(PFLM.L) PowerFilm Inc Buy/Sell

Operational Highlights

Frank Jeffrey, Co-Founder and Chief Executive Officer, said: "The first half of 2009 was a tough period for PowerFilm. The results are unacceptable and do not reflect the tremendous business potential of our technology and products. We have made changes that we believe will deliver improved results. Realising third-party certification of the building integrated products and having an acceptable yield from the meter-wide equipment to reduce manufacturing cost further will enable sales and profits to grow. We are deploying our strong balance sheet carefully to realize improved financial results for both the short term and intermediate term. Although there have been delays, our progress continues."

For further information, please contact:

PowerFilm, Inc. +1 (515) 292 7606 x 102

Frank Jeffrey, CEO

Mike Coon, VP, Building Integrated,

Business Development, and External Relations

Nomura Code Securities Limited, Nominated Advisor +44 (0) 20 7776 1200

Charles Walker, Giles Balleny

A copy of this announcement will be available on the PowerFilm website at http://www.powerfilmsolar.com. The common shares of PowerFilm, Inc. are traded on the AIM Market of the London Stock Exchange and are not registered under the US Securities Act 1933, as amended. Such shares may not be offered or sold to residents of the United States or to persons acting on their behalf, or to other persons who are "United States Persons" within the meaning of Regulation S as promulgated under the Securities Act of 1933, unless such shares have been registered under the Securities Act or there is an available exemption from registration.
Financial Review

The Company continues to be fully funded for its expansion plans based on expenditures to date and projected remaining expenditures. PowerFilm's balance sheet as at 30 June 2009 includes cash and cash equivalents of $9,976,202 and cash held for property and equipment construction of $9,500,000. These two accounts total $19,476,202. Tax-exempt bond fundraising of $5,000,000 has been used for the land and building for the new meter-wide facility which was placed in service spring 2009. An offsetting long-term liability of $4,500,000 and a current liability of $250,000 are shown on the balance sheet.

For the first half year ended 30 June 2009 PowerFilm achieved $2,977,413 in revenue. The Company's gross profit (loss) for the period was a loss of $648,516, resulting in a -21.8% gross margin. The costs of production are relatively fixed and have increased as depreciation on new equipment has been placed in service. There was an operating loss of $1,764,661 and net loss was $1,238,310.

The following is a comparison of the financial results for the 6 months ended 30 June 2009 compared to the first half of 2008: In the first half of 2009 revenues were $2,977,413 versus $3,869,876 in the first half of 2008, a 23% decrease. Net loss for the first half of 2009 was $1,238,310 versus a net income of $52,023 in the first half of 2008.

The revenue decline was due to several of our larger customers having been affected by the global recession. The Company has put in place measures to broaden the sales reach by implementing a target market focus where our product uniqueness and design abilities will limit competition and maintain reasonable margins.

The Company continues to have significant development contracts in place which support the majority of the research and development, thus reducing internally funded research and development. In this period most research and development expenses were covered by the development contracts. Internally funded research and development expenses were $55,033 for first half 2009 compared to $0 for the first half of 2008. Sales, general, and administrative expenses were $1,061,112 versus $810,925 for the first half of 2008, as the investment in marketing and sales has increased.

The increase in cost of revenues which reduced gross margin was due primarily to expenses incurred in preparation for the manufacturing scale-up. In the second half of 2008, 30 employees were added at a cost of $1.2 million annually in anticipation of increased OEM sales and building integrated sales. These sales have not occurred as anticipated. Higher utility costs for the new building and additional depreciation expense on the new facility and new machines placed into service have increased the cost of revenues in 2009. The Company has taken some actions to reduce labor costs for second half 2009 by implementing a two-week company-wide plant shutdown in July 2009 and the layoff of 15 employees. Other cost savings measures have been enacted to reduce non-essential purchases in both cost of sales and general and administrative expenses. Ultimately, the unit cost of production is expected to fall as production volumes increase to those levels originally planned.

The financial statements of PowerFilm are prepared on the basis of US Generally Accepted Accounting Principles (US GAAP).

Operational Review

Meter-Wide and Expansion Update

Solar material that passes internal standard specifications has been made with the meter-wide metallization and silicon deposition equipment. Yield levels remain insufficient for commercially sellable material. While the engineering developments needed to achieve acceptable yield are not trivial, the physics of the device deposition in the machine has been proved out. Current expectations are to realize commercially sellable meter-wide manufactured material before the end of 2009. Intensive development efforts to increase yield continue so commercially sellable material can be manufactured using this lower-cost process.

The second meter-wide equipment line has been completed as far as possible until final decisions are made on the initial meter-wide silicon deposition machine. The second line of meter-wide equipment is well poised to be brought online quickly at that time.

