Item 1.                         Description of Business

General

Our Company

Ascent Solar is a development stage company that was formed in October 2005 to commercialize certain photovoltaic (‘‘PV’’) technology developed by ITN Energy Systems, Inc. (‘‘ITN’’) for extraterrestrial, terrestrial, and near-space applications. Ascent Solar intends to be the first company to manufacture large, roll format, PV modules in commercial quantities that use a highly efficient thin-film Copper-Indium-Gallium-diSelenide (‘‘CIGS’’) absorbing layer on a flexible high-temperature plastic substrate. We have produced and tested small-scale demonstration samples of our CIGS PV products at the laboratory level, but we have not yet produced any products in commercial quantities, nor have we yet received any revenues from the proposed products that we intend to commercialize as our principal business activity. We are presently applying the majority of the $14 million in net proceeds received from our initial public offering in July 2006 to establish a 500kW/yr per shift (1.5MW) pilot-scale production line. The production line is currently in development and on schedule to begin operations in the first quarter of 2008. Successful performance of the pilot production line should prove out the manufacturing processes, products, and market acceptance to enable us to transition into large full-scale, commercial manufacturing of our CIGS PV products.

When used on space satellites and near-space aircraft, PV devices convert sunlight into the electricity needed to reliably power instruments, communications systems and the like. Currently, most PV devices used for space and near-space applications are rigid, bulky and relatively heavy, posing significant challenges to scientists and designers wishing to minimize volume and weight in order to maximize payload and reduce deployment costs. In addition to these shortcomings, PV devices traditionally used for such applications are expensive to manufacture and require the time-consuming and labor-intensive task of connecting individual solar cells together to create a complete PV module. For terrestrial applications such as residential or commercial buildings, the primary driving market factor is cost. Historically, the market has been, and continues to be, dominated by crystalline silicon technology. Emerging thin film technologies on rigid glass substrates and flexible substrates offer significant cost advantages over silicon and, as a result, these newer technologies are beginning to capture a greater share of the market. Whether thin film or silicon based, rigid photovoltaic modules are very restrictive when it comes to deployment and integration into buildings and systems.

The Ascent Solar thin film technology platform addresses many of the current silicon and thin film limitations by offering a flexible, lightweight PV product suitable for terrestrial, space and near-space applications. By employing a proprietary monolithic integration fabrication process, we intend to manufacture our PV devices on the module level, rather than the cell level, thereby avoiding the time-consuming and cost-additive cell-to-cell interconnect procedures utilized by silicon and other thin film PV device manufacturers. We believe that our choice of substrate materials and proprietary monolithic integration fabrication processes should permit us to achieve cost, volume and weight performance advantages over competitors including terrestrial. As a result, we believe that we will be well-positioned to capture opportunities in markets that require or desire low cost, highly efficient, lightweight and flexible PV power sources. In addition, our thin film, monolithically integrated modules will enable direct integration into building and construction materials and electronics packaging that should enable us to offer greater value and new product formats at the building integrated and electronics integrated system level.

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Corporate History

ITN, a private company incorporated in 1994, is an incubator dedicated to the development of cutting-edge thin-film, PV, battery and fuel cell technologies. Through its work on research and development contracts for private and government entities, ITN developed proprietary processing and manufacturing know-how applicable to PV products generally, and to CIGS PV products in particular. ITN formed Ascent Solar to commercialize this investment in CIGS PV technologies. In January 2006, ITN assigned to us key CIGS PV technologies and trade secrets and granted to us an exclusive, worldwide license to use certain of ITN’s proprietary process, control and design technologies in the production of CIGS PV solar modules for our target markets. Upon receipt of the necessary government approvals in January 2007, ITN subsequently assigned approximately $3.5 million in government funded research and development contracts to Ascent Solar and the key personnel assigned to the contracts also transferred to Ascent Solar. Today, ITN still provides to us, at cost, a variety of administrative services such as facilities management, equipment maintenance, human resources, procurement, information technology services and accounting.

Ascent Solar PV Technology

In the last decade, ITN has performed approximately 35 contracts for private and government entities in advanced PV technologies. Government sponsors of these contracts include the U.S. Air Force Research Laboratory, the National Science Foundation, the National Renewable Energy Laboratory (‘‘NREL’’), the Defense Advanced Research Projects Agency, the Missile Defense Agency and NASA. Through its work on these contracts, ITN has developed useful and proprietary processing and manufacturing know-how applicable to PV products generally and CIGS PV products in particular, including the creation and adoption of key intelligent, sensor based control processing technologies and the development of a monolithic integration fabrication process.

