluded from the 2006 and 2005
        computation of diluted earnings per share, respectively, because the effect
        would be antidilutive.




Liquidity





As
      shown
      in the accompanying consolidated financial statements, the Company incurred
      net
      loss from operations of $4,938,370 for the year ended December 31, 2006. The
      Company's current assets exceeded its current liabilities by
      $1,114,003 as of December 31, 2006.




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 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 FASB Statement No. 156, Accounting for Servicing of
      Financial Assets - an amendment to FASB Statement No. 140. Statement 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 and results
      of
      operations.





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 5, “ *Accounting
      for Contingencies”.* FIN 48
      is effective for fiscal years beginning after December 15, 2006. We have not
      yet
      evaluated the impact of adopting FIN 48 on our consolidated financial position,
      results of operations and cash flows.





In
      September 2006 the Financial Account Standards Board (the “FASB”) issued its
      Statement of Financial Accounting Standards 157, Fair Value Measurements. This
      Statement defines fair value, establishes a framework for measuring fair value
      in generally accepted accounting principles (GAAP), and expands disclosures
      about fair value measurements. This Statement 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, this Statement does not require
      any
      new fair value measurements. However, for some entities, the application of
      this
      Statement will change current practice. FAS 157 effective date is 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, operations
      or cash flows.




F-10




**SOLAR
      THIN FILMS, INC**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**DECEMBER
      31, 2006**





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





Recent
      accounting pronouncements (continued)





In
      September 2006 the FASB issued its Statement of Financial Accounting Standards
      158 “Employers’ Accounting for Defined Benefit Pension and Other Postretirement
      Plans”. This Statement 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. This Statement 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. The Company does not expect adoption
      of this standard will have a material impact on its financial position,
      operations or cash flows.





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
      condition or results of operations.




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
        has
        not yet determined the impact that the adoption of FSP 00-19-2 will have
        on its
        financial statements.





**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, 2006 consist of
      the
      following.





Finished
                Goods
            
            $
            498,200Work
                in Progress
            
            
            983,982Raw
                Materials
            
            
            29,057$
            1,511,239





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





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




Land
                and buildings
            
            $
            15,373Construction
                in progress
            
            
            193,932Furniture
                and fixture
            
            
            62,524Machinery,
                plant and equipment
            
            
            487,071Total
            
            
            758,900Accumulated
                depreciation
            
            
            129,583Property
                and equipment
            
            $
            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 $55,328 and $12,687 for the year ended December
      31,
      2006 and 2005, respectively.




F-11




**SOLAR
      THIN FILMS, INC**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**DECEMBER
      31, 2006**





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





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




Accounts
                payable
            
            $
            213,077Other
                accrued expenses, including a penalty in the amount of $480,000 in
                connection with liquidating change (See Note 7)
            
            
            836,389Accrued
                interest
            
            
            1,510,200$
            2,559,666




**NOTE
      5 - NOTES PAYABLE OTHER**




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




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




**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, 2006 the outstanding balance
      was $187,314.




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





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




Convertible
                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
            
            
            1,250,000Debt
                Discount, net of accumulated amortization of $351,260
            
            
            (898,740
            )Net
            
            
            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).
            
            
            6,000,000Debt
                Discount, net of accumulated amortization of $1,095,891
            
            
            (4,904,109
            )Net
            
            
            1,095,891Total
            
            
            1,896,049Less
                Current Maturities
            
            
            (448,899
            )Net
            
            $
            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.


F-12




**SOLAR
      THIN FILMS, INC**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**DECEMBER
      31, 2006**





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





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”).





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. 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.





The
      Company’s accounting predecessor and the Company amortized the Convertible
      Notes’ debt discount and recorded non-cash interest expense of $158,945 and
      $192,660, respectively, during the year ended December 31, 2006.





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.





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.


F-13




**SOLAR
      THIN FILMS, INC**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**DECEMBER
      31, 2006**





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





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’s accounting predecessor and the Company amortized the Convertible
      Notes’ debt discount and recorded non-cash interest expense of $109,012 and
      $242,248, respectively, during the year ended December 31, 2006.





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:





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





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





o
            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”);





o
            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”);





o
            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




o
            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.




As
        of the
        date of the financial statements, the Company's registration statement had
        not been
        declared effective by the Securities & Exchange Commission with the
        contractually prescribed
        period. Accordingly, the Company accrued liquating damages penalties of $480,000
        (see Note 4) and charged the amount to operations in 2006.
 