Following the second meter-wide equipment line will be a steady sequence of subsequent meter-wide lines to complete the production capacity expansion program in the new building.

Sales and Marketing Update

Organizational Changes

As was previously announced there have been organizational changes to sharpen the Company's focus on its target markets. Tim Neugent, President and COO, has assumed direct marketing and sales group responsibility for the military, industrial, and consumer markets. Mike Coon, reporting to Tim, is now focused on the Company's building integrated product development, certification, and launch plans. This is intended to deliver a simultaneous hit on the existing military, industrial, and consumer markets, along with an intensive company-wide focus on the launch of the building integrated products.

Maintaining diversified target sources of revenue from the military, industrial, consumer, and now building integrated markets continues to be a core strategy for the Company. Finding strategic partners with an established distribution presence in those select target markets is a top Company priority. An update follows for each target market.

Building Integrated

In spite of the previously announced product development delays, clear progress continues throughout the Company for the strategic launch of the building integrated solar products.

The building integrated manufacturing process parameters are set. The design development of finished product is finally complete, with a late change being a modification to the strain relief to meet new market requirements. The building integrated solar panels have passed repeatedly the Company's internal testing program for long lifetime. The final major development milestone to achieve is the third-party IEC and UL certification which is expected around the end of 2009.

Although the meter-wide manufacturing equipment is critical to achieve manufacturing cost levels needed for strong gross margins for building integrated market pricing, small quantities

of solar material produced using the existing high-yield thirteen inch manufacturing lines can and will be utilized in the interim period until the initial and then subsequent meter-wide manufacturing lines achieve acceptable yields.

Building integrated demonstration projects are being initiated, with several expected to be completed before the end of 2009. The initial focus of demonstration projects is on architectural fabric and metal roofing applications. Examples include PowerFilm-integrated architectural fabric shade canopies at an aquatic center and a commercial office building development, as well as a select metal roofing residential project. Work with existing and new strategic partners continues.

Military Market and Products

PowerFilm supplies the military market with OEM solar modules, finished soldier-ready portable charger products sold under its brand name PowerFilm Solar, select private label products, and larger power products ranging from the 190 watt Quad portable charger to 1 and 2 kilowatt PowerShade solar field shelters which can be combined for additional remote power.

The PowerFilm Solar branded portable solar charger product line for the military market includes the USB+AA Solar Charger, the AA Solar Charger, foldable chargers ranging from 5-60 Watts, and a line of rollable chargers ranging from 7-28 Watts. The products are sold via Authorized Resellers. The PowerFilm Solar products are available from Authorized Resellers who have an established online presence with the US General Services Administration (GSA) www.gsaadvantage.gov/ program. An important new retail account win is www.rangerjoes.com/ which is a popular online gear site for individual soldiers.

In the military market growing relationships with prime defense contractors is building a foundation for future product sales to strategic customers.

New strategic partnerships with established industry leaders Streamlight and W.W. Grainger offer potentially significant global sales opportunities in the military and disaster relief (including FEMA) markets.

Industrial Market and Products

PowerFilm serves industrial markets with both standard and custom OEM modules.

In the industrial (and military) market the announced major distribution relationship with Avnet is growing and provides valuable significant access to specifying engineers for a broad range of potential applications.

New solar products for golf cart and recreational vehicle (RV) recharging are being marketed. These are value-added markets in which PowerFilm's custom OEM product capabilities give the company a strong advantage.

We are in the process of creating plug and play solutions for the bus shelter lighting, police, emergency responder, and marina markets.

Consumer Market and Products

PowerFilm penetrates consumer markets with OEM solar modules, finished consumer-ready products sold under its brand name PowerFilm Solar, and via select private labeling opportunities to gain additional market penetration.

A significant new OEM customer is a cell phone manufacturer which has purchased initial small quantities of PowerFilm solar modules for integration into one of their cell phones.

The PowerFilm Solar branded portable solar charger product line includes the USB+AA Solar Charger, the AA Solar Charger, foldable chargers ranging from 5-60 Watts, and a line of rollable chargers ranging from 7-28 Watts. The products are sold via Authorized Resellers. An important new retail account win is the West Marine retail chain in the US which has more than 300 marine retail stores nationally.

To expand sales to the outdoor youth market, the Company has obtained a license from the Boy Scouts of America to market AA portable solar chargers under the "Be Prepared" brand name.

Marketing and sales team members are working the sales pipeline intensively, building relationships with strategic customers whose applications have high-volume sales potential once the economy picks up. A recent high-profile promotional activity in the consumer market was PowerFilm's sponsorship for the Fox Teen Choice Awards. For the awards program PowerFilm's rollable solar chargers were used to power lighting and fans and were featured prominently along the "green" carpet.

We have built a solid sales pipeline that is a sound foundation on which we can strategically and aggressively build our marketing and sales effort to generate revenues and profits.