We believe that our use of CIGS on a flexible high-temperature plastic substrate will offer the best combination of efficiency and product versatility among competing technologies in our target markets. Furthermore, we believe that our proprietary fabrication process—which, among other things, incorporates monolithic, cell-to-cell integration techniques—will allow us to manufacture our planned products with significant cost savings compared with our competitors.

Marketing

As with any new product, the market’s acceptance of our planned products is at this time uncertain. Although system developers are in search of efficient, lightweight, flexible and less-expensive PV products, we will be attempting to introduce a new technology quickly into a field dominated by large, established companies that may be reluctant to quickly adopt our newer technologies over traditional silicon based products.

One significant factor working to our advantage is the anticipated continued growth of the PV industry. The industry has grown at approximately 40% annually since 1999, and a number of industry forecasts have projected continued growth of 43% to 50% per year through 2010. As a result, there is a large undersupply of product in the market to meet current demand. Large silicon producers are experiencing shortages in silicon supply, and there are 2 – 3 year backlogs in orders. We believe the market is primed to accept new thin film technologies. First Solar, Inc. produces a thin film rigid module on glass and is a prime example of this new trend by offering a slightly less efficient product into the market than silicon, but at significantly lower cost points. First Solar, Inc. has reported costs of $1.42/watt as compared with the reported industry average of $2.50 - $2.75 per watt. Ultimately, we believe costs of $1.00/watt are achievable with the various thin film technology platforms entering the market.

Although we believe our projected lower cost structure will provide an advantage in the commodity-based module market, we also believe our flexible substrate will open up new and potentially higher value

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markets in Building Integrated PV (BIPV) and Electronics Integrated PV (EIPV) where the majority of our current competitors are unable to compete. The flexibility of our product, both in terms of its physical nature, as well as its freedom from rigid design constraints, allows for photovoltaics to be directly incorporated into products for these industries. In particular, these industries utilize large-volume ‘commodity’ components, such as roofing shingles, panels, and membranes, for BIPV, and batteries, hard drives, microprocessors for EIPV, and by incorporating our components into these markets will thereby provide us rapid, large volume acceptance compared to our rigid, constrained competitors.

Because we are currently developing our initial production plant and therefore without product, we are focusing our marketing efforts on developing select BIPV and EIPV strategic relationships with customers. We currently have the ability to produce product samples and prototypes in limited quantities to evaluate form, fit, and functional parameters for eventual product applications. Our objective throughout 2007 will be to develop several product platforms through these relationships that will support the production volumes we anticipate in 2008 once our initial production line is operational.

We expect the space satellite market and the near-space market to evolve more gradually than the terrestrial market principally due to the higher degree of product qualifications and flight testing that will be required. Although we believe that our planned products will offer cost and performance advantages over others available on the market, we will first be challenged to find customers willing to use our planned products on their platforms, each of which is likely to have different product requirements. Although we intend to manufacture and package our planned products in such a way that they can easily be integrated in a variety of diverse platforms, we believe the space market is more uncertain than the near-space market in terms of gaining customer confidence and acceptance principally because the near-space high altitude airship platforms do not presently have an alternative. In addition to these challenges, we also need to adopt and undertake quality control processes, procedures and tests to qualify and validate our planned products for use in the harsh environmental conditions of space and near-space. We currently envision that our pathway to market will be through development of small mini-modules for experimental space qualification tests and then actual flight experiments with government customers, followed by full scale flight arrays on operational systems once the technology and arrays have been fully space qualified.

Ascent Solar Business Strategy

Manufacturing

Our overall manufacturing strategy is to incrementally build and expand production capacity by demonstrating manufacturing processes initially in a smaller scale pilot plant and then grow capacity to larger scale once the manufacturing processes and tools prove capable of meeting desired performance metrics. Our current focus is the development and construction of a modest production plant with a planned capacity of 1.5MW per year of annual PV module production. The plant is scheduled for completion in 2007 with operations to commence in the 1 st  quarter of 2008.

The 1.5MW plant will be used initially to prove our manufacturing processes and should help us to develop the products, customers, and markets that will support our growth plans to 100MW production levels and beyond. As our production capacity grows through the development of new plants, we envision that the 1.5MW plant will continue to serve as a rapid product prototyping plant.

