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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549
  FORM 10-K þ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2004 OR o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________ to _____________. COMMISSION FILE NUMBER 000-31687 EVERGREEN SOLAR,
INC.
 (Exact name of registrant as specified in its charter)
 DELAWARE(State or other jurisdiction of
incorporation or organization)
    
    04-3242254(I.R.S. Employer
Identification No.)138 BARTLETT STREET
MARLBORO, MASSACHUSETTS(Address of principal executive offices)
    
    01752
(Zip Code)
 (508) 357-2221(REGISTRANTS TELEPHONE NUMBER, INCLUDING AREA CODE) 259 Cedar Hill Street
Marlboro, Massachusetts 01752(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED SINCE LAST REPORT) Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK, PAR VALUE $.01 PER SHARE Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days: Yes þ No o
 Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation
S-K is not contained herein, and will not be contained, to the best of the registrants knowledge,
in definitive proxy or information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K.þ Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes
þ No o
 The aggregate market value of the registrants voting and non-voting common equity held by
non-affiliates as of June 30, 2004 was approximately $99 million. As
of March 2, 2005, there were 60,892,323 shares of the registrants Common Stock, $.01
par value per share, outstanding.




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DOCUMENTS INCORPORATED BY REFERENCE The registrant intends to file a definitive proxy statement pursuant to Regulation 14A within 120
days of the end of the fiscal year ended December 31, 2004.
Portions of such proxy statement are
incorporated by reference into Part III of this Annual Report on Form 10-K. 2




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TABLE OF CONTENTS  ITEM 1. BUSINESSITEM 2. PROPERTIESITEM 3. LEGAL PROCEEDINGSITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERSPART IIITEM 5. MARKET FOR THE REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIESITEM 6. SELECTED FINANCIAL DATAITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATAITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSUREITEM 9A. CONTROLS and PROCEDURESITEM 9B. OTHER INFORMATIONPART IIIITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONSITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICESITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-KSIGNATURESEx-4.1 Warrant issued to CRT Capital Group LLCEx-10.6 Lease Agreement dated 1/26/04Ex-23.1 Consent of PricewaterhouseCoopers LLP, an Independent Registered Public Accounting Firm.Ex-31.1 Sect. 302 Certification of C.E.O.Ex-31.2 Sect. 302 Certification of C.F.O.Ex-32.1 Sect. 906 Certification of C.E.O.Ex-32.2 Sect. 906 Certification of C.F.O.    Table of Contents  
 ITEM 1. BUSINESS: OVERVIEW We develop, manufacture and market solar power products enabled by our proprietary String
Ribbon technology that provide reliable and environmentally clean electric power throughout the
world. Our products are targeted at on-grid and off-grid applications, where we believe our growth
prospects are greatest. We believe our proprietary and patented technologies offer significant
design, cost and manufacturing advantages over competing solar power technologies. We intend to
become a leading producer of high-quality solar products by maintaining our technology leadership,
expanding our market reach through strategic partnerships, lowering our manufacturing costs and
increasing our capacity, focusing on high growth areas of the solar market and diversifying and
differentiating our product lines. Since our formation in 1994, we have conducted research and development of advanced process
and product technologies and have utilized our pilot manufacturing facility to refine our products
and manufacturing processes. In 1997, we began shipping small quantities of commercial products
based on first-generation String Ribbon technology. In 2001, we opened our first 3 megawatts (MW)
factory with wider, second-generation technology. In 2004, we expanded our manufacturing capacity
from approximately 3 MW to 12 MW. We accomplished this by constructing a new manufacturing line
with our third-generation double ribbon technology. This double ribbon technology approximately
doubled our wafer capacity per furnace and significantly reduced our manufacturing costs. We are
currently developing a thin ribbon technology based upon our current double ribbon process that has
the potential to significantly reduce manufacturing costs and could double output per kilogram of
silicon consumed. Our next generation ribbon technology, referred to as quad ribbon, is also
currently being developed and could potentially double furnace capacity again. We continue to
refine, develop and commercialize a number of laboratory-demonstrated advancements in our solar
power technologies, including advanced String Ribbon crystal growth, more efficient solar cells and
improved solar module designs. Our solar modules are used for residential, commercial and
industrial applications in the United States and internationally. As we continue to increase
production volumes, we intend to actively expand existing markets and seek new distribution and
marketing arrangements. In January 2005, we entered into a strategic partnership agreement with Q-Cells. Q-Cells is
the worlds largest independent manufacturer of solar cells, whose crystalline solar cells are
among the highest efficiency solar cells commercially available. The purpose of the strategic
partnership is to develop and operate a facility in Germany to manufacture, market and sell solar
products based on our proprietary String Ribbon technology. The facility is expected to be located
in Thalheim, Germany and have an initial capacity of 30 MW. Based upon the success of the initial
operations of this facility, we and Q-Cells intend over the long term, if economically viable, to
expand the capacity of this facility up to 120 MW. We believe this strategic partnership will
accelerate the availability of wafer, cell and module manufacturing capacity based on String Ribbon
technology and provide greater access to the European solar market. For more information on our
strategic partnership with Q-Cells, see RECENT DEVELOPMENTS -Q-Cells Strategic partnership
below. FINANCING TRANSACTIONS In order to satisfy our existing capital requirements and to fund the continuing capacity
expansion of our Marlboro, Massachusetts manufacturing facilities, on June 21, 2004, we consummated
a $18.8 million private placement financing transaction (the Common Stock Private Placement), net
of offering costs of approximately $1.2 million, whereby we issued 7,662,835 shares of our common
stock, and warrants to purchase up to 2,298,851 shares of our common stock, to certain
institutional investors pursuant to a stock and warrant purchase agreement dated June 16, 2004, and
a warrant agreement dated June 21, 2004. Additionally, in connection with the Common Stock Private
Placement, we issued a warrant to purchase 125,000 shares of common stock to CRT Capital Group LLC,
as compensation for CRT Capital Groups services as the placement agent for the Common Stock
Private Placement. The terms of the placement agent warrant are identical to the terms of the
warrants issued to the investors participating in the Common Stock Private Placement. The shares of
common stock were sold at a per share price of $2.61, which represented a 10% discount to the $2.90
closing price of shares of our purchase common stock on the Nasdaq National Market as of the close
of business on June 15, 2004. The warrants entitle the holders to shares of our common stock at an
exercise price of $3.34 per share. The warrants are exercisable at any time on or after December
22, 2004 and prior to June 22, 2009. On August 26, 2004, we entered into a one-year revolving credit facility in the amount of $5.0
million with Silicon Valley Bank pursuant to a Loan and Security Agreement dated August 26, 2004
(the Loan Agreement). The credit facility is secured by a first-priority security interest in
substantially all of our assets granted to Silicon Valley Bank by the Company. We believe that our current cash, cash equivalents, short-term investments and revolving
credit facility will be sufficient to fund our planned manufacturing capacity expansion to our
target level of 15 megawatts, fund our expected commitments with our strategic partnership with
Q-Cells (as described below under the heading RECENT DEVELOPMENTS) for its initial 30 3




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megawatts of capacity and to fund our operating expenditures over the next twelve months. We
will need to raise additional capital in order to further enhance our operating infrastructure and
to further increase capacity. We may also require additional capital to respond to competitive
pressures and acquire complementary businesses or necessary technologies. We do not know whether we
will be able to raise additional financing or financing on terms favorable to us. If adequate funds
are not available or are not available on acceptable terms, our ability to fund our operations,
develop and expand our manufacturing operations and distribution network, or otherwise respond to
competitive pressures would be significantly limited. RECENT DEVELOPMENTS Q-Cells Strategic partnership In January 2005, we entered into a strategic partnership agreement with Q-Cells. The purpose
of the strategic partnership is to develop and operate a facility in Germany to manufacture, market
and sell solar products based on our proprietary String Ribbon technology. The strategic
partnership will be governed by a three-member advisory board consisting of two Evergreen
representatives and one Q-Cells representative. However, we and Q-Cells have agreed that certain
corporate actions of the strategic partnership will require the approval of at least one designee
of each of Evergreen and Q-Cells. The facility in Germany is expected to be located in Thalheim,
Germany and is currently expected to have an initial capacity of 30 MW. Under the strategic partnership agreement, we and Q-Cells have made a total equity commitment
of 44   million (approximately $57 million) to finance a significant part of the construction
of this facility and initial working capital requirements, of which we will contribute 75.1% and
Q-Cells will contribute 24.9%. Except for amounts that we and Q-Cells have contributed on a pro
rata basis to fund initial planning activities, our obligation to fund the balance of the equity
commitment is conditioned upon our receipt of approval from German government authorities with
respect to the public grants. Failing such approval, alternative funding from other public or
private sources may be needed. In this regard, we have applied for government grants of
approximately 26  million (approximately $34 million) to finance a significant portion of
the construction costs of the facility. If we and Q-Cells decide to expand the manufacturing capacity of the facility beyond the
initial 30 MW, then with respect to any capital required to fund the capacity expansion, Q-Cells
has the right to make additional capital contributions to increase its ownership of the strategic
partnership up to 50%, provided that such increased ownership does not conflict with the
requirements of the German government grants. We have agreed to give Q-Cells a right of first
refusal to participate in future strategic partnerships that we may decide to undertake for
development of manufacturing facilities outside the United States, and Q-Cells has agreed not to
engage in certain ribbon technology-related activities during the term of the partnership
agreement and for a period of two years after its expiration. In addition, both we and Q-Cells are licensing to the partnership certain of our proprietary
technologies necessary for the manufacture of solar products based on our proprietary String Ribbon
technology. The licenses are provided on a royalty-free basis, except that certain new material
intellectual property that we or Q-Cells may develop in the future is to be provided on a
royalty-bearing basis and, should the partnership be terminated, the licenses shall be
royalty-bearing to the extent that the partnership further expands its production capacity. The partnership may be terminated by either party at any time after January 1, 2012 upon six
months notice, by mutual agreement of the parties or by one of the parties in the case of a
material breach by the other party. In addition, either party may terminate the partnership
agreement if the German government grant approval is not obtained or if the other party does not
have the financial ability to fund its equity commitment by September 30, 2005. In the case of
termination, except in the case of a termination due to a failure to obtain government grant
approval or the failure of a party to have the ability to fund its equity commitment, the licenses
to the parties technologies will remain in effect subject to certain royalty obligations. Public Offering In February 2005, we completed a $61.9 million public offering of our common stock, net of
offering costs of approximately $4.8 million, to satisfy existing capital requirements and to fund
the continuing capacity expansion of its Marlboro, Massachusetts manufacturing facility and the
expenditures necessary for the build-out and initial operation of the partnership with Q-Cells. A
portion of the proceeds from the financing will also be used to increase research and development
spending on promising next generation technologies and to explore further expansion opportunities.
The Company issued 13,346,000 shares of our common stock. The shares of common stock were sold at a
per share price of $5.00, which represented a 6% discount to the $5.30 closing price of shares of
its common stock as reported on the Nasdaq National Market as of the close of business on February
3, 2005. 4




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HISTORICAL MILESTONES We were incorporated in August 1994 and, to date, we have achieved the following milestones
along our product development and commercialization schedule: October
    
    
    1994
    
    
    Evergreen Solar founded with four employees in a 2,500 square foot laboratory.October
    
    
    1995
    
    
    First String Ribbon wafers produced.April
    
    
    1997
    
    
    9,400 square foot pilot manufacturing facility operational.October
    
    
    1997
    
    
    First commercial sale of solar panels produced using String Ribbon technology.June
    
    
    1999
    
    
    Total sales of solar panels of 2,500 units and 100 kilowatts achieved.December
    
    
    1999
    
    
    Kawasaki investment of $5 million and execution of a strategic distribution and marketing
agreement.March
    
    
    2000
    
    
    Leased 56,250 square foot manufacturing and headquarters facility located in Marlboro,
Massachusetts.August
    
    
    2000
    
    
    Renovation of our Marlboro manufacturing facility and headquarters begun.June
    
    
    2001
    
    
    First shipment of solar panels from our new Marlboro manufacturing facility.November
    