Cost Savings Actions

In response to the current economic situation PowerFilm has made a concerted effort to reduce and contain costs to align them with the current reduced volume levels. Two primary examples include the layoff of 15 employees and a company-wide furlough for two weeks.

Thin Film Electronics

PowerFilm, Inc., through its majority-owned subsidiary Phicot, Inc., continues its leading technology position in the development of flexible displays.

PowerFilm is leveraging its expertise in roll-to-roll semiconductor manufacturing with a flexible plastic substrate to produce thin film electronics. The Company is advancing its development program for backplane drivers for flexible displays through its majority-owned subsidiary Phicot, Inc. and the collaboration on this project with Hewlett-Packard continues. As was previously announced, PowerFilm has licensed self aligning imprint lithography technology from Hewlett-Packard to augment PowerFilm's core technology for the development of low-cost truly roll-manufactured backplane drivers on a thin, flexible plastic substrate. PowerFilm's initial focus is the development of a self-powered flexible display device for individual soldiers to use to improve their situational awareness.

The Company has received funding for the first year and a contract has been awarded for the second year of the development program. PowerFilm believes that it has a strong chance to receive ongoing external funding for the third year of funding for the self-powered display program for the US Army, at or possibly exceeding its existing development funding level .
Outlook
PowerFilm has taken clear, pro-active measures to reduce costs, to maintain flexibility in its expansion plans to ensure they are aligned with the growth rates of its product markets, and to intensify its marketing and sales efforts.

PowerFilm is well positioned to capitalize on market opportunities when the economy strengthens. This period is being used to focus sharply on finishing key development milestones and to strengthen existing ones as well as to build new PowerFilm commercial relationships with key strategic partners to realize increased revenues and profits in the months ahead.

Financial Statements

PowerFilm, Inc.

Statements of Income Mid-Years 2009, 2008, Full-Year 2008
Unaudited Unaudited Audited
6 months 6 months 12 months
ending ending ending
30-Jun-09 30-Jun-08 31-Dec-08

Operating Revenues:
Sales $1,845,081 $2,428,962 $5,742,166
Development Contracts 1,132,332 1,440,914 2,862,348
2,977,413 3,869,876 8,604,514
Cost of Revenues 3,625,929 3,351,861 6,867,381
Gross Profit (loss) (648,516) 518,015 1,737,133

Operating Expenses:
Research and development 55,033 0 40,027
Selling, general, and administrative 1,061,112 810,925 1,686,903
1,116,145 810,925 1,726,930
Operating income (loss) (1,764,661) (292,910) 10,203

Other income (expense):
Interest/Dividend income 26,820 481,042 722,239
Interest (expense) (96,295) (62,946) (187,839)
Other income (expense) 15,426 (46,164) (265,401)
(54,049) 371,933 268,999
Income (loss) before noncontrolling interest in (1,818,710) 79,023 279,202
net(loss) of subsidiary and income taxes
Noncontrolling interest in net(loss) of subsidiary 0 0 (624)
Income (loss) before income taxes (1,818,710) 79,023 279,826
Income taxes (580,400) 27,000 144,000
Net Income (loss) ($1,238,310) $52,023 $135,826
Basic earnings (loss) per share ($0.03) $0.001 $0.00
Diluted earnings (loss) per share ($0.03) $0.001 $0.00

PowerFilm, Inc. Balance Sheets
Mid-Years 2009, 2008 Unaudited Unaudited
6 months 6 months
ending ending
30-Jun-09 30-Jun-08

Cash and cash equivalents, $9,976,202 $16,054,251

net of cash held
for equipment construction
Accounts receivable 905,653 1,268,127
Securities available for 0 250,000

sale
Inventories 2,759,507 1,574,359
Prepaid Expenses 112,088 53,410
Income Tax Receivable 192,773 170,240
Income Tax Recoverable 582,000 0
Deferred Taxes 249,000 60,000
Total current assets 14,777,223 19,430,387
9,500,000 13,200,000

Machinery and equipment 7,810,972 6,106,244
Leasehold improvements 272,276 233,365
Equipment construction in 4,375,004 2,765,588

progress
Land/Building 5,840,020 1,774,951
18,298,272 10,880,148
Less accumulated (2,494,017) (1,793,234)

depreciation
15,804,255 9,086,914
OTHER ASSETS 180,517 154,334
TOTAL ASSETS $40,261,995 $41,871,635

LIABILITIES & STOCKHOLDERS'

Current maturities of long $250,000 $125,000

term debt
Trade accounts payable 281,993 720,623
Other payables and accrued 758,135 577,087

expenses
Income tax payable 89,794 0
Total Current Liabilities 1,379,922 1,422,710

Revenue bonds payable, less 4,500,000 4,875,000

current maturities
Deferred income taxes 236,000 187,000
Total Long-Term Liabilities 4,736,000 5,062,000

STOCKHOLDERS' EQUITY
Non-controlling interest in 3,766 0

subsidiary
Common stock 375,196 372,931
Committed shares to be 5,417 5,833

issued
Additional paid in capital 32,445,023 32,213,073
Retained earnings 1,756,682 2,911,189
Treasury Stock (287,067) 0
Accumulated other (152,944) (116,101)

comprehensive (loss)
34,146,073 35,386,925
TOTAL LIABILITIES & $40,261,995 $41,871,635

PowerFilm, Inc.