We currently envision developing and completing the build-out of a 100MW plant by the end of 2009. The exact timing will depend upon a number of factors including our level of confidence based upon the performance demonstrated in our 1.5MW pilot plant, product development, market development and our ability to access capital. Although we ultimately envision a 100MW facility of approximately 250,000 ft², we plan to keep with our incremental approach and expect to install only the first 25MW line initially into the 100MW plant. The entire 250,000 sq. ft. plant would accommodate four 25MW production lines. At this scale, our current cost estimates project that it will require approximately $1.00 of capital for the requisite

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plant and equipment in order to achieve 1 watt of installed production capacity. We believe that our incremental approach to expansion will allow us to build product confidence with our customers and achieve the financial performance that will enable us to meet our capital needs.

In scaling from the 1.5MW pilot plant to 25MW, we plan to migrate from a twelve inch ( 1 ¤ 3 meter) substrate to a wider substrate. Our goal is to ultimately achieve a substrate width of approximately 1 meter , but it may be necessary to initially increase substrate width in incremental steps beyond twelve inches that are not currently defined. The wider polyimide substrate material is readily available from our current suppliers in these wider widths today. In parallel with the development of the 1.5MW pilot plant, we are  investigating the wider CIGS deposition sources, process controls, and equipment challenges  that will  need to be addressed to  accommodate the  wider  substrates.

Products and Markets

Our overall product and market strategy is focused on leveraging the competitive advantages of our unique thin film and flexible format as much as possible. Generally, the terrestrial market is a commodity market of cell manufacturers and module manufacturers who sell to customers one level up the value chain. Although we believe we can compete effectively in the commodity market with a lower cost alternative than silicon, our preferred approach is to move up the value chain through strategic relationships using our unique product characteristics. We envision relationships involving BIPV or EIPV products or System Integration solutions that directly affect the economics and versatility of PV systems and products deployed in the market. Our goal is to integrate our PV modules within the building materials and products themselves rather than adding the modules to the building or product as an afterthought as typically is the case with silicon and other rigid modules in the market today.

Ascent Solar is currently developing product concepts and is evaluating BIPV and EIPV opportunities. Our objective is to develop several strategic relationships during 2007 in anticipation of product production in 2008.

In addressing the space and near-space markets, we envision that our product offerings will evolve initially out of direct government-funded R&D projects or joint programs that we will work directly with prime space system developers or near-space system developers. Our current government-funded R&D programs and our proposed relationship with Lockheed Martin on the High Altitude Airship (“HAA”) project are typical examples. It is through these types of projects and relationships that our products can be developed, tested, and deployed.

We are aware of delays associated with the Lockheed Martin’s HAA project. We have not been advised as to whether we will receive funding pursuant to this project. Initial indications are that the Missile Defense Agency, the Department of Defense agency currently in charge of the HAA project, has not included funding for the project in the Fiscal Year 2008 budget; we have not, however, been told as to whether the project will be shifted to another agency or that our original proposal has been removed from consideration. As a result of the delays, we are  currently not planning on receiving funding in 2007 under the Lockheed Martin project. We are, however, continuing to develop the technology platform for HAA and spacecraft applications through several R&D programs funded by the Air Force Research Laboratory and the Missile Defense Agency, including the recent $607,365 increase in funding by the Air Force to our high temperature substrate contract.

Competition

Ascent’s Technical Advantages Over Competitors

Most PV companies employing thin-film techniques in commercial production currently use amorphous silicon (a-Si) or cadmium telluride (CdTe) as an absorbing layer. Instead we have chosen CIGS because it offers inherent performance and physical advantages over the a-Si and CdTe technologies.

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CIGS displays the highest efficiency of the three thin-film technologies, with a demonstrated cell efficiency of 19.5% by NREL in a terrestrial laboratory environment (compared with 12.9% demonstrated cell efficiency for a-Si under similar conditions). Although we have achieved small area efficiencies over 15% in the laboratory, we anticipate that the non-uniformities associated with large area, high volume manufacturing will initially limit module efficiencies to between 8% and 11%. Unlike CIGS, a-Si exhibits inherent inefficiencies and measurable degradation when exposed to ultraviolet light, including ultraviolet light present in natural sunlight. To mitigate these effects, manufacturers using a-Si are forced to employ steps that add cost and complexity to the manufacturing process. By using CIGS, we avoid these issues. While CdTe has demonstrated efficiencies approaching that of CIGS, CdTe currently requires use of a rigid, transparent substrate, which virtually disqualifies it as a candidate for a multitude of applications in BIPV and EIPV. We believe that our choice of CIGS on flexible substrates therefore will provide us a significant technical advantage over competitors who use the alternative technologies of a-Si and CdTe.