 Subsequent
        to the date of the financial statements, the registration statement was declared effective
        (see Note 14).


F-14


**SOLAR
      THIN FILMS, INC**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**DECEMBER
      31, 2006**





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





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.





The
      Company amortized the Convertible Notes’ debt discount and recorded a non-cash
      interest expense of $1,095,890 for the year ended December 31,
      2006.





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.




**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. There are no preferred shares outstanding as of December 31,
      2006.





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, 2006, 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) (See below) 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, 2006, there were
      47,518 shares of Series B-3 Preferred issued and outstanding.


F-15


**SOLAR
      THIN FILMS, INC**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**DECEMBER
      31, 2006**





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





Preferred
      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”). Each share of Series B-4
      Preferred stock is entitled to preference upon liquidation of $3.50 per share
      for any unconverted shares. Each share of the Series B-4 Preferred Stock shall
      be entitled to three hundred fifty (350) votes on all matters submitted to
      the
      stockholders for a vote together with the holders of the Common Stock as a
      single class. Should the Company elect to file an amendment to increase its
      number of authorized common shares so that there is an adequate amount of shares
      of authorized common stock for issuance upon conversion of the Series B-4
      Preferred Stock, the Series B-4 shares shall automatically convert to the
      Company’s common shares at the rate of three hundred fifty (350) common shares
      for each share of Series B-4 Preferred. As of December 31, 2006, there were
      95,500 shares of Series B-4 Preferred issued and outstanding. As part of the
      Board of Directors designation, the Series B-4 Preferred stock agreement
      provides for certain anti-dilution rights through December 31, 2007 in the
      event
      of a reverse split (see Note 14).





Common
      Stock





On
      February 9, 2007, the Company affected a one-for-one.six (1 to 1.6) reverse
      stock split of it authorized and outstanding shares of common stock, $0.01
      par
      value (see Note 14). 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
      16,269,597 shares of common stock issued and outstanding as of December 31,
      2006.





On
      February 9, 2007 the Company amended its Certificate of Incorporation
      inceasing its authorized shares of common stock to 150,000,000 with a par
      value of $.01 per share (see Note 14). As of December 31, 2006, there were
      16,269,597 shares of common stock issued and outstanding.





In
      September 2006, the Company issued 234,375 shares of its Common stock for
      services valued at $468,750. 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.





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





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





2006Note
                payable to Company 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 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 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
            
            $
            -0-




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.





The
      Company currently has related party trade receivables of $880,130 from
      Terrasolar as of December 31, 2006,Revenues from Terrasolar were $1,638,550
      for
      the year ended December 31, 2006.





The
      Company has a $43,916 receivable from a former shareholder of Kraft RT
      classified as minority interest as well as dividend payment obligation of the
      former shareholders valued at $187,314


F-16


**SOLAR
      THIN FILMS, INC**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**DECEMBER
      31, 2006**





**NOTE
      10- ECONOMIC DEPENDENCY**





During
      the year ended December 31, 2006 approximately $2,243,223 or 92% of total
      revenues were derived from two customers; for the year ended December 31, 2005;
      $425,215 or 61% were derived from two customers.





During
      the year ended December 31, 2006 approximately $868,378 or 32% of total
      materials were purchased from three vendors; for the year ended December 31,
      2005, $118,087 or 29% was purchased from one vendor.




**NOTE
      11 - 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,
      2006:




Warrants
                Outstanding
            
            
            
            
            
            Warrants
                ExercisableNumber
            
            Weighted
                  Average
                Remaining
                  Contractual
            
            Weighted
                Average
            
            Number
            
            Weighted
                AverageExercise
                Price
            
            Outstanding
            
            Life
                (years)
            
            Exercise
                price
            
            Exercisable
            
            Exercise
                Price$1.20
            
            
            625,000
            
            
            2.21
            
            $
            1.20
            
            
            617,500
            
            $
            1.202.00
            
            
            3,000,000
            
            
            2.46
            
            
            2.00
            
            
            3,000,000
            
            
            2.002.20
            
            
            3,000,000
            
            
            3.46
            
            
            2.20
            
            
            3,000,000
            
            
            2.203.00
            
            
            3,000,000
            
            
            2.46
            
            
            3.00
            
            
            3,000,000
            
            
            3.003.30
            
            
            3,000,000
            
            
            3.46
            
            
            3.30
            
            
            3,000,000
            
            
            3.30




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




Number
                of Shares
            
            Weighted
                Average
              Price
                Per ShareOutstanding
                at December 31, 2004
            