    
    2001
    
    
    New distribution relationships in the U.S. and Europe.December
    
    
    2001
    
    
    Shipment of our 10,000th solar panel.June
    
    
    2002
    
    
    Achieved first quarterly $1.0 million in product sales.December
    
    
    2002
    
    
    Demonstration of double ribbon growth to boost productivity.December
    
    
    2002
    
    
    Solar system installed on White House.May
    
    
    2003
    
    
    Close of $29.5 million preferred stock and warrant financing transactionDecember
    
    
    2003
    
    
    Richard M. Feldt appointed as new Chief Executive OfficerJanuary
    
    
    2004
    
    
    Shipment of our 50,000th solar panelJanuary
    
    
    2004
    
    
    Demonstrated quad-ribbon growth processJune
    
    
    2004
    
    
    Close of $18.8 million private equity financing, net of $1.2 million in financing costsDecember
    
    
    2004
    
    
    Demonstrated 150 micron thick wafer growth capabilityDecember
    
    
    2004
    
    
    Achieved positive gross margins for the first time in Company historyJanuary
    
    
    2005
    
    
    Announced the formation of a joint venture to develop a 30-megawatt solar wafer, cell and
module manufacturing plant with Q-Cells AGFebruary
    
    
    2005
    
    
    Completed a $61.9 million common stock public financing, net of $4.8 million in financing costs
 INDUSTRY BACKGROUND The electric power industry is one of the worlds largest industries. Furthermore, electricity
accounts for a growing share of overall energy use. We believe that deregulation and technological
innovations are creating significant opportunities for new entrants and technologies within the
electric power industry, just as these changes have created similar opportunities in other
regulated industries such as telecommunications, banking and transportation. We believe that distributed generation is one of the most promising areas for growth in the
global electric power industry. Distributed generation is defined as point-of-use electricity
generation that either supplements or bypasses the electric utility grid, and employs technologies
such as solar power, microturbines and fuel cells. Distributed generation is expected to provide
greater portability, reliability, power quality and user control. We believe capacity constraints,
increased demand for power reliability and quality, and new environmental initiatives will drive
the demand for distributed generation. We further believe that environmentally benign, locally sourced power generation will become
increasingly more important for economic development, environmental policy, and national security.
Increasing attention to global warming, global energy policy, and regional stability and
development will support the deployment of distributed generation, particularly renewable energy. Electric power is an increasingly vital component of the global economy, accounting for a
greater share of overall energy use as reliance on electricity-dependent technology grows.
According to the U.S. Department of Energys International Energy Outlook 2004, worldwide demand
for electricity is expected to nearly double over the next two decades, from 13.3 trillion kilowatt
hours, or kWh, in 2001 to 23.1 trillion kWh in 2025. Demand is expected to grow at 3.5% per year
over this time period in the developing world, which currently accounts for only one-third of
electricity consumption and where reliable 5




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electricity is critical to economic growth. Electricity
consumption is expected to grow annually at 1.5% to 2.0% in North America, Europe and
industrialized Asia. Sources of fuel for electricity generation include coal, natural gas, oil,
nuclear power and renewable sources, such as solar, hydroelectric and wind power. Coal-fired
generation comprises approximately 40% of worldwide electricity generation and over 50% of the
electricity generation in the United States, China, Germany and India. Natural gas-fired
electricity generation accounts for approximately 18% of worldwide electricity generation and over
50% of the electricity generation in the former Soviet Union. Renewable sources, chiefly
hydroelectric, account for approximately 20% of global electricity generation. Solar and other
non-hydroelectric sources account for less than 1% of global electricity generation. Electric
power producers face several challenges in meeting anticipated growth in electricity demand:  Environmental regulations.Environmental regulations addressing global climate
change and air quality seek to limit emissions by existing fossil fuel-fired generation
plants and new generating facilities. Countries that are parties to international treaties
such as the Kyoto Protocol have voluntarily submitted to reducing emissions of greenhouse
gases. National and regional air pollution regulations also restrict the release of carbon
dioxide and other gases by power generation facilities.  Infrastructure reliability.Investment in electricity transmission and distribution
infrastructure has not kept pace with increased demand, resulting in major service
disruptions in the United States, such as the Northeast blackout in August 2003. Increasing
the aging infrastructure to meet capacity constraints will be capital intensive, time
consuming and may be restricted by environmental concerns.  Fossil fuel supply constraints.The supply of fossil fuels is finite. While an
adequate supply of coal, natural gas and oil exists for the foreseeable future, depletion of
the fossil fuels over this century may impact prices and infrastructure requirements. For
example, the U.S. domestic supply of liquefied natural gas, or LNG, is not expected to meet
consumption requirements by 2025, requiring significant investment in LNG shipping terminal
infrastructure to support imported fuel. Political instability, labor unrest, war and the
threat of terrorism in oil producing regions has disrupted oil production, increased the
volatility of fuel prices and raised concerns over foreign dependency in consumer nations. As a result of these and other challenges, we believe that future demand for electricity will
not be met through traditional fossil fuel-based generation technologies alone. Distributed Generation We believe that distributed generation is one of the most promising areas for growth in the
global electric power industry. Distributed generation is defined as point-of-use electricity
generation that either supplements or bypasses the electric utility grid and employs technologies
such as solar power, wind energy, microturbines and fuel cells. Distributed generation is expected
to provide greater portability, reliability, power quality and user control. We believe economics,
capacity constraints, increased demand for power reliability and quality and new environmental
initiatives will drive the demand for distributed generation. We further believe that environmentally benign, locally sourced power generation will become
increasingly more important for economic development, environmental policy and national security.
Increasing attention to global warming, global energy policy and regional stability and development
will support the deployment of distributed generation, particularly renewable energy. Solar Power Solar power generation uses interconnected photovoltaic cells to generate electricity from
sunlight. Most photovoltaic cells are constructed using specially processed silicon, which, when
exposed to sunlight, results in the generation of direct current. Many interconnected cells are
packaged into solar modules, which protect the cells and collect the electricity generated. Solar
power systems are comprised of multiple solar modules along with related power electronics. Solar
power technology, first used in the space program in the late 1950s, has experienced growing
worldwide commercial use for over 25 years in both on-grid and off-grid applications.  On-grid.On-grid applications provide supplemental electricity to customers that are
served by an electric utility grid, but choose to generate a portion of their electricity
needs on-site. On-grid applications have been the fastest growing part of the solar power
market. This growth is primarily driven by the worldwide trend toward deregulation and
privatization of the electric power industry, as well as by government initiatives,
including incentive programs to subsidize and promote solar power systems in several
countries, including Japan, Germany and the United States. On-grid applications include
residential and commercial rooftops, as well as ground-mounted mini-power plants. 6




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 Off-grid.Off-grid applications serve markets where access to conventional electric
power is not economical or physically feasible. Solar power products can provide a
cost-competitive, reliable alternative for powering highway call boxes, microwave stations,
portable highway road signs, remote street or billboard lights, vacation homes, rural homes
in developed and developing countries, water pumps and battery chargers for recreational
vehicles and other consumer applications. Solar power has emerged as one of the primary distributed generation technologies seeking to
capitalize on the opportunities resulting from trends affecting the electric power industry.
Relative to other distributed generation technologies, solar power benefits include: 
Modularity and scalability. From tiny solar cells powering a hand-held calculator to
an array of roof modules powering an entire home to acres of modules on a commercial
building roof or field, solar power products can be deployed in many sizes and
configurations and can be installed almost anywhere in the world. Solar is among the best
technologies for power generation in urban areas, environmentally sensitive areas and
geographically remote areas in both developing and developed countries.  Reliability.With no moving parts and no fuel supply required, solar power systems
reliably power some of the worlds most sensitive applications, from space satellites to
microwave stations in the mountains and other remote, harsh environments which typically
require reliable power sources. Solar modules typically carry warranties as long as 25
years.  Dual use.Solar modules are expected to increasingly serve as both a power generator
and the skin of the building. Like architectural glass, solar modules can be installed on
the roofs or facades of residential and commercial buildings.  Environmentally cleaner.Solar power systems consume no fuel and produce no air,
water or noise emissions. Japan, Germany and the United States presently comprise the majority of world market sales for
solar power systems. Government policies in these countries, in the form of both regulation and
incentives, have accelerated the adoption of solar technologies by businesses and consumers. Solar Power Challenges Although solar power can provide a low cost alternative for off-grid applications, we believe
the principal challenge to widespread adoption of solar power for on-grid applications is reducing
manufacturing costs without impairing product reliability. We believe the following advancements in
solar power technology are necessary to meet this challenge:  Efficient material use.Reduce raw materials waste, particularly the waste
associated with sawing silicon by conventional crystalline silicon technology. Efficient use
of silicon is imperative for the growth of the industry due to the limited supply of silicon
raw material expected for the near future.  Simplified and continuous processing.Reduce reliance on expensive, multi-step
manufacturing processes.  Reduced manufacturing capital costs.Decrease the costs and risks associated with
new plant investments as a result of lower capital costs per unit of production.  Improved product design and performance.Increase product conversion efficiency,
longevity and ease of use. Conversion efficiency refers to the fraction of the suns energy
converted to electricity. We further believe the two principal solar power technologies, crystalline silicon and thin
films, have not adequately addressed this challenge:  Crystalline Silicon.Crystalline silicon technology was the earliest practiced solar
wafer fabrication technology and continues to be the dominant technology for the market,
accounting for approximately 94% of solar market sales, according to Solarbuzz. Conventional
crystalline silicon technology involves sawing thin wafers from solid crystalline silicon
blocks. Crystalline silicon products are known for their reliability, performance and
longevity. However, factors such as high materials waste from sawing, numerous processing
procedures and high capital costs have limited the speed at which conventional crystalline
silicon manufacturers can reduce manufacturing costs. 7




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 Thin Films.While most major solar power manufacturers currently rely on crystalline
silicon technology for their solar cell production, they, and other new entrants, are also
developing alternative thin film technologies to achieve lower manufacturing costs. Thin
film technology involves depositing several thin layers of silicon or more complex materials
on a substrate to make a solar cell. Although thin film techniques generally use material
more efficiently than conventional crystalline silicon, we believe higher capital costs,
lower manufacturing yields, lower conversion efficiency and reduced product performance and
reliability have resulted in and will continue to result in limited commercial acceptance.
According to Solarbuzz, the market share of thin films has declined from 12% in 1999 to
approximately 6% in 2003. There will continue to be significant efforts to develop alternate
solar technologies, such as amorphous silicon, CIS (copper indium diselenide), CIGS (copper
indium galium diselenide), CdTe (cadmium telluride), CSOG (crystalline silicon on glass) and
polymer and nano technologies. All these efforts are important to broadening the base of
products for solar to fit a greater number of market needs and niches. OUR TECHNOLOGY SOLUTION We believe our technologies and processes are unique among our competitors. Both our
technologies and processes have been designed to reduce manufacturing costs while improving
product design. We are developing technology at the wafer, cell and module stages of
manufacturing, and we hold patents and other intellectual property in all three areas. We believe
our String Ribbon wafer manufacturing technology is our core technology and offers a substantial
opportunity to reduce cost and otherwise advance our business through reduced materials cost,
simpler processing and lower required economies of scale. In the String Ribbon technique, strings are pulled vertically through a shallow pool of
molten silicon, and the silicon solidifies between the strings to form a continuous ribbon of
crystalline silicon. The ribbon is then cut and prepared for cell fabrication. The use of strings
to aid in the simplified growth of a silicon ribbon is what distinguishes our proprietary String
Ribbon technology from other advanced crystalline silicon wafer technologies that do not involve
sawing. We believe our String Ribbon technology for the growth of solar wafers has the following
significant advantages: Efficient materials use. Unlike conventional bulk crystalline silicon wafer
technology, in which solid blocks of silicon are sawed into thin wafers at significant expense
and silicon waste, our technology grows a continuous, flat ribbon to the desired thickness.
Since our technology does not involve sawing solid blocks, for comparable thickness wafers we
can use as little as one half as much silicon as conventional crystalline silicon techniques
and we believe we can further reduce this amount to approximately one-fourth in the future
through production of thinner wafers. It is worth noting that even if standard wafering
techniques are improved to allow for sawing thinner wafers, the sawing losses become
proportionately larger as a percentage, limiting the ability of these methods from approaching
the silicon usage efficiency of the String Ribbon technology. Not only is this an advantage in
material costs, it allows us to produce more power from the same amount of silicon feedstock
than other manufacturers using crystalline silicon. As long as the supply of silicon remains
limited, higher yield from raw silicon is critical to the growth of the industry. Continuous processing. Our technology permits the continuous growth of crystalline
silicon ribbon, which can lead to high automation, efficient equipment use and improved
productivity. Energy and environmental benefits.String Ribbon uses less energy and substantially
reduces the use of hazardous materials, particularly acids and cutting oils, relative to bulk
crystalline technology. Our Business Strategy Our business strategy is to develop, manufacture and market solar power products that use our
technologies in commercial applications around the world. We presently are focused on the following
steps to implement our business strategy: Maintain our technology leadership through continuous innovation.We believe that
our String Ribbon technology provides critical competitive advantages. While our license to
the underlying patents directed to the String Ribbon technology has expired, we own other
patents directed to various aspects of the String Ribbon technology as well as significant
trade secrets, and we will continue to invest in research and development to extend our
technology leadership while vigorously protecting our intellectual property. Our Marlboro,
Massachusetts facility has approximately 6,000 square feet dedicated to research and
development and contains equipment to support the development, fabrication and evaluation of
new solar power products and technologies. We have demonstrated our ability to produce 150
micron ribbons, which consume approximately half the silicon as our current thickness
ribbons. We are developing a fourth generation technology termed quad ribbon silicon growth,
which allows us to grow four 8