Statements of Cash Flows Mid-Years 2009, 2008, Full-Year 2008
Unaudited Unaudited Audited
6 months 6 months 12 months
ending ending ending
30-Jun-09 30-Jun-08 31-Dec-08

Net Income (loss) ($1,238,310) $52,023 $135,826
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 453,911 324,573 649,930
Provision for doubtful accounts 0 0 57,295
Deferred taxes 0 0 60,000
Noncontrolling interest in net (loss) of 0 0 (624)

subsidiary
Stock-based compensation expense 109,037 103,620 170,931
Tax benefit resulting from stock awards exercised 0 0 43,000
Changes in working capital components
(Increase) decrease in accounts receivable 651,612 (250,880) (597,313)
(Increase) in inventories (284,655) (81,836) (982,328)
(Increase) decrease in prepaid expenses 10,863 21,145 (48,374)
Decrease in income tax receivable 0 27,000 90,000
Increase (decrease) in accounts payable (37,536) 409,737 8,439
Increase (decrease) in other payables and accrued (313,747) (120,459) 93,259

expenses

Decrease in income tax payable (582,000) 0 0
Net cash provided by (used in) operating activities (1,230,825) 484,923 (319,959)

Purchase of property and equipment (2,341,654) (3,620,459) (8,709,012)
Proceeds from sale of securities 0 12,400,000 12,650,000

available-for-sale

Decrease in cash held for equipment construction 2,230,000 1,800,000 3,270,000
(Increase) decrease in other assets 509 0 (26,413)
Net cash provided by (used in) investing activities (111,145) 10,579,541 7,184,575

Proceeds from long-term debt 0 0 0
Principal payments on long-term debt (125,000) 0 (125,000)
Acquisition of treasury stock (142,568) 0 (144,591)
Proceeds from issuance of common stock 1,479 53,625 61,108
Net cash provided by (used in) financing activities (266,089) 53,625 (208,483)
Net increase (decrease) in cash (1,608,059) 11,118,089 6,656,133

Beginning 11,584,345 4,928,212 4,928,212
Ending 9,976,286 16,054,251 11,584,345

INFORMATION, cash payments for:
Interest paid $96,295 $62,946 $209,939
Income taxes 0 0 37,000

Conversion of subordinated debentures to common $0 $300,000 $300,000

stock
Gain (Loss) on interest rate swap agreement 347,280 (6,086) (390,209)
Purchase of property and equipment on account 0 0 194,578
Forward-looking Statements

This release includes forward-looking statements which are based on certain assumptions and reflect management's current expectations as contemplated under the Safe Harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to a number of risks and uncertainties that could cause actual results or events to differ materially from current expectations. Some of these factors include: uncertainty as to whether our strategies, partnerships and business plans will yield the expected benefits; general global economic conditions; general industry and market conditions and growth rates; increasing competition; the ability to identify, develop and achieve commercial success for new products, services and technologies; changes in technology; changes in laws and regulations, including government incentive programs; intellectual property rights; our ability to secure and maintain strategic relationships, including key supply relationships; the availability and cost of capital; the availability of, and our ability to retain, key personnel; and the failure of the Company to effectively integrate acquisitions. Additional factors are discussed in our public disclosure materials from time to time. We disclaim any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Notes to Editors

Technology and Manufacturing

PowerFilm has developed a proprietary thin film manufacturing process which consists of roll-to-roll manufacturing of solar cells using an amorphous silicon sunlight absorber layer deposited on a flexible plastic substrate. The Company's proprietary manufacturing process includes an automated low-cost interconnection of individual solar cells within the overall solar panel.

Key elements of PowerFilm's proprietary production process are:

PowerFilm has developed, manufactures, markets, and sells a range of thin flexible solar panels in a variety of sizes and configurations. The Company's solar panels are manufactured on a flexible, thin plastic substrate that is as thin as 1/1000th of an inch (0.025 mm) thick allowing its solar panels to be much thinner and more lightweight, flexible and durable than rigid crystalline panels. This enables easier integration into roofing materials and allows for simple, robust, low cost building installations.

This information is provided by RNS The company news service from the London Stock Exchange

IR KGGZLKRNGLZM