            
            -
            
            $
            -Granted
            
            
            -
            
            
            -Exercised
            
            
            -
            
            
            -Canceled
                or expired
            
            
            -
            
            
            -Outstanding
                at December 31, 2005
            
            
            -
            
            
            -Granted
            
            
            12,625,000
            
            
            2.56Exercised
            
            
            -
            
            
            -Canceled
                or expired
            
            
            -
            
            
            -Outstanding
                at December 31, 2006
            
            
            12,625,000
            
            
            2.56




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.





Employee
      Stock Options





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, 2006 (See Note 8
      above):





Options
                Outstanding
            
            Options
                ExercisableWeighted
                Average
            
            Weighted
            
            
            
            WeightedRemaining
            
            Average
            
            
            
            AverageExercise
            
            Number
            
            Contractual
                Life
            
            Exercise
            
            Number
            
            ExercisePrices
            
            Outstanding
            
            (Years)
            
            Price
            
            Exercisable
            
            Price$2.07
            
            
            15,625
            
            
            2.70
            
            $
            2.07
            
            
            15,625
            
            $
            2.072.18
            
            
            1,875,000
            
            
            9.83
            
            
            2.18
            
            
            1,875,000
            
            
            2.18





F-17




**SOLAR
      THIN FILMS, INC**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**DECEMBER
      31, 2006**





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




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





Weighted
                AverageNumber
                of Shares
            
            Price
                Per ShareOutstanding
                at December 31, 2004:
            
            
            -
            
            $
            -Granted
            
            
            -
            
            
            -Exercised
            
            
            -
            
            
            -Canceled
                or expired
            
            
            -
            
            
            -Outstanding
                at December 31, 2005:
            
            
            -
            
            
            -Granted
            
            
            1,890,625
            
            $
            2.18Exercised
            
            
            -
            
            
            -Canceled
                or expired
            
            
            -
            
            
            -Outstanding
                at December 31, 2006:
            
            
            1,890,625
            
            $
            2.18





During
      the year ended December 31, 2006, the Company granted 15,625 (see Note 8) stock
      options to a director with an exercise price of $2.07 (See Note 8) expiring
      three years from issuance. The fair value (determined as described below) of
      $14,828 was charged to current period earnings.





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 (see Note 8)
      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 current period earnings.





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.





Non-Employee
      Stock Options





The
      following table summarizes the changes in options outstanding and the related
      prices for the shares of the Company's common stock issued to non-employees
      of
      the Company at December 31, 2006 (See Note 8 above):





Options
                Outstanding
            
            Options
                ExercisableWeighted
                Average
            
            Weighted
            
            
            
            WeightedRemaining
            
            Average
            
            
            
            AverageExercise
            
            Number
            
            Contractual
                Life
            
            Exercise
            
            Number
            
            ExercisePrices
            
            Outstanding
            
            (Years)
            
            Price
            
            Exercisable
            
            Price$1.92
            
            
            156,250
            
            
            4.97
            
            $
            1.92
            
            
            156,250
            
            $
            1.92





F-18




**SOLAR
      THIN FILMS, INC**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**DECEMBER
      31, 2006**





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





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





Weighted
                AverageNumber
                of Shares
            
            Price
                Per ShareOutstanding
                at December 31, 2004:
            
            
            -
            
            $
            -Granted
            
            
            -
            
            
            -Exercised
            
            
            -
            
            
            -Canceled
                or expired
            
            
            -
            
            
            -Outstanding
                at December 31, 2005:
            
            
            -
            
            
            -Granted
            
            
            156,250
            
            $
            1.92Exercised
            
            
            -
            
            
            -Canceled
                or expired
            
            
            -
            
            
            -Outstanding
                at December 31, 2006:
            
            
            156,250
            
            $
            1.92





During
      the year ended December 31, 2006, the Company granted 156,250 (see Note 8)
      stock
      options to non-employee with an exercise price of $1.92 (See Note 8) expiring
      three years from issuance. The fair value (determined as described below) of
      $111,125 was charged to current period earnings.