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silicon ribbons simultaneously from a single furnace and may
potentially double the output of each furnace. Together these developments could
dramatically reduce product and capital costs and increase efficiency of raw material usage.
We intend to continually invest in improving our proprietary technologies and their
commercial applications with the goal of reducing manufacturing costs without impairing
product performance or reliability. Expand our market reach through strategic partnerships.We intend to increase our
addressable markets and further leverage our String Ribbon technology through strategic
partnerships with other participants in the solar technology market. Beyond the core String
Ribbon technology, we have generated significant experience and know-how in the handling of
thin and fragile wafers and cells. This expertise is important in solar manufacturing and is
therefore potentially attractive to strategic partners as other manufacturers attempt to
move to thinner wafers. On January 14, 2005 we announced the creation of a strategic
partnership with Q-Cells, the worlds largest independent manufacturer of solar cells. We
believe this strategic partnership will accelerate the availability of wafer, cell and
module manufacturing capacity based on our String Ribbon technology and provide greater
access to the European solar power market. Lower our manufacturing costs and increase our capacity.We have focused on
manufacturing process improvements to increase output capacity. We have recently
transitioned all single ribbon furnaces to double ribbon technology, and also doubled the
number of furnaces, which together more than quadrupled our installed capacity from
approximately 3 MW to 15 MW. Next generation 150 micron and quad ribbon furnaces are now
being actively developed and are targeted to achieve the reliability, stability, conversion
efficiency and market acceptance of crystalline silicon and without the inherent cost and
waste of sawing solid silicon blocks. We believe that these capabilities when integrated
into the full production line will further lower manufacturing costs and enable the String
Ribbon technology to have among the most efficient silicon utilization rates for production
of crystalline photovoltaic products. In addition to our continued investment in our
Marlboro facility, we intend to selectively pursue opportunities to establish manufacturing
arrangements on a worldwide basis. Our ongoing objective remains to provide for large-scale
manufacturing of our solar power products at low costs that will enable us to profitably
penetrate price-sensitive solar power markets. Focus on higher growth areas of the solar market where we have the greatest
competitive advantage.We intend to primarily target the on-grid markets and the off-grid
rural electrification market. The on-grid markets in the U.S. and Europe are currently the
fastest growing solar power markets. Within the off-grid market, we believe that rural
electrification has the largest potential but is the least penetrated market as evidenced by
the two billion people in the world without conventional electricity. Marketing, financing,
local infrastructure and support are projected to remain the principal challenges to greater
expansion of this market. To date, we have primarily pursued off-grid sales in Central and
South America and the Pacific Rim. Diversify and differentiate our product lines.In addition to core wafer and cell
technology, our technology related to module manufacturing processes and components allows
us to differentiate future products to meet market demands. We have patented methods for
producing modules which do not require aluminum frames as is common practice. When the
research and development is completed on these developments, the resulting modules will be
thinner, lighter and stronger than current module designs, thereby lending themselves to
uses in ways not common today. OUR PRODUCTS Solar power products in general are built-up through four stages of production:  -
    Wafers. A crystalline silicon wafer is a flat piece of crystalline silicon that can be
processed into a solar cell. Our rectangular wafers currently measure 81 millimeters by 150
millimeters and are approximately 300 microns thick.-
    Cells. A solar cell is a device made from a wafer that converts sunlight into electricity
by means of a process known as the photovoltaic effect. Our solar cells produce
approximately 1.5 watts of power each.-
    Modules. A solar module is an assembly of solar cells that have been electrically
interconnected and laminated in a physically durable and weather-tight package. A typical
solar module can produce from 20 to 300 watts of power and range in size from 2 to 25 square
feet. A 100-watt solar module can power a standard 100-watt light bulb, or approximately 3%
of the power requirements of a typical home in the United States. Our current solar modules
range up to 115 watts in power, with significantly higher output modules under active
development. 9




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-
    Systems. A solar system is an assembly of one or more solar modules that have been
physically mounted and electrically interconnected, often with batteries or power
electronics, to produce electricity. Typical residential on-grid systems contain between 10
and 60 modules and produce 1 to 6 kilowatts of power. Solar modules are our primary product, although we may in the future also sell wafers, cells,
or systems. We believe our modules are competitive with other products in the marketplace, and some
customers have commented that our modules have benefits including appearance, electrical design and
ease of use. Our solar modules are certified  for safety and quality. If our development programs
are successful, we expect to continue to increase the conversion efficiency and power of our solar
modules as we expand our manufacturing capacity. Sales, Marketing and Distribution We bring our solar power products to market using distributors, system integrators and other
value-added resellers. Our distributors often add value through system design by incorporating our
modules with batteries, associated electronics, structures and wiring systems. Most of our
resellers have a geographic or applications focus. Our channel partners include companies that are
exclusively solar resellers as well as others for whom solar power is an extension of their core
business, such as engineering design firms or other energy product marketers. We expect to collaborate closely with a relatively small number of resellers throughout the
world. We currently have approximately 35 resellers worldwide and are actively working to refine
our distribution partners by very careful addition of a few new accounts and channel partners. We
intend to selectively pursue additional strategic relationships with other companies worldwide for
the joint marketing, distribution and manufacturing of our products. These resellers are expected
to range from large, multinational corporations to small, development-stage companies, each chosen
for their particular expertise. We believe that these relationships will enable us to leverage the
marketing, manufacturing and distribution capabilities of other companies, explore opportunities
for additional product development and more easily and cost-effectively enter new geographic
markets, attract new customers and develop advanced solar power applications. We currently work with a relatively small number of resellers who have particular expertise in
a selected geographic or applications market segment. Sales to our 10 largest customers have
accounted for approximately 80% of our total product revenues since inception. No single customer
has accounted for more than 46% of product revenues since inception. As we continue to expand
manufacturing capacity and sales volumes, we anticipate developing relationships with additional
customers decreasing our dependence on any single customer. During fiscal year 2004 approximately
26% of our product sales were made to customers in the United States, and all of our research
revenue was generated within the United States. Product revenue from
our largest German distributor
accounted for approximately 47% and 46% for the years ended December 31, 2003 and 2004,
respectively, and another German distributor accounted for approximately 10% and 20% of product
revenue for the years ended December 31, 2003 and 2004, respectively. Additional information
regarding the geographic distribution of our sources of revenue and our long-lived assets may be
found in the footnotes to the Financial Statements included with this Annual Report on Form 10-K.
Additional information regarding risks attendant to our foreign operations can be found under
heading Certain Factors Which May Affect Future Results included in Part I, Item 7 of this Annual
Report on Form 10-K. In addition, we market our products through trade shows, on-going customer communications,
promotional material, our web site, direct mail and advertising. Our staff provides customer
service and applications engineering support to our distribution partners while also gathering
information on current product performance and future product requirements. Information regarding our government contracts can be found under the heading RESEARCH AND
DEVELOPMENT below. MANUFACTURING Our principal manufacturing objective is to provide for large-scale manufacturing of our solar
power products at low costs that will enable us to penetrate price-sensitive solar power markets.
Our 56,250 square foot facility in Marlboro, Massachusetts includes approximately 35,000 square
feet of manufacturing space. This facility includes a complete line of equipment to manufacture
String Ribbon wafers, fabricate and test solar cells, and laminate and test modules. The first of
the facilitys two planned manufacturing lines entered service in 2001. During 2002, we initiated
the design and construction of the second production line in our Marlboro facility. At the end of
2003, equipment for parts of the cell processing and module fabrication operations began
production. During 2004, we had approximately quadrupled our manufacturing capacity over 2003 and
by December 2004 had increased our plants annual capacity to approximately 12 MW. We are in the
process of implementing improvements to our manufacturing equipment to decrease the operating
costs. 10




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In addition to our current investment in our Marlboro, Massachusetts facility, we intend to
selectively pursue opportunities to establish local manufacturing arrangements on a worldwide
basis, such as our strategic partnership with Q-Cells. Because the market opportunity for solar
power encompasses numerous applications in both developed and developing nations worldwide, we
expect a significant portion of our future sales will be made outside the United States. Despite
these opportunities, manufacturing of solar power products has remained largely concentrated in the
United States, Europe and Japan due to factors such as reduced economies of scale and technical
process complexities of establishing local manufacturing facilities. In spite of these barriers, we believe there are several advantages to local manufacturing,
including enhanced brand recognition in local markets, avoidance of import tariffs and access to
local private or public sector financing. We believe that our String Ribbon technology and our
innovative manufacturing techniques offer greater advantages than other competing technologies,
which we believe will enable us to establish factories at a smaller scale that can better grow in
concert with market demands. Consequently, we expect to pursue local manufacturing of our products
in selected target markets. We also expect that our technologies will allow us to efficiently scale
our production to take advantage of market opportunities as they arise. RESEARCH AND DEVELOPMENT We believe that continuously improving our technology is an important part of our overall
strategy. Therefore we have maintained and intend to maintain a strong research and development
effort. To this end, our Marlboro, Massachusetts facility has approximately 6,000 square feet
dedicated to research and development and contains equipment to support the development,
fabrication and evaluation of new solar power products and technologies. We intend to continue our policy of selectively pursuing contract research, product
development and market development programs funded by various agencies of the United States, state
and international governments to complement and enhance our own resources. The percentage of our
total revenues derived from government-related contracts was approximately 17% and 6% for the years
ended December 31, 2003 and 2004, respectively. During 2004, we had one multi-year research
contract with the National Renewable Energy Laboratory which expires on March 31, 2005. We have
been awarded another multi-year
research contract with the National Renewable Energy Laboratory which we expect to commence upon
the completion of the current contract.- This and other research contracts we have obtained generally provide for development of
advanced materials and methods for wafer, cell and module manufacturing, product development and
market development. In all cases to date, we retain all rights to any intellectual property and
technological developments resulting from the government funding, with the exception of government
march-in rights to practice the technology on its own behalf and certain rights universities
retain for work they perform under subcontract to us. These contracts usually require the
submission by us of technical progress reports, most of which may become publicly available. These
contracts are generally cost-shared between the funding agency and us with our share of the total
contract cost historically ranging from approximately 30% to 70%. The contracts normally expire
between six months and three years from their initiation. We recognized research revenues of $1.4
million in 2002, $1.6 million in 2003 and $1.3 million in 2004 from government-sponsored research
contracts. We recorded research and development expenditures, including the cost of research
revenue of $3.7 million in 2002, $3.8 million in 2003 and $4.9 million in 2004. Intellectual Property Patents We believe that our commercial success will significantly depend on our ability to protect our
intellectual property rights underlying our proprietary technologies. We seek United States and
international patent protection for major components of our technology platform, including our
crystalline silicon wafers, solar cells and solar modules. We own 17 United States patents, one
Indian patent, two granted European patent applications that have each been validated with
enforceable rights in 10 foreign jurisdictions and two granted European patent applications that
have each been validated with enforceable rights in 18 foreign jurisdictions in the solar power
field. These patents begin to expire in 2016 and will all be expired by 2022. In addition, we have
nine United States patent applications pending and 33 foreign patent applications pending. We
devote substantial resources to building a strong patent position and we intend to continue to file
additional United States and foreign patent applications to seek protection for technology we deem
important to our commercial success. Our patents cover the following areas: Crystalline Silicon Wafers.Dr. Emanuel Sachs, a tenured Professor of Mechanical
Engineering at the Massachusetts Institute of Technology, developed our core String Ribbon
technology. Dr. Sachs has been awarded 11




