DAYSTAR TECHNOLOGIES INC

     Given the continuing challenges in the solar manufacturing sector from oversupply of modules and fierce price competition, the Company has significantly scaled back its development and manufacturing efforts and embarked on a strategy in which it is seeking strategic partnerships to advance its technology and enter new markets within the global renewal energy industry. These new lines of businesses (“LOBs”) may include companies involved in: 1) engineering, procurement, and construction (“EPC”) of solar modules 2) solar power generation (ie. solar farms) and 3) solar storage technologies. We consider this diversification strategy a prudent one as it avoids carrying the increasing business and financial risks in the solar manufacturing sector while we begin building a foundation of well-managed companies and attractive assets within these new LOBs.

(1) Mr. Lacey is Chairman of the Board of Directors for the Company and currently serving as the Company’s Interim President and Chief Executive Officer. In September 2012, Peter Lacey converted $250,000 as well as the accrued interest thereon into 199,098 shares of the Company's common stock.
(2) In February 2012, John Gorman converted his entire outstanding principal balance of $100,000 as well as the accrued interest thereon into shares of the Company’s common stock.
(3) In March 2012, Richard Schottenfeld converted his entire outstanding principal balance of $100,000 as well as the accrued interest thereon into shares of the Company’s common stock.
(4) In June 2012, William Steckel converted his entire outstanding principal balance of $30,000 as well as the accrued interest thereon into shares of the Company's common stock.
(5) In September 2012, Robert Weiss converted $50,000 as well as the accrued interest thereon into 37,607 shares of the Company's common stock.
(6) In September 2012, Michael Moretti converted $150,000 as well as the accrued interest thereon into 115,792 shares of the Company's common stock.
(7) In September 2012, the Company entered into Share Subscription Agreements with various investors with proceeds totalling $438,840. The Company is required to issue common shares at $1.20 per share for the value of the proceeds plus accrued interest by January 31, 2013; otherwise, the proceeds plus accrued interest are repayable on demand by the investors. In addition, warrants with exercise price of $2.00 will be issued for each common share on January 31, 2013.

     A "material weakness" is defined under SEC rules as a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of a company's annual or interim financial statements will not be prevented or detected on a timely basis by the company's internal controls. As a result of management's review of the investigation issues and results, and other internal reviews and evaluations that were completed after the end of quarter related to the preparation of management's report on internal controls over financial reporting required for this quarterly report on Form 10-Q, management concluded that we had material weaknesses in our control environment and financial reporting process consisting of the following:

     We believe the remediation measures described above will remediate the material weaknesses we have identified and strengthen our internal control over financial reporting. We are committed to continuing to improve our internal control processes and will continue to diligently and vigorously review our financial reporting controls and procedures. As we continue to evaluate and work to improve our internal control over financial reporting, we may determine to take additional measures to address control deficiencies or determine to modify, or in appropriate circumstances not to complete, certain of the remediation measures described above.

     (a) On November 21, 2012, the Company received notice from NASDAQ Stock Exchange (“NASDAQ”) that it is not in compliance with NADAQ Listing Rule 5250(c) (1) because its Quarterly Report on Form 10-Q for the quarter ended September 30, 2012 was filed on a timely basis with the Securities Exchange Commission (the “SEC”). The Company is required to submit a plan to regain compliance with NASDAQ’s filing requirements for continued listing by December 5, 2012. Upon acceptance of the Company’s compliance plan, NASDAQ is permitted to grant an extension of up to 180 days from the Form 10-Q’s filing due date for the Company to regain compliance with NASDAQ’s filing requirements for continued listing. The Company has submitted a business plan to NASDAQ on December 5, 2012 and waiting for a response from NASDAQ.