We also believe that we will hold a technical and cost advantage over our competitors through our choice of high-temperature plastic as a substrate material. This flexible plastic is among the lightest materials currently available for PV modules and enables the monolithic integration of cells directly into the material. Stainless steel or other metal substrates are unable to employ monolithic integration techniques and must resort to manufacturing discrete cells that must then be mechanically connected to form a module , which adds significant cost in the process.

Our planned use of a roll-to-roll manufacturing process (which enables us to fabricate our flexible PV modules in large roll formats or continuous operations), together with our use of proprietary monolithic, cell-to-cell integration techniques (which allows us to avoid the time-consuming, weight-additive and labor-intensive step of manually connecting individual solar cells), also should afford us technical and cost advantages over our competitors. Since 1994, ITN has developed proprietary sensor-based controls and intelligent process controls for use in the roll-to-roll production of thin-film CIGS PV modules, and we are now a beneficiary of that expertise.

In sum, the technical and cost advantages that we believe will distinguish us from our competitors include:

·        Our use of CIGS, which we believe will offer the highest efficiencies of the three candidate thin-film technologies and which can be deposited on variety of flexible substrates;

·        Our use of high-temperature plastic as a substrate material, which not only is flexible, lightweight and versatile for BIPV and EIPV, but also provides us the ability to achieve the challenging specific power and power density requirements for space and near-space programs;

·        Our experience with, and ITN’s demonstrated ability to implement, roll-to-roll manufacturing in the context of thin-film CIGS PV modules; and

·        Our use of proprietary monolithic integration techniques, which eliminates an entire back-end cell-to-cell processing step in the assembly of a PV module, and that should save us time, labor and cost relative to our competitors while also potentially offering measurable performance and weight advantages.

Although we believe that we will hold technical advantages over our competitors in the aspects described above, we still face a number of technical challenges if we are to meet our planned 2008 production deadline with products that satisfy the technical specifications demanded by prospective customers. These challenges are detailed in ‘‘Management’s Discussion and Analysis of Financial Condition and Results of Operations.’’

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Key Competitors

Today approximately 90% of the terrestrial market is served by large silicon cell and silicon module manufacturers. The largest manufacturers include Sharp (Japan), Q-cells (Germany), Kyocera (Japan), BP Solar (USA), and RWE Schott (Germany). In all there are over 20 manufacturers with annual production capacities in excess of 25MW. We anticipate that these market leaders will continue to dominate the market with the silicon-based technology for the next three to five years at which time we envision that thin film manufacturers will begin to capture an increasing market share.

The thin film component of the industry is largely made up of a broad mix of technology platforms at various stages of development and involving approximately 20 companies. The a-Si technology is the dominant platform in the thin film sector due to its long history dating back to the late 1970’s. Production capacities across this sector range from 0.5MW up to 75MW. The largest producer of rigid thin film modules is First Solar, Inc. (USA), and, the largest producer of modules is United Solar Ovonic LLC (USA). The thin film sector is growing at an even faster rate than silicon principally driven by First Solar for rigid modules and United Solar Ovonic for flexible modules. The cost and manufacturing advantages over silicon that have been demonstrated by First Solar in 2006 have brought significantly more awareness to the prospects of thin film technology platforms. As a result, we believe that there will be a number of new start-ups and growing competition within the thin film sector.

First Solar manufactures PV modules by depositing thin films onto rigid glass plates and uses monolithic integration techniques similar to ours to form the cells within the thin film layers to create modules. Similar to silicon modules, thin film glass modules are heavy and rigid and comparable to silicon modules in form and function. First Solar primarily serves the commodity markets for PV modules that include large scale, grid connected solar power projects. In 2006, First Solar reported shipments of 50MW.

United Solar Ovonic manufactures thin film flexible cells on metal foil and then individually assembles the cells together into modules. The module integration technique is similar to the way silicon cells are individually assembled together in series and parallel to form an integrated module. Flexible modules have the added benefit of being integrated into building and other materials, something that is not possible with rigid thin film glass modules or silicon modules. In 2006, United Solar reported less than expected shipments that we estimate between 25MW and 50MW.