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three United States patents for the String Ribbon
technology. An additional patent for a related technology, invented by two employees of the
United States National Renewable Energy Laboratory, formerly the Solar Energy Research
Institute, was assigned to Dr. Sachs in 1984. In September 1994, Dr. Sachs granted us an
irrevocable, worldwide, royalty-bearing license to practice the String Ribbon technology and
related patents under a license and consulting agreement. The patents underlying this
agreement expired during 2003 and 2004 and the agreement is now terminated. Dr. Sachs
continues to actively consult with Evergreen Solar on new technological developments. We
have been awarded four United States patents and have nine United States patent applications
pending as well as two granted European patent applications that have each been validated
with enforceable rights in 18 foreign jurisdictions and 14 foreign patent applications
pending on our own, internally developed inventions related to String Ribbon and wafer
fabrication, which are method inventions relating to automated, high-yield production
techniques. Solar Cell Fabrication.We have been awarded five United States patents, one Indian
patent and one granted European patent application that has been validated with enforceable
rights in 10 foreign jurisdictions relating to our solar cell processing technology as well
as three foreign patent applications pending. The United States patents relate to the method
for forming wrap-around contacts on solar cells and a method for processing solar cells. Solar Modules.We have been awarded eight United States patents and 1 granted
European patent application that has been validated with enforceable rights in 10 foreign
jurisdictions and have 16 foreign patent applications pending relating to advanced solar
module designs. The United States patents relate to solar cell modules with an improved
backskin, solar cell modules with an interface mounting system, an encapsulant material for
solar cell modules and a solar cell roof tile system. Trademarks and Copyrights We have three United States trademark registrations, one United States trademark application
and eight foreign trademark registrations associated with our business, including registrations for
the trademarks Evergreen Solar, the Evergreen Solar logo and Cedar Line. Furthermore, we have a
number of common law trademarks and service marks, including the trademark String Ribbon. We are
working to increase, maintain and enforce our rights in our trademark portfolio, the protection of
which is important to our reputation and branding. We also own copyrights relating to our products, services
and business, including copyrights in the software we have developed, in our marketing materials
and in our product manuals. Trade Secrets and Other Confidential Information With respect to, among other things, proprietary know-how that is not patentable and processes
for which patents are difficult to enforce, we rely on trade secret protection and confidentiality
agreements to protect our interests. We believe that several elements of our solar power products
and manufacturing processes involve proprietary know-how, technology or data, which are not covered
by patents or patent applications, including selected materials, technical processes, equipment
designs, algorithms and procedures. We have taken security measures to protect our proprietary
know-how, technologies and confidential data, and we continue to explore additional methods of
protection. While we require all employees, key consultants and other third parties to enter into
confidentiality agreements with us, we cannot be assured that proprietary information will not be
disclosed inappropriately, that others will not independently develop substantially equivalent
proprietary information and techniques or otherwise gain access to our trade secrets, or that we
can meaningfully protect our trade secrets. Any material leak of confidential or proprietary
information into the public domain or to third parties could result in the loss of a competitive
advantage in the solar power market. COMPETITION The solar power market is intensely competitive and rapidly evolving. Our competitors have
established a market position more prominent than ours, and if we fail to attract and retain
customers and establish a successful distribution network for our solar power products, we may be
unable to increase our sales and market share. There are over 20 companies in the world that
produce solar power products, including BP Solar, Kyocera Corporation, Royal Dutch Shell, Sharp
Corporation, RWE SCHOTT Solar, GE Energy and Sanyo Corporation. Other existing and potential
competitors in the solar power market include universities and research institutions. We also
expect that future competition will include new entrants to the solar power market offering new
technological solutions. Further, many of our competitors are developing and are currently
producing products based on new solar power technologies, including other crystalline silicon
ribbon and sheet technologies, that they believe will ultimately have costs similar to, or lower
than, our projected costs. We believe that the cost and performance of our technology will have advantages compared to
competitive technologies. Our products offer the reliability, efficiency and market acceptance of
other crystalline silicon products. We believe our technology provides lower manufacturing costs
resulting from significantly more efficient material usage and fewer processing 12




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steps, particularly
in wafer fabrication. Compared to thin film products, our products offer generally higher
performance and greater market acceptance. Some thin film technologies, such as cadmium telluride,
use toxic materials that inhibit their market acceptance, where others, such as copper indium
diselenide, rely on raw materials in short supply, such as indium. Other technologies, including
all of the polymer and nanomaterial technologies, are still very developmental and have not yet
reached the commercialization stage. The entire solar industry also faces competition from other power generation sources, both
conventional sources as well as other emerging technologies. Solar power has certain advantages and
disadvantages when compared to other power generating technologies. The advantages include the
ability to deploy products in many sizes and configurations, to install products almost anywhere in
the world, to provide reliable power for many applications, to serve as both a power generator and
the skin of a building and to eliminate air, water and noise emissions. Whereas solar generally is
cost effective for off-grid applications, the high up-front cost of solar relative to most other
solutions is the primary market barrier for on-grid applications. Furthermore, unlike most
conventional power generators, which can produce power on demand, solar power cannot generate power
where sunlight is not available, although it is often matched with battery storage to provide
highly reliable power solutions. ENVIRONMENTAL REGULATIONS We use, generate and discharge toxic, volatile or otherwise hazardous chemicals and wastes in
our research and development and manufacturing activities. We are subject to a variety of foreign,
federal, state and local governmental regulations related to the storage, use and disposal of
hazardous materials. We believe that we have all environmental permits necessary to conduct our business. We
believe that we have properly handled our hazardous materials and wastes and have not contributed
to any contamination at any of our past or current premises. We are not aware of any environmental
investigation, proceeding or action by foreign, federal or state agencies involving our past or
current facilities. If we fail to comply with present or future environmental regulations, we could
be subject to fines, suspension of production or a cessation of operations. Any failure by us to
control the use of or to restrict adequately the discharge of hazardous substances could subject us
to substantial financial liabilities, operational interruptions and adverse publicity, any of which
could materially and adversely affect our business, results of operations and financial
condition. In addition, under some foreign, federal and state statutes and regulations, a
governmental agency may seek recovery and response costs from operators of property where releases
of hazardous substances have occurred or are ongoing, even if the operator was not responsible for
the release or otherwise was not at fault. EMPLOYEES As of December 31, 2004, we had approximately 250 full-time employees, including approximately
20 engaged in research and development and approximately 215 engaged in manufacturing.
Approximately 20 of our employees have advanced degrees, including eight with Ph.D.s. None of our
employees are represented by any labor union nor are they organized under a collective bargaining
agreement. We have never experienced a work stoppage and believe that our relations with our
employees are good. AVAILABLE INFORMATION Our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K,
and all amendments to those reports are made available free of charge though our internet website
(http://www.evergreensolar.com) as soon as practicable after such material is
electronically filed with, or furnished to, the Securities and Exchange Commission. 
 ITEM 2. PROPERTIES: Our headquarters is currently located in a leased space in Marlboro, Massachusetts, where we
currently occupy approximately 56,250 square feet of administrative, laboratory and manufacturing
space. We anticipate that, as a result of having added a second manufacturing line as well as other
recent capital improvements, this facility will be producing at its target capacity of 15 MW by
year end 2005. Our lease expires on June 30, 2010. On January 24, 2004, we signed a new lease for 23,839 square feet of additional warehouse and
office space located in Marlboro, Massachusetts. This lease expires on January 24, 2010. 
 ITEM 3. LEGAL PROCEEDINGS: We are not a party to any material legal proceedings. 13




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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS: No matters were submitted to a vote of security holders during the quarter ended December 31,
2004. 14




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PART II 
 ITEM 5. MARKET FOR THE REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES
OF EQUITY SECURITIES: Market for Our Common Stock Our common stock is traded on the Nasdaq National Market under the symbol ESLR. The
following table sets forth for the calendar periods indicated, the high and low sales price of our
common stock on the Nasdaq National Market. High
    
    
    LowYear ended December 31, 2003First Quarter
    
    $
    2.32
    
    
    $
    1.00Second Quarter
    
    $
    1.98
    
    
    $
    1.26Third Quarter
    
    $
    3.25
    
    
    $
    1.01Fourth Quarter
    
    $
    2.89
    
    
    $
    1.48Year ended December 31, 2004First Quarter
    
    $
    2.80
    
    
    $
    1.65Second Quarter
    
    $
    5.15
    
    
    $
    2.25Third Quarter
    
    $
    3.29
    
    
    $
    1.92Fourth Quarter
    
    $
    4.70
    
    
    $
    2.82
 On March 2, 2005, the last reported sale price for our common stock on the Nasdaq National
Market was $6.85 per share. Holders As of March 2, 2005, there were 60,892,323 shares of our common stock outstanding held by
approximately 250 holders of record. Dividends We have never declared or paid any cash dividends on our common stock. We anticipate that we
will retain our earnings to support operations and to finance the growth and development of our
business and do not expect to pay cash dividends on our common stock in the foreseeable future. Information about dividends accrued and paid with respect to our Series A preferred stock can
be found under Part II, Item 7 of this Annual Report on Form 10-K under the heading Results of
Operations  Description of Our Revenues, Costs and Expenses, and under Note 7 to the Financial
Statements included with this Annual Report on Form 10-K. Securities Authorized for Issuance Under Equity Compensation Plans The information required by this Item 5 regarding equity compensation plans is incorporated
by reference to the information set forth in Part III, Item 12 of this Annual Report on Form 10-K. Recent Sales of Unregistered Securities On May 15, 2003, we consummated a private placement transaction with certain investors to
raise $29.5 million through the issuance of 26,227,668 shares of Series A convertible preferred
stock and the sale of a warrant to purchase 2,400,000 shares of common stock. The shares of common
stock and the warrant were issued under Regulation D of the Securities Act of 1933. The proceeds
to the Company, net of offering costs of approximately $849,000, were approximately $28.6 million.
The Company classified the Series A convertible preferred stock outside of permanent equity since
the holders of the Series A convertible preferred stock could redeem their shares at any time for
shares of the Companys common stock. On June 21, 2004, holders of all outstanding shares of Series
A convertible preferred stock agreed to convert all of their shares of Series A convertible
preferred stock into shares of our common stock in connection with a common stock private placement
financing, as described below. During the first quarter of 2004, the Series A preferred stock
earned a dividend of approximately $700,000, which the Company elected to add to the liquidation
preference of the Series A convertible preferred stock. As an inducement to convert their shares
into common stock in connection with the Common Stock Private Placement consummated on June 21, 15




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2004, the remaining Series A preferred shareholders received the dividend earned for the period
between April 1, 2004 and June 21, 2004 in cash, which totaled approximately $500,000. In
addition, the Series A preferred shareholders received a cash conversion premium of 7% of the
accreted value of Series A Preferred Stock as of March 31, 2004, which totaled $1.7 million.
Therefore, the total dividend charged recorded by the Company for year ended December 31, 2004 was
approximately $2.9 million. In June 2004, we completed an $18.8 million private placement financing, net of offering costs
of approximately $1.2 million, to satisfy existing capital requirements and to fund the continuing
capacity expansion of our Marlboro, Massachusetts manufacturing facility. A portion of the
proceeds from the financing are also be used to increase research and development spending on
promising next generation technologies and to explore further expansion opportunities. We issued
7,662,835 shares of our common stock and warrants to purchase up to 2,298,851 shares of our common
stock to certain institutional investors in the financing. Additionally, in connection with the
financing, we issued a warrant to purchase 125,000 shares of common stock to the placement agent,
with terms substantially identical to the terms of the warrants issued to investors in the
financing. The shares of common stock and the warrants were originally issued under Regulation D of
the Securities Act of 1933. The shares of common stock issued directly and the shares of common
stock underlying the warrants issued in the financing were subsequently registered for resale under
the Securities Act of 1933 on Form S-3. The shares of common stock were sold at a per share price
of $2.61, which represented a 10% discount to the $2.90 closing price of shares of our common stock
as reported on the Nasdaq National Market as of the close of business on June 15, 2004. The
warrants entitle the holders to purchase the underlying shares at an exercise price of $3.34 per
share. The warrants are exercisable at any time on or after December 22, 2004 and prior to June 22,
2009. In August 2004, the Company issued a warrant to purchase 89,955 shares of the Companys common
stock to Silicon Valley Bank as compensation for establishing revolving credit facility. Silicon
Valley Bank is an accredited investor as defined the Securities Act of 1933, as amended (the
Act). The warrant was issued pursuant to Regulation D under the Act and has not been registered
with the Securities and Exchange Commission. The warrant entitles Silicon Valley Bank to purchase
shares of the Companys common stock at an exercise price of $3.34 per share. Upon issuance, such
shares will be deemed to be fully paid and non-assessable. The warrant is exercisable in whole or
in part at any time on or prior to August 25, 2009. Until such time as the warrant is exercised in
full or expires, the purchase price per share and the number of shares to be issued upon exercise
are subject to adjustment from time to time as set forth in the Warrant to Purchase Stock, dated
August 26, 2004. Silicon Valley Bank also holds certain registration rights with respect to the
warrant as set forth in a Registration Rights Agreement dated August 26, 2004. In accordance with
the terms of the warrant, and for regulatory reasons and not with a view to sale or distribution in
violation of applicable federal and state securities laws, this warrant was subsequently
transferred from Silicon Valley Bank to Silicon Valley Bancshares, an affiliate of Silicon Valley
Bank. Proceeds received by the Company upon the exercise of the warrant, if any, will be used for
general and working capital purposes. 16