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
              
              
              4.57
              %Expected
                  stock price volatility
              
              
              51.21
              %Expected
                  dividend payout
              
              
              -Expected
                  option life-years (a)
              
              
              5





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





**NOTE
      12 - INCOME TAXES**





The
      Company has adopted Financial Accounting Standard No. 109 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.





At
      December 31, 2006, the Company has available for federal income tax purposes
      a
      net operating loss carryforward of approximately $4,400,000, expiring 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, 2006 are as follows:





Non
        current:


Net
                operating loss carryforward
            
            $
            1,540,000Valuation
                allowance
            
            
            (1,540,000
            )Net
                deferred tax asset
            
            $
            —




For
      the
      year ended December 31, 2006 and 2005, the Company incurred losses once
      significant tax adjusting items are considered.





The
      Company paid local filing fees which are not deemed to be income taxes and
      have
      been included in selling, general and administrative expense for the
      year ended December 31, 2006 and 2005.


F-19


**SOLAR
      THIN FILMS, INC**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**DECEMBER
      31, 2006**





**NOTE
      13 - COMMITMENTS AND CONTINGENCIES**





Lease
      commitment





In
      November 2005, the Company entered into a three year fixed term operating 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. Rental expenses charged to operations for the year ended December 31,
      2006 and 2005 were $157,505 and $81,038, respectively.Commitments
      for minimum rentals under non cancellable leases at December 31, 2006
      is as follows:





Fiscal
                Year:
            
            Amount:December
                31, 2007
            
            $
            185,196December
                31, 2008
            
            
            185,196




Litigation





On
      or
      about December 12, 2003, New York Medical, Inc. and Redwood Investment
      Associates, L.P filed a complaint against the Company in the Supreme Court
      of
      New York in New York County. The complaint alleges a breach of contract. The
      Company believes that it has meritorious defenses to the plaintiff’s claims and
      intends to vigorously defend itself against the Plaintiff’s claims. Management
      believes the ultimate outcome of this matter will not have a material adverse
      effect on the Company’s consolidated financial position or results of
      operations.





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 minority shareholders in a PLC may offer their
      shares to the new majority owner for acquisition. In the case of offering,
      the
      Company is obliged to purchase those shares on market value valid on the date
      when the majority owner acquired interest. The remaining shareholders of Kraft
      RT representing 4.5% indicated their intention to offer their shares for
      purchase by the Company; the majority shareholder of Kraft RT. The Company
      offered the acquisition of 4.5% of Kraft with the same term than provided to
      any
      other shareholder in the form of issuing 1,575,000 shares of common stock of
      the
      Company. The party did not accept the offer and has requested cash payment.
      The
      parties are currently in discussion about the fair market price of 4.5%
      ownership of Kraft RT which was valid on June 14, 2006 when the acquisition
      of
      majority ownership was acquired. Management believes the ultimate outcome on
      this matter will not have a material adverse effect on the Company's
      consolidated financial position or results of operations.




The
      Company is subject to legal proceedings and claims which arise in the ordinary
      course of business. Although occasional adverse decisions or settlements may
      occur, the Company believes that the final disposition of such matters should
      not have a material adverse effect on its financial position, results of
      operations or liquidity.





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 proceedings.




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.





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.


F-20


**SOLAR
      THIN FILMS, INC**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**DECEMBER
      31, 2006**





**NOTE
      14- SUBSEQUENT EVENTS**





Effective
      February 9, 2007, the Company amended their Certificate of Incorporation to
      affect a reverse stock split of the Company’s issued and outstanding shares of
      Common Stock at a ratio of 1.6 to 1, as well as increased its authorized shares
      to 150,000,000. 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.




As
      a result of the increase in the authorized shares
      of common stock, the Company’s Series B-4 preferred shares automatically convert
      to the Company’s common shares (see Note 8).




On
      February 13, 2007 the Company’s Registration
      Statement was declared effective by the Securities and Exchange Commission
      (see Note 7).





**NOTE
      15 - GOING CONCERN**




The
      accompanying 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. As shown in the accompanying financial
      statements, as of December 31, 2006, the Company incurred accumulated losses
      of
      $4,790,109. The Company’s total liabilities exceeded its total assets by
      $850,079 as of December 31, 2006. 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 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 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.




F-21