Competition in the near-space market currently is limited to other flexible thin-film PV device manufacturers, while competition in the space market also includes rigid PV device manufacturers. We believe that our primary competitors in the near-space markets include United Solar Ovonic, a subsidiary of Energy Conversion Devices, Inc. (‘‘Uni-Solar’’), Global Solar Energy, Inc., (‘‘GSE’’), and DayStar Technologies, Inc. (‘‘DayStar’’). Uni-Solar, which employs a-Si technology, is an established participant in terrestrial market for solar power. Despite Uni-Solar’s commercial success in the terrestrial market, we believe that our flexible CIGS on high-temperature plastic PV modules will prove technically superior in weight and conversion efficiency to Uni-Solar’s devices when used on operational vehicles in space and near-space applications. First Solar, and other thin film PV manufacturers on rigid glass substrates, are not appropriate for space in that they are too heavy (weight is extremely critical) and far too bulky (excessive stowage volume), both of which can add significant launch costs to the mission.

GSE was established in 1996 as a venture between ITN and Tucson Electric Power Company, which was later acquired by UniSource Energy Corporation. GSE and DayStar are, to our knowledge, the only other companies actively exploring the production of a CIGS-based product on a flexible substrate for the space and near-space markets. Both DayStar and GSE’s baseline products use a metal foil substrate for space and HAA applications. Given comparable efficiencies, our CIGS on high-temperature plastic substrate cells will have a higher specific power than a CIGS product on metallic foil due to our choice of lightweight material. Furthermore, CIGS on a metallic foil must be interconnected, either by hand or by

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automation equipment, resulting in added weight and complexity. Our use of a high-temperature plastic substrate and monolithically interconnected devices avoids these issues.

Intellectual Property

Intellectual Property

In January 2006, ITN assigned to us its key CIGS PV technologies, including a pending U.S. patent application titled ‘‘Apparatus and Method of Production of Thin Film Photovoltaic Cell,’’ filed on July 19, 2002 (Serial No. 10/197,813), certain unpublished invention disclosures relating to the design and fabrication of CIGS PV solar cells, and trade secrets relating to proprietary manufacture, process and control steps in the CIGS PV field. ITN also granted to us a perpetual, exclusive, worldwide license to use certain of ITN’s proprietary process, control and design technologies that, although non-specific to CIGS PV, we believe will be useful in our production of solar modules for our target markets.

In October 2006, we filed two provisional patent applications with regard to our very large module concepts for BIPV applications that fully exploit the advantages of a monolithically-integrated thin-film PV product by a roll-to-roll process.

In April 2006, we entered into a non-exclusive patent license agreement with Midwest Research Institute (‘‘MRI’’). MRI manages and serves as operating contractor for NREL under a prime contract with the U.S. Department of Energy (‘‘DOE’’). Pursuant to the prime contract, MRI acquired the rights to license certain inventions developed at NREL. We have acquired a world-wide, non-exclusive commercial license to the following U.S. patents and their foreign counterparts: U.S. Patent Nos. 5,356,839, 5,441,897 and 5,436,204; European Patent No. EP0694209 and European patent application Serial No. 95929367.1 (for the EU, Belgium, France, United Kingdom, Germany and Netherlands); and Japanese Patent Nos. 3130943 and 3258667 and Japanese patent application serial no. 8-508088. The license is effective so long as any claim of the licensed inventions is enforceable. In November 2006, we entered into a non-exclusive license with UD Technology Corporation (“UD”). UD is a non-profit corporation which holds intellectual property created at the University of Delaware’s Institute of Energy Conversion (‘‘IEC’’). We have acquired a world-wide, non-exclusive commercial license to the following patents: U.S. Patent Nos. 6,310,281, 6,372,538, 6,537,845 and 6,562,405, as well as U.S. patent application Serial No. 60/620,352. These patents and patent applications relate to the fabrication of CIGS on flexible plastic substrates, the use of laser patterning and thin-film deposition during the fabrication of flexible monolithically-integrated CIGS PV devices and certain process steps that we intend to use during the manufacturing process.

Employees

Employees

As of March 15, 2007, we had 18 full-time employees and one part-time employee, including five executive officers, nine scientists and engineers, two process technicians, and two marketing and accounting personnel. The number of employees should grow significantly as we install manufacturing capacity. Once the production line has been installed, we intend to hire technicians, product technical engineers and quality control engineers to staff the facility.

ITN provides us with general and administrative support services, at cost, such as human resources, facility management, information technology support and payroll processing. This should permit us to avoid the cost of hiring individual employees and related infrastructure expenses in the near-term.

Research and Development

During the fiscal years ended December 31, 2006 and 2005, we expended approximately $319,085 and $0 in research and development activities, respectively. During the fiscal years ended December 31, 2005

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and 2004, ITN incurred approximately $3,100,000 and $3,300,000, respectively, related to PV research and development activities.