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ITEM 6. SELECTED FINANCIAL DATA: You should read the data set forth below in conjunction with our financial statements and
related notes and Managements Discussion and Analysis of Financial Condition and Results of
Operations appearing elsewhere in this filing. The statement of operations data presented below
for the fiscal years ended December 31, 2002, 2003, and 2004 and the balance sheet data at December
31, 2003 and 2004 have been derived from our audited financial statements which appear elsewhere in
this filing. The statement of operations data presented below for the years ended December 31, 2000
and 2001, and the balance sheet data at December 31, 2000, 2001 and 2002 have been derived from our
audited financial statements, which are not included in this filing. Year Ended December 31,2000
    
    
    2001
    
    
    2002
    
    
    2003
    
    
    2004(in thousands, except for per share data)STATEMENT OF OPERATIONS DATA:Revenues:Product revenues
    
    $
    419
    
    
    $
    1,546
    
    
    $
    5,296
    
    
    $
    7,746
    
    
    $
    22,240Research revenues
    
    
    1,753
    
    
    
    932
    
    
    
    1,448
    
    
    
    1,565
    
    
    
    1,296Total revenues
    
    
    2,172
    
    
    
    2,478
    
    
    
    6,744
    
    
    
    9,311
    
    
    
    23,536Operating Expenses:Cost of product revenues
    
    
    2,795
    
    
    
    9,649
    
    
    
    12,405
    
    
    
    15,379
    
    
    
    29,717Research and development expenses, including cost of research revenues
    
    
    3,382
    
    
    
    3,063
    
    
    
    3,692
    
    
    
    3,791
    
    
    
    4,931Selling, general and administrative expenses
    
    
    2,505
    
    
    
    4,088
    
    
    
    4,520
    
    
    
    5,337
    
    
    
    7,797Total operating expenses
    
    
    8,682
    
    
    
    16,800
    
    
    
    20,617
    
    
    
    24,507
    
    
    
    42,445Operating loss
    
    
    (6,510
    )
    
    
    (14,322
    )
    
    
    (13,873
    )
    
    
    (15,196
    )
    
    
    (18,909
    )Other income (loss), net
    
    
    1,305
    
    
    
    1,845
    
    
    
    674
    
    
    
    222
    
    
    
    (454
    )Net loss
    
    
    (5,205
    )
    
    
    (12,477
    )
    
    
    (13,199
    )
    
    
    (14,974
    )
    
    
    (19,363
    )Accretion, dividends and conversion premiums on Series A convertible preferred stock
    
    
    (2,283
    )
    
    
    
    
    
    
    
    
    
    
    (13,498
    )
    
    
    (2,904
    )Net loss attributable to common stockholders
    
    $
    (7,488
    )
    
    $
    (12,477
    )
    
    $
    (13,199
    )
    
    $
    (28,472
    )
    
    $
    (22,267
    )Net loss per share attributable to common stockholders (basic and diluted)
    
    $
    (2.96
    )
    
    $
    (1.10
    )
    
    $
    (1.16
    )
    
    $
    (2.39
    )
    
    $
    (0.67
    )Weighted average shares used in computing basic and
diluted net loss per share attributable to common stockholders
    
    
    2,530
    
    
    
    11,304
    
    
    
    11,405
    
    
    
    11,899
    
    
    
    33,204
 December 31,2000
    
    
    2001
    
    
    2002
    
    
    2003
    
    
    2004(in thousands)BALANCE SHEET DATA:Cash, cash equivalents and marketable securities
    
    $
    45,994
    
    
    $
    26,263
    
    
    $
    8,483
    
    
    $
    20,340
    
    
    $
    11,942Working capital
    
    
    46,056
    
    
    
    26,591
    
    
    
    12,544
    
    
    
    22,039
    
    
    
    14,281Total assets
    
    
    55,783
    
    
    
    44,861
    
    
    
    31,963
    
    
    
    45,976
    
    
    
    49,721Convertible preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    27,032
    
    
    
    Total stockholders equity
    
    
    54,143
    
    
    
    43,055
    
    
    
    29,913
    
    
    
    16,944
    
    
    
    41,520
 17




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ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS: We caution readers that statements in this Annual Report on Form 10-K that are not strictly
historical statements, including, but not limited to: statements reflecting our expectations
regarding the timing, cost, and success of our manufacturing scale-up at our facility in Marlboro,
Massachusetts and future manufacturing expansion and production, as well as related financing
requirements; future financial performance; our technology and product development, cost and
performance; our current and future strategic relationships and future market opportunities; and
our other business and technology strategies and objectives, constitute forward-looking statements
which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform
Act of 1995. These statements may be identified with such words as we expect, we believe, we
anticipate or similar indications of future expectations. These statements are neither promises
nor guarantees and involve risks and uncertainties, which could cause our actual results to differ
materially from such forward-looking statements. Such risks and uncertainties may include, among
other things, those risks and uncertainties described below under the heading Certain Factors
Which May Affect Future Results and elsewhere in this Annual Report and in our other filings with
the Securities and Exchange Commission (SEC), copies of which may be accessed through the SECs
Web Site at http://www.sec.gov. We caution readers not to place undue reliance on any
forward-looking statements contained in this Annual Report, which speak only as of the date of this
Annual Report. We disclaim any obligation to publicly update or revise any such statements to
reflect any change in our expectations, or events, conditions, or circumstances on which any such
statements may be based, or that may affect the likelihood that actual results will differ from
those set forth in such forward-looking statements. EXECUTIVE OVERVIEW We develop, manufacture and market solar power products enabled by our String Ribbon
technology that provide reliable and environmentally clean electric power throughout the world.
Solar power products use interconnected photovoltaic cells to generate electricity from sunlight.
To date, our product sales have been primarily solar modules, which are used to generate
electricity for on-grid and off-grid applications. Off-grid applications serve markets where access
to conventional electric power is not economical or physically feasible. Solar power products can
provide a cost-competitive, reliable alternative for powering highway call boxes, microwave
stations, portable highway road signs, remote street or billboard lights, vacation homes, rural
homes in developed and developing countries, water pumps and battery chargers for recreational
vehicles and other consumer applications. More recently, the substantial majority of our products
have been used by on-grid customers as a clean, renewable source of alternative or supplemental
electricity. We made significant progress on our capital expansion program aimed at roughly quadrupling our
production capacity by adding a second manufacturing line as well as other improvements to the
manufacturing equipment, which we expect to be scaled to capacity by mid-2005. During 2004 our
product sales were constrained by our manufacturing capacity despite the fact that by September
2004, we had approximately tripled our manufacturing capacity over 2003. By year end, we had
increased our plants annualized production rate to approximately 12 MW. All older generation
single ribbon furnaces have been converted to or replaced by more cost-effective, dual-ribbon
furnace technology. Since product revenue has been limited by capacity, the planned expansion in
Marlboro should enable additional revenue growth during 2005, and the increased production volumes
should also improve our product gross margins. We have already begun to realize revenue growth
resulting from the expansion that has been completed thus far. Specifically, our product revenues
for the year ended December 31, 2004 represent a 187% increase over our product revenues for 2003.
Furthermore, we had positive product gross margin for the fourth quarter of 2004 of 5.3%, the first
time in the companys history to achieve positive gross margin. In June 2004, we completed an $18.8 million private placement financing, net of offering costs
of approximately $1.2 million, to satisfy existing capital requirements and to fund the continuing
capacity expansion of our Marlboro, Massachusetts manufacturing facility. A portion of the proceeds
from the financing was also used to increase research and development spending on promising next
generation technologies and to explore further expansion opportunities. We issued 7,662,835 shares
of our common stock and warrants to purchase up to 2,298,851 shares of our common stock to certain
institutional investors in the financing. Additionally, in connection with the financing, we issued
a warrant to purchase 125,000 shares of common stock to the placement agent, with terms identical
to the terms of the warrants issued to investors in the financing. The shares of common stock were
sold at a per share price of $2.61, which represented a 10% discount to the $2.90 closing price of
shares of our common stock as reported on the Nasdaq National Market as of the close of business on
June 15, 2004. The warrants entitle the holders to purchase the underlying shares at an exercise
price of $3.34 per share. The warrants are exercisable at any time on or after December 22, 2004
and prior to June 22, 2009. In August 2004, we entered into a one-year revolving credit facility in the amount of $5.0
million with Silicon Valley Bank, which will be used to further support our ongoing expansion
plans. The credit facility is secured by a first-priority collateral interest we granted to Silicon
Valley Bank in substantially all of our assets. 18




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In January 2005, we entered into a strategic partnership agreement with Q-Cells. The purpose
of the strategic partnership is to develop and operate a facility in Germany to manufacture, market
and sell solar products based on our proprietary String Ribbon technology. We believe this
strategic partnership will accelerate the availability of wafer, cell and module manufacturing
capacity based on String Ribbon technology and provide greater access to the European Union solar
market. As part of the strategic partnership, subject to certain conditions under the strategic
partnership agreement, we and Q-Cells have agreed to finance a majority of the expenditures
necessary for the build-out and initial operation of the strategic partnership through cash capital
contributions in amounts payable over time that total to
44 million (approximately $57 million), of which we would be
responsible for 75.1%. In addition to these funds, our objective is
to finance approximately 26
million (approximately $34 million) through public grants under a German government grant program. If we and Q-Cells are
unsuccessful in obtaining the German government grants, or if either party is unable to finance
its pro rata share of the required capital, we and Q-Cells would have the ability to terminate the
strategic partnership. As a result, the strategic partnership remains subject to the risk that the
parties may be unable to finance, both directly and through government or third party sources, the
costs of the establishment of the facility, which would cause a significant delay in our ability to
expand our manufacturing capacity and our ability to significantly grow revenues and achieve
profitability. In February 2005, we completed a $61.9 million common stock offering, net of offering costs of
approximately $4.8 million, to satisfy existing capital requirements and to fund the continuing
capacity expansion of our Marlboro, Massachusetts manufacturing facility and the expenditures
necessary for the initial build-out and initial operation of the strategic partnership with
Q-Cells. A portion of the proceeds from the financing will also be used to increase research and
development spending on promising next generation technologies and to explore further expansion
opportunities. For this common stock offering, we issued 13,346,000 shares of our common stock. The
shares of common stock were sold at a per share price of $5.00 (before deducting underwriting
discounts), which represented a 6% discount to the $5.30 closing price of shares of our common
stock as reported on the Nasdaq National Market as of the close of business on February 3, 2005. We believe that our current cash, cash equivalents, short-term investments and revolving
credit facility will be sufficient to fund our planned manufacturing capacity expansion to our
target level of 15 megawatts, fund our expected commitments with our strategic partnership with
Q-Cells for its initial 30 megawatts of capacity and to fund our operating expenditures over the
next twelve months. We will need to raise additional capital in order to further enhance our
operating infrastructure and to further increase capacity. We may also require additional capital
to respond to competitive pressures and acquire complementary businesses or necessary technologies.
We do not know whether we will be able to raise additional financing or financing on terms
favorable to us. If adequate funds are not available or are not available on acceptable terms, our
ability to fund our operations, develop and expand our manufacturing operations and distribution
network, or otherwise respond to competitive pressures would be significantly limited. CRITICAL ACCOUNTING POLICIES AND ESTIMATES The preparation of consolidated financial statements in accordance with generally accepted
accounting principals requires us to make estimates and judgments that affect the reported amounts
of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and
liabilities, if applicable. We base our estimates on historical experience and on various other
assumptions that are believed to be reasonable under the circumstances, the results of which form
the basis for making judgments about the carrying values of assets and liabilities that are not
readily apparent from other sources. Actual results may differ from these estimates under different
assumptions or conditions. We believe the following critical accounting policies affect our more
significant judgments and estimates used in the preparation of our consolidated financial
statements: Revenue Recognition and Allowance for Doubtful Accounts We recognize product revenue if persuasive evidence of an arrangement exists, shipment has
occurred, risk of loss has transferred to the customer, sales price is fixed or determinable, and
collectibility is reasonably assured. The market for solar power products is emerging and rapidly
evolving. We currently sell our solar power products primarily to distributors, system integrators
and other value-added resellers within and outside of North America, which typically resell our
products to end users throughout the world. For new customers requesting credit, we evaluate
creditworthiness based on credit applications, feedback from provided references, and credit
reports from independent agencies. For existing customers, we evaluate creditworthiness based on
payment history and known changes in their financial condition. We also evaluate the facts and circumstances related to our customers and consider whether
risk of loss has not passed to the customer upon shipment. We consider whether our customer is
purchasing our product for stock, and whether contractual or implied rights to return the product
exist or whether our customer has an end user contractually committed. To date, we have not
offered rights to return our products other than for normal warranty conditions. 19




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We maintain allowances for doubtful accounts for estimated losses resulting from the inability
of our customers to make required payments. If the financial condition of our customers were to
deteriorate, such that their ability to make payments was impaired, additional allowances could be
required. Revenue from research grants is generally recognized as services are rendered to the extent of
allowable costs incurred. Inventory Inventory is valued at the lower of cost or market. Certain factors may impact the realizable
value of our inventory including, but not limited to, technological changes, market demand, changes
in product mix strategy, new product introductions and significant changes to our cost structure.
We sold our finished goods inventory at prices that are below the sum of our fixed and variable
costs per unit during the first nine months in 2004. Estimates of reserves are made for
obsolescence based on the current product mix on hand and its expected net realizability. If actual
market conditions are less favorable or other factors arise that are significantly different than
those anticipated by management, additional inventory write-downs or increases in obsolescence
reserves may be required. We treat lower of cost or market adjustments and inventory reserves as
an adjustment to the cost basis of the underlying inventory. Accordingly, favorable changes in
market conditions are not recorded to inventory in subsequent periods. Warranty We provide for the estimated cost of product warranties at the time revenue is recognized.
Given our limited operating history, we use historical industry solar panel failure rates as the
primary basis for our warranty provision calculation. While we engage in product quality programs
and processes, including monitoring and evaluating the quality of our component suppliers, our
warranty obligation is affected by product failure rates and material usage and service delivery
costs incurred in correcting a product failure. Our current standard product warranty includes a
one or two-year warranty period for defects in material and workmanship and a 25-year warranty
period for declines in power performance. We believe our warranty periods are consistent with
industry practice. If our actual product failure rates, material usage or service delivery costs
differ from our estimates, revisions to the estimated warranty liability would be required. Since
we have a limited operating history and our manufacturing process differs from industry standards,
our experience may be different from the industry data used as a basis for our estimate. While our
methodology takes into account these uncertainties, adjustments in future periods may be required
as our products mature. Long-lived Assets Our policy regarding long-lived assets is to evaluate the recoverability or usefulness of
these assets when the facts and circumstances suggest that these assets may be impaired. This
analysis relies on a number of factors, including changes in strategic direction, business plans,
regulatory developments, economic and budget projections, technological improvements, and operating
results. The test of recoverability or usefulness is a comparison of the asset value to the
undiscounted cash flow of its expected cumulative net operating cash flow over the assets
remaining useful life. If such a test indicates that an impairment is required, then the asset is
written down to its estimated fair value. Any write-downs would be treated as permanent reductions
in the carrying amounts of the assets and an operating loss would be recognized. To date, we have
had recurring operating losses and the recoverability of our long-lived assets is contingent upon
executing our business plan that includes further reducing our manufacturing costs and
significantly increasing sales. If we are unable to execute our business plan, we may be required
to write down the value of our long-lived assets in future periods.
All of our long-lived assets are located in the United States. Income Taxes We are required to estimate our income taxes in each of the jurisdictions in which we operate
as part of our consolidated financial statements. This involves estimating the actual current tax
in addition to assessing temporary differences resulting from differing treatments for tax and
financial accounting purposes. These differences together with net operating loss carryforwards
and tax credits may be recorded as deferred tax assets or liabilities on the balance sheet. A
judgment must then be made of the likelihood that any deferred tax assets will be recovered from
future taxable income. To the extent that we determine that it is more likely than not that
deferred tax assets will not be utilized, a valuation allowance is established. Taxable income in
future periods significantly different from that projected may cause adjustments to the valuation
allowance that could materially increase or decrease future income tax expense. 20




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Results of Operations Description of Our Revenues, Costs and Expenses Product revenues. Product revenues consist of revenues from the sale of solar cells, panels
and systems. Product revenues represented 94% of total revenues for the year ended December 31,
2004, 83% of total revenues for the year ended December 31, 2003 and 79% of total revenues for the
year ended December 31, 2002. International product sales accounted for approximately 74%, 72% and
69% of total product revenues for the years ended December 31, 2004, 2003 and 2002, respectively.
A European distributor accounted for approximately 46%, 47%, and 57% of total product revenue for
the years ended December 31, 2004, 2003 and 2002, respectively. Another European distributor
accounted for approximately 20% and 10% of total product revenue for the years ended December 31,
2004 and 2003, respectively. We anticipate that international sales will continue to account for a
significant portion of our product revenues for the foreseeable future. Currently, all European
sales are denominated in Euros, which increases our risk of incurring foreign exchange gains or
losses. As we expand our manufacturing operations and distribution network internationally, our
exposure to fluctuations in currency exchange rates may increase. The following table summarizes our concentration of total revenue: % of total revenue
    
    2003
    
    
    2004By geography:U.S. distributors
    
    
    23
    %
    
    
    25
    %U.S. Government (research revenue)
    
    
    17
    %
    
    
    6
    %Germany
    
    
    53
    %
    
    
    69
    %All other
    
    
    7
    %
    
    
    100
    %
    
    
    100
    %By customer:European distributor #1
    
    
    39
    %
    
    
    44
    %European distributor #2
    
    
    9
    %
    
    
    19
    %National Renewable Energy Laboratory (research revenue)
    
    
    10
    %
    
    
    5
    %All other
    
    
    42
    %
    
    
    32
    %100
    %
    
    
    100
    %
 Research revenues. Research revenues consist of revenues from various state and federal
government agencies to fund our ongoing research, development, testing and enhancement of our
products and manufacturing technology. We have not in the past, nor is it our intention in the
future, to pursue contracts that are not part of our ongoing research activities. We recognize
research revenues as services are rendered. During 2004, we had one active multi-year research
contract with the National Renewable Energy Laboratory. As of December 31, 2004, approximately
$2.9 million in revenue has been recorded on the contract, and we expect the remaining $0.1 million
of revenue will be recognized as work is performed over the remaining life of the contract, which
expires on March 31, 2005. Cost of product revenues. Cost of product revenues consists primarily of salaries and related
personnel costs, materials expenses, depreciation expenses, maintenance, rent, royalties on
licensed technology, warranty costs, and other support expenses associated with the manufacture of
our solar power products. We expect to continue to experience costs in excess of product revenues
until we are able to achieve greater manufacturing efficiencies, higher yields, and production
levels near our targeted 15 MW, which we currently anticipate in mid-2005. Research and development expenses, including cost of research revenues. Research and
development expenses, including cost of research revenues, consist primarily of salaries and
related personnel costs, consulting fees and prototype costs related
to the design, development, testing and enhancement of our products and manufacturing
technology. We expense our research and development costs as incurred. We believe that research and
development is critical to our strategic objectives of enhancing our technology, reducing
manufacturing costs and meeting the changing requirements of our customers. As a result, we expect
that our total research and development expenses will increase in the future. Selling, general and administrative expenses. Selling, general and administrative expenses
consist primarily of salaries and related personnel costs, professional fees, rent, insurance and
other sales expenses. We expect that selling expenses will increase substantially in absolute
dollars as we increase our sales efforts, hire additional sales personnel and initiate additional
marketing programs. We expect that general and administrative expenses will increase as we add
personnel and incur additional costs related to the growth of our business, as well as increasing
costs associated with being a public company. 21




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Other income (loss), net. Other income (loss), net consists of net interest income primarily
from interest earned on the holding of short-term, high quality commercial paper, corporate bonds
and United States government-backed securities, less any bond premium amortization, interest on any
outstanding debt, as well as gains and losses associated with the mark-to-market adjustments of
financial instruments denominated in foreign currencies. Accretion, dividends and conversion premiums on Series A convertible preferred stock.On May
15, 2003, we issued 26,227,668 shares of Series A convertible preferred stock at a per share
purchase price of $1.12 to several purchasers. Outstanding shares of Series A convertible preferred
stock paid a compounding dividend of 10% per annum, paid quarterly, in cash, or at our election to
be added to the liquidation preference of the series A convertible preferred stock on a quarterly
basis, which would result in an increase in the number of shares of common stock issuable upon
conversion of the Series A convertible preferred stock. On June 21, 2004, holders of all
outstanding shares of Series A convertible preferred stock agreed to convert all of their shares of
Series A convertible preferred stock into shares of our common stock in connection with our private
placement financing. During the first quarter of 2004, the Series A convertible preferred stock
earned a dividend of approximately $0.7 million, which we elected to add to the liquidation
preference of the Series A convertible preferred stock. As an inducement to convert their shares
into common stock in connection with our June 2004 private placement financing, the remaining
Series A preferred stockholders received the dividend earned for the period between April 1, 2004
and June 21, 2004 in cash, which totaled approximately $0.5 million. In addition, the Series A
convertible preferred stockholders received a cash conversion premium of 7% of the accreted value
as of March 31, 2004, which totaled $1.7 million. Therefore, the total dividend and conversion
premium charge we recorded for the period ended December 31, 2004 was approximately $2.9 million. Net loss attributable to common stockholders.Net loss attributable to common stockholders
consists of net losses and dividends earned by the Series A convertible preferred stockholders. COMPARISON OF YEARS ENDED DECEMBER 31, 2004 and 2003 Revenues. Our product revenues for the year ended December 31, 2004 were $22.2 million, an
increase of $14.5 million, or 187%, from $7.7 million for the same period in 2003. The increase in
product revenues was due to the increased production capacity of our manufacturing facility in
Marlboro, Massachusetts, our increased marketing and sales activities, and favorable foreign
exchange rates. Research revenues for the year ended December 31, 2004 were $1.3 million, a
decrease of $269,000, or 17%, from $1.6 million for the same period in 2003. Research revenue
decreased during 2004 as we had only one multi-year research contract versus two during the same
period in 2003. Cost of product revenues. Our cost of product revenues for the year ended December 31, 2004
was $29.7 million, an increase of $14.3 million, or 93%, from $15.4 million for the same period in
2003. This increase was associated with increased production at our Marlboro facility.
Approximately 46% of the increase was due to increases in materials purchased associated with
increased production, approximately 24% was due to increases in personnel costs due to increases in
salaries associated with additional personnel, and approximately 19% was due to increases in
depreciation associated with added production equipment. Product gross margin for the year ended
December 31, 2004 was 34% versus -99% for the same period in 2003. Product gross margin improved
due primarily to improvements in yield and efficiency associated with the scale-up of our second
manufacturing line, increased sales volume and favorable exchange rates offset by losses realized
upon disposal of fixed assets. During the second quarter of 2004 and as a result of our successful
closing of the Common Stock Private Placement consummated on June 21, 2004, we disposed of several
pieces of manufacturing equipment in order to replace them with more technologically advanced
equipment expected to increase total manufacturing capacity in its Marlboro facility to a target
level of 15 megawatts. Equipment with a gross value of $3.7 million was disposed of during the
second quarter, for no proceeds, and we realized a loss on disposal of $2.0 million. The loss on
disposal of fixed assets is included in cost of product revenues. In addition to the equipment
disposals, we accelerated the rate of depreciation of some of our other equipment during 2004 that
was disposed of, resulting in incremental depreciation expense of approximately $533,000 for period
ended December 31, 2004, which is also included in cost of product revenues. Due to the relatively large component of fixed costs, product gross margins are highly
dependent on sales volumes and prices. We do not expect substantial further improvements in
product gross margin during 2005. We realize positive gross margins when our Marlboro
manufacturing facility operates at about its target capacity of 15 megawatts. However, we expect
that significant portions of manufacturing capacity at our Marlboro manufacturing facility will be
dedicated to research and development programs for purposes of achieving faster commercialization
of technology improvements, which will keep gross margins lower than could potentially be realized
throughout 2005. Further improvements in gross margin will result from increases in manufacturing
scale and technology improvements. For example, during 2004 we demonstrated in research a new
wafer growth process that can grow four ribbons from a single furnace. Although this technology is
still very much under development and we cannot be certain that it will ever be commercialized, it
holds the promise of significant further cost 22




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reductions. Additionally, further capacity expansion
beyond 15 megawatts as well as further process and technology improvements will be required to
achieve overall profitability. Research and development expenses, including cost of research revenues. Our research and
development expenses, including cost of research revenues, for the year ended December 31, 2004
were $4.9 million, an increase of $1.1 million, or 30%, from $3.8 million for the same period in
2003. The increase was due mainly to increased labor and consulting costs associated with internal
initiatives aimed to improve our manufacturing technology and activities associated with the
planning for the next manufacturing capacity expansion. Selling, general and administrative expenses. Our selling, general and administrative expenses
for the year ended December 31, 2004 were $7.8 million, an increase of $2.5 million, or 46%, from
$5.3 million in 2003. Approximately 41% of the increase was due to increases in salaries associated
with additional personnel, approximately 46% of the increase was due to higher professional service
fees associated with our Sarbanes-Oxley Act compliance activities as well as legal fees associated
with our strategic partnership arrangement with Q-Cells, and most of the remainder of the increase
was due to increased costs associated with being a public company. As a result of the requirement
to comply with various aspects of the Sarbanes-Oxley Act, most notably Section 404 regarding
reporting on internal controls over financial reporting, we expect that activities undertaken in
response to the Act will increase our administrative costs for the foreseeable future. Other income (loss), net. Other income (loss), net for the year ended December 31, 2004 was
$454,000 versus other income of $222,000 for the same period in 2003. The other loss was due
primarily to unrealized losses associated with the mark-to-market adjustments of our forward
foreign exchange contracts. In 2004, we began to manage our foreign exchange risk through the use
of derivative financial instruments. These financial instruments serve to protect cash flow
against the impact of the translation into U.S. dollars of foreign currency denominated
transactions. As of December 31, 2004, the Company had forward currency contracts denominated in
Euros totaling 8.5 million. Total unrealized losses for the period ended December 31, 2004
were approximately $683,000. Accretion, dividends and conversion premiums on Series A convertible preferred stock. On May
15, 2003, we issued 26,227,668 shares of Series A convertible preferred stock at a per share
purchase price of $1.12. Additionally, Beacon Power Corporation purchased a warrant to purchase
2,400,000 shares of common stock at an exercise price equal to $3.37 per share for $100,000. A
total of $29.5 million was raised as a result of the consummation of the transaction, which was
partially offset by financing costs of $849,000. As a result of the preferred stock financing,
accretion and dividends of $13.5 million were recorded through December 31, 2003. Approximately
$11.7 million of this charge relates to accretion that was recognized immediately (during the
second quarter of 2003) because the holders of shares of the Series A convertible preferred stock
are entitled to convert their shares into common stock at any time. The sources of the discounts on
issuance requiring this accretion charge are summarized in the following table: Beneficial conversion feature
    
    $
    10,314,000Proceeds allocated to the fair value of common stock warrant
    
    
    525,000Financing costs
    
    
    849,000Total preferred stock accretion and dividends
    
    $
    11,688,000
 The difference between the issuance price of the Series A convertible preferred stock and the
fair value of our common stock on the date of issuance of the Series A convertible preferred stock
resulted in a beneficial conversion feature totaling approximately $10.3 million, which was
calculated in accordance with EITF 00-27, Application of Issue No. 98-5 to Certain Convertible
Instruments The total proceeds of $1.1 million from Beacon Power Corporation were allocated between the
Series A convertible preferred stock (approximately $475,000) and the warrant (approximately
$625,000) based on their relative fair values. The value of the warrant was calculated using the
Black-Scholes pricing model with the following assumptions: dividend yield of zero percent;
expected volatility of 90%; risk free interest rate of approximately 2% and a term of three years.
The difference between the proceeds allocated to the relative fair value of the warrant, $625,000,
and the amount paid for the warrant, $100,000, or $525,000 contributed to the initial accretion
charge of $11.7 million. Shares of Series A convertible preferred stock pay a compounding dividend of 10% per annum,
paid quarterly, in cash, or at our election to be added to the liquidation preference of the Series
A convertible preferred stock on a quarterly basis, which resulted in an increase in the number of
shares of common stock issued upon conversion of the Series A convertible preferred stock. For the
year ended December 31, 2003, $1.8 million in dividends accrued on the outstanding Series A
convertible preferred stock, which we elected to add to the liquidation preference of the Series A
convertible preferred stock. 23




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On June 21, 2004, holders of all outstanding shares of Series A convertible preferred stock
agreed to convert all of their shares of Series A convertible preferred stock into shares of our
common stock in connection with the Common Stock Private Placement. During the first quarter of
2004, the Series A preferred stock earned a dividend of approximately $700,000, which the Company
elected to add to the liquidation preference of the Series A convertible preferred stock. As an inducement to convert their shares into common stock in connection with the Common Stock
Private Placement consummated on June 21, 2004, the remaining Series A preferred shareholders
received the dividend earned for the period between April 1, 2004 and June 21, 2004 in cash, which
totaled approximately $500,000. In addition, the Series A preferred shareholders received a cash
conversion premium of 7% of the accreted value as of March 31, 2004, which totaled $1.7 million.
Therefore, the total dividend and conversion premium charge recorded by the Company for year ended
December 31, 2004 was approximately $2.9 million. Net loss attributable to common stockholders.Net loss attributable to common stockholders
was $22.3 million and $28.5 million for the years ending December 31, 2004 and December 31, 2003,
respectively. The decrease in net loss attributable to common stockholders was due a decrease in
the combined accretion and dividend charges associated with the Series A convertible preferred
stock financing, which was consummated on May 15, 2003, offset by an overall increase in net
operating losses associated with the scale-up of our operations. COMPARISON OF YEARS ENDED DECEMBER 31, 2003 and 2002 Revenues. Our product revenues for the year ended December 31, 2003 were $7.7 million, an
increase of $2.5 million, or 46%, from $5.3 million for the same period in 2002. The increase in
product revenues was due to the increased production capacity of our manufacturing facility in
Marlboro, Massachusetts, and our increased marketing and sales activities. Research revenues for
the year ended December 31, 2003 were $1.6 million, an increase of $117,000, or 8%, from $1.4
million for the same period in 2002. The increase in research revenue was due to revenue recognized
associated with our research contract with the National Renewable Energy Laboratory, for which work
did not begin until late 2002. Cost of product revenues. Our cost of product revenues for the year ended December 31, 2003
was $15.4 million, an increase of $3.0 million, or 24%, from $12.4 million for the same period in
2002. This increase was associated with increased production at our Marlboro facility.
Approximately 24% of the increase was due to higher depreciation expense resulting from equipment
placed in service at our Marlboro manufacturing facility, approximately 53% of the increase was due
to increases in materials purchased due to increased production, and most of the remainder was due
to increases in salaries associated with additional personnel. Product gross margin for the year
ended December 31, 2003 was 99% versus -134% for the same period in 2002. Product gross margin
improved primarily due to yield and efficiency improvements associated with the scale-up of our
manufacturing line and higher sales volume. Research and development expenses, including cost of research revenues. Our research and
development expenses, including cost of research revenues, for the year ended December 31, 2003
were $3.8 million, an increase of $99,000, or 3%, from $3.7 million for the same period in 2002.
The increase was due primarily to increased activity associated with our two active government
contracts, as more costs were incurred for subcontractors providing research services as well as
for added personnel. Selling, general and administrative expenses. Our selling, general and administrative expenses
for the year ended December 31, 2003 were $5.3 million, an increase of $817,000, or 18%, from $4.5
million in 2002. Approximately 54% of the increase was due to increases in insurance costs,
approximately 18% of the increase was due to increases in advertising and other marketing programs,
and most of the remainder of the increase was due to higher professional service fees. Other income (loss), net. Our other income (loss), net for the year ended December 31, 2003
was $222,000, a decrease of $452,000, or 67%, from $674,000 for the same period in 2002. The
decrease was due to declining cash and investment balances for a portion of the period resulting
from capital equipment purchases and funding of operations and generally lower yields realized on
marketable securities. Net loss attributable to common stockholders.Net loss attributable to common stockholders
was $28.5 million and $13.2 million for the years ending December 31, 2003 and December 31, 2002,
respectively. The increase in net loss attributable to common stockholders was due to the overall
increase in net operating losses associated with the scale-up of our operations combined with the
accretion and dividend charges associated with the Series A convertible preferred stock financing,
which was consummated on May 15, 2003. 24




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LIQUIDITY AND CAPITAL RESOURCES We have historically financed our operations and met our capital expenditure requirements
primarily through sales of our capital stock and, to a lesser extent, product revenues. Research
and development expenditures have historically been partially funded by government research
contracts. At December 31, 2004, we had working capital of $14.3 million, including cash, cash
equivalents and marketable securities of $11.9 million. Net cash used in operating activities was $14.3 million, $9.4 million and $15.4 million for
the years ended December 31, 2002, 2003 and 2004, respectively. The use of cash for operating
activities in the year ended December 31, 2004 was due primarily to losses from operations of $19.4
million, increases in inventory of $0.9 million and an increase in accounts receivable of $5.0
million, offset by increases in accounts payable and accrued expenses of approximately $4.3 million
and depreciation and losses on fixed asset disposals of $5.4 million. The increases in net loss,
accounts receivable and accounts payable for the year ended December 31, 2004 are all attributable
to the overall growth of the business and associated increases in working capital requirements.
The use of cash for operating activities in the year ended December 31, 2003 was due to losses from
operations of $15.0 million partially offset by depreciation expense of $2.0 million, losses on
equipment disposals of $513,000, and a decrease in accounts receivable of $1.8 million. The use of
cash for the period ending December 31, 2002 was due to operating losses of $13.2 million, increase
in accounts receivable of $2.5 million, increase in inventory of $1.2 million, partially offset by
depreciation expense of $2.0 million. We have not experienced any significant trends in accounts receivable other than changes
relative to the increase in revenue. Fluctuations in accounts receivable from period to period
relative to changes in revenue are a result of timing of customer invoicing and receipt of payments
from customers. Our days sales outstanding was 116 days, 56 days and 57 days for the quarters
ended December 31, 2002, 2003 and 2004, respectively. Net cash provided by investing activities was $12.9 million for the year ended December 31,
2002, as compared to net cash used in investing activities of $15.8 million and $1.9 million for
the years ended December 31 2003 and 2004, respectively. For the year ended December 31, 2002, net
cash was provided by maturing and selling marketable securities as required to fund operations and
purchases of equipment associated with the build-out of the second manufacturing line at our
Marlboro manufacturing plant, offset by purchases of marketable securities and purchases of
equipment. Net cash used in investing activities for the years ended December 31, 2003 and 2004
was due to purchases of equipment and marketable securities, partially offset by proceeds from the
sale and maturity of marketable securities. Net cash provided by financing activities was $10,000, $28.6 million and $18.1 million for the
years ended December 31, 2002, 2003 and 2004, respectively. The cash provided by financing
activities during the year ended December 31, 2003 represents net proceeds from the shares of
Series A convertible preferred stock and the warrant issued in conjunction with the Series A
convertible preferred stock and warrant financing. The cash provided by financing activities
during the year ended December 31, 2004 represents net proceeds from common stock issued in
conjunction with the Common Stock Private Placement, offset by dividends and conversion premiums
paid to the Series A convertible preferred shareholders. In addition to the Common Stock Private
Placement, on August 26, 2004 we secured a $5.0 million working capital line of credit facility
with Silicon Valley Bank, of which $1.5 million was drawn as of December 31, 2004. The facility
will be used to further support our ongoing expansion plans and our strategy to be a leader in the
global solar energy industry. Capital expenditures were $2.9 million, $7.1 million and $10.7 million for the years ended
December 31, 2002, 2003 and 2004, respectively. Capital expenditures for the years ended December
31, 2002, 2003 and 2004 were primarily for equipment needed for our manufacturing facility. As of
December 31, 2004, our outstanding commitments for capital expenditures were approximately
$500,000, which were associated with infrastructure improvements and equipment purchases for our
manufacturing facility. In 2004, we made significant progress on our capital expansion program
aimed at roughly quadrupling our production capacity by adding a second manufacturing line as well
as other improvements to the manufacturing equipment, which we expect could enable us to produce at
an annualized production rate of approximately 15 MW by year end 2005. Under the strategic partnership agreement, we and Q-Cells have made a total equity commitment
of 44#eu##eu# million (approximately $57 million) to finance a significant part of the construction
of this facility and initial working capital requirements, of which we will contribute 75.1% and
Q-Cells will contribute 24.9%. Except for amounts that we and Q-Cells have contributed on a pro
rata basis to fund initial planning activities, our obligation to fund the balance of the equity
commitment is conditioned upon our receipt of approval from German government authorities with
respect to the public grants. Failing such approval, alternative funding from other public or
private sources may be needed. In this regard, we have applied for government grants of
approximately 26#eu##eu# million (approximately $34 million) to finance a significant portion of
the construction costs of the facility. 25




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In February 2005, we completed a $61.9 million common stock offering, net of offering costs of
approximately $4.8 million, to satisfy existing capital requirements and to fund the continuing
capacity expansion of our Marlboro, Massachusetts manufacturing facility and the expenditures
necessary for the initial build-out and initial operation of the strategic partnership with
Q-Cells. A portion of the proceeds from the financing will also be used to increase research and
development spending on promising next generation technologies and to explore further expansion
opportunities. For this common stock offering, we issued 13,346,000 shares of our common stock. The
shares of common stock were sold at a per share price of $5.00 (before deducting underwriting
discounts), which represented a 6% discount to the $5.30 closing price of shares of our common
stock as reported on the Nasdaq National Market as of the close of business on February 3, 2005. We believe that our current cash, cash equivalents, marketable securities and revolving credit
facility will be sufficient to fund our planned manufacturing capacity expansion to our target
level of 15 megawatts, fund our expected commitments with our strategic partnershipwith
Q-Cells for its initial 30 megawatts of capacity and to fund our operating expenditures over the
next twelve months. We will need to raise additional capital in order to further enhance our
operating infrastructure and to further increase capacity. We may also require additional capital
to respond to competitive pressures and acquire complementary businesses or necessary technologies.
We do not know whether we will be able to raise additional financing or financing on terms
favorable to us. If adequate funds are not available or are not available on acceptable terms, our
ability to fund our operations, develop and expand our manufacturing operations and distribution
network, or otherwise respond to competitive pressures would be significantly limited. We do not have any special purpose entities or off-balance sheet financing arrangements. The following table summarizes our contractual obligations as of December 31, 2004 and the
effect such obligations are expected to have on our liquidity and cash flow in future periods: Total
    
    
    Less thanYears
    
    
    1 Year
    
    
    1-3 Years
    
    
    4-5 Years
    
    
    After 5 YearsNon-cancelable operating lease
    
    $
    3,794,124
    
    
    $
    668,997
    
    
    $
    1,385,591
    
    
    $
    1,440,242
    
    
    $
    299,294Capital commitments associated with joint venture with Q-Cells
    
    
    43,000,000
    
    
    
    43,000,000
    
    
    
    
    
    
    
    
    
    
    
    Capital expenditure obligations
    
    
    500,000
    
    
    
    500,000
    
    
    
    
    
    
    
    
    
    
    
    Raw materials purchase commitments
    
    
    2,500,000
    
    
    
    2,500,000
    
    
    
    
    
    
    
    
    
    
    
    Total contractual cash obligations
    
    $
    49,794,124
    
    
    $
    46,668,997
    
    
    $
    1,385,591
    
    
    $
    1,440,242
    
    
    $
    299,294
 Our capital commitment associated with our strategic partnership with Q-Cells is required to be
paid in Euros, which when translated at exchange rates at December 31, 2004, is approximately $43
million. INCOME TAXES As of December 31, 2004, we had federal and state net operating loss carryforwards estimated
to be approximately $40.1 million and $51.9 million, respectively, available to reduce future
taxable income and tax liabilities which begin to expire in 2009 and 2005, respectively. We also
had federal and state research and development tax credit carryforwards of approximately $182,000
and $489,000, respectively, which begin to expire in 2009, and state Investment Tax Credit
carryforwards of approximately $665,000 which begin to expire in 2005 available to reduce future
tax liabilities. Under provisions of the Internal Revenue Code, certain changes in the Companys
ownership may result in a limitation on the amount of net operating loss carryforwards and research
and development credit carryforwards, which can be used in future years. As a result of our May
2003 Series A convertible preferred stock financing, it is likely that an ownership change occurred
within the definition of Internal Revenue Code Section 382. We
have estimated our annual net operating loss and tax credit limitation to be
approximately $800,000. We have reduced our federal net operating loss carryforwards, tax credit
carryforward, and related valuation allowances by the estimated amount likely to expire unutilized
as a result of such limitation. We have evaluated the positive and negative evidence bearing upon
the realizability of our deferred tax assets. We have considered our history of losses and, in
accordance with the applicable accounting standards, have provided a
full valuation allowance against the deferred tax asset. The American Jobs Creation Act of 2004 (the Act) was signed into law on October 22, 2004.
The Act contains numerous amendments and additions to the U.S. corporate income tax rules. While we
continue to analyze these new provisions in order
to determine their impact to our financial statements, none of these changes, either
individually or in the aggregate, is expected to have a significant effect on our income tax
liability. 26




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RECENT ACCOUNTING PRONOUNCEMENTS In March 2004, the Emerging Issues Task Force (EITF) reached a consensus on Issue 03-6,
Participating Securities and the Two-Class Method under Statement No. 128, Earnings per Share.
This issue involves the computation of earnings per share for companies that have multiple classes
of common stock or have issued securities other than common stock that participate in dividends
with common stock (participating securities). The EITF concluded that companies having
participating securities are required to apply the two-class method to compute earnings per share.
The two-class method is an earnings allocation method under which earnings per share is calculated
for each class of common stock and participating security considering both dividends declared (or
accumulated) and participation rights in undistributed earnings as if all such earnings had been
distributed during the period. We have incurred losses for the years ended December 31, 2004 and
2003 and as our Series A convertible preferred stock outstanding did not have a contractual
obligation to share in our losses, EITF 03-6 has no effect on our reported earnings per share. On December 16, 2004, FASB published Statement No. 123 (revised 2004), or Statement 123(R),
Share-Based Payment. Statement 123(R) requires that the compensation cost relating to share-based
payment transactions be recognized in financial statements. That cost will be measured based on the
fair value of the equity or liability instruments issued. Statement 123(R) covers a wide range of
share-based compensation arrangements including share options, restricted share plans,
performance-based awards, share appreciation rights and employee share purchase plans. Statement
123(R) replaces FASB Statement No. 123, Accounting for Stock-Based Compensation, and supersedes APB
Opinion No. 25, Accounting for Stock Issued to Employees. We are required to adopt SFAS 123R in the
second quarter of 2005. The pro forma disclosures previously permitted under SFAS 123 no longer
will be an alternative to financial statement recognition. See Note 2 in our Notes to Consolidated
Financial Statements for the pro forma net income and net income per share amounts, for the years
2002 through 2004, as if we had used a fair-value-based method similar to the methods required
under SFAS 123R to measure compensation expense for employee stock incentive awards. It is expected
that the adoption of SFAS 123R will have a significant impact on our consolidated statements of
operations and net income (loss) per share if the adoption results in amounts similar to those in
the current proforma disclosure.. On November 24, 2004, the Financial Accounting Standards Board (FASB or the Board) issued
Statement No. 151, Inventory Costs, an amendment of ARB No. 43, Chapter 4 (FAS 151). The standard
adopts the IASB view related to inventories that abnormal amounts of idle capacity and spoilage
costs should be excluded from the cost of inventory and expensed when incurred. Additionally, the
Board made the decision to clarify the meaning of the term normal capacity. The provisions of
FAS 151 are applicable to inventory costs incurred during fiscal years beginning after June 15,
2005. We do not expect the adoption of FAS 151 to have a material impact on our financial position
or results of operations. Certain Factors Which May Affect Future Results Investors should carefully consider the risks described below before deciding whether to invest in
our common stock. The risks described below are not the only ones we face. Additional risks not
presently known to us or that we currently believe are immaterial may also impair our business
operations and financial results. If any of the following risks actually occurs, our business,
financial condition or results of operations could be adversely affected. In such case, the trading
price of our common stock could decline and you could lose all or part of your investment. Our
filings with the Securities and Exchange Commission also contain forward-looking statements that
involve risks and uncertainties. Our actual results could differ materially from those anticipated
in these forward-looking statements as a result of certain factors, including the risks we face
described below. Risks Relating to Our Financial Results 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 we were formed in 1994 to research and develop
crystalline silicon technology for use in manufacturing solar power products and began shipping
product from our pilot manufacturing facility in 1997, we first shipped commercial products from
our Marlboro manufacturing facility in September 2001. Relative to the entire solar industry, we
have shipped only a limited number of solar power modules and have recognized limited revenues. The market we are addressing is rapidly evolving and is experiencing technological advances and new
market entrants. Our future success will require us to scale our manufacturing capacity
significantly beyond the capacity of our Marlboro, 27




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Massachusetts manufacturing facility, and our
business model and technology is unproven at significant scale. Moreover, our strategic
partnership with Q-Cells is only in the early planning stages and because it is our first strategic
partnership relationship, we have limited experience upon which to predict whether it will be
successful. As a result, you should consider our 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. 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. Since our inception, we have incurred significant net losses, including net losses of $19.4 million
for the year ended December 31, 2004. We also had net losses of $13.2 million and $15.0 million
for the years ended December 31, 2002 and 2003, respectively. Principally as a result of ongoing
operating losses, we had an accumulated deficit of $75.7 million as of December 31, 2004. We
expect to incur substantial losses for the foreseeable future, and we may never become profitable.
Even if we do achieve profitability, we may be unable to sustain or increase our profitability in
the future, which could materially decrease the market value of our common stock. We expect to
continue to make significant capital expenditures and anticipate that our expenses will increase
substantially in the foreseeable future as we seek to:  
    expand our manufacturing operations, whether domestically or internationally,
including the manufacturing facility in Germany contemplated by our strategic
partnership with Q-Cells;
    develop our distribution network;
    continue to research and develop our products and manufacturing technologies;
    implement internal systems and infrastructure in conjunction with our growth; and
    hire additional personnel. We do not know whether our revenues will grow at all or grow rapidly enough to absorb these
expenses, and our limited operating history makes it difficult to assess the extent of these
expenses or their impact on our operating results. Our stock price could fall substantially if our quarterly revenue or operating results fluctuate or
are disappointing. Our quarterly revenue and operating results have fluctuated significantly in the past and may
fluctuate significantly from quarter to quarter in the future due to a variety of factors,
including:  
    the size and timing of customer orders for or shipments of our products;
    the rate and cost at which we are able to expand our manufacturing capacity to meet
product demand, including the rate and cost at which we are able to implement advances
in our String-Ribbon technology;
    our ability to establish and expand key customer and distributor relationships;
    our ability and the terms upon which we are able to raise capital sufficient to
finance the expansion of our manufacturing capacity and our sales and marketing
efforts;
    our ability to establish a manufacturing facility in Germany as contemplated by our
strategic partnership with Q-Cells at the costs and on the time frame that we expect;
    the extent to which Q-Cells increases its ownership in the strategic partnership in
the future and thereby reduces our share of profits and losses of the strategic
partnership in future periods;
    our ability to establish strategic relationships with third parties to accelerate
our growth plans;
    the amount and timing of expenses associated with our research and development
programs and our ability to develop enhancements to our manufacturing processes and our
products; 28




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
    delays associated with the supply of specialized material necessary for the
manufacture of our solar power products;
    our ability to execute our cost reduction programs;
    one-time charges resulting from replacing existing equipment or technology with new
or improved equipment or technology as part of our strategy to expand our manufacturing
capacity and to decrease our per unit manufacturing cost;
    developments in the competitive environment, including the introduction of new
products or technological advancements by our competitors; and
    the timing of adding the personnel necessary to execute our growth plan. We anticipate that our operating expenses will continue to increase significantly, particularly as
we increase our capital expenditures to build our planned manufacturing facility in Germany, as
contemplated by our strategic partnership with Q-Cells. If our product revenues in any quarter do
not increase correspondingly, our net losses for that period will increase. Moreover, given that a
significant portion of our operating expenses is largely fixed in nature and cannot be quickly
reduced, if our product revenues are delayed or below expectations, our operating results are
likely to be adversely and disproportionately affected. For these reasons, quarter-to-quarter
comparisons of our results of operations are not necessarily meaningful and you should not rely on
results of operations in any particular quarter as an indication of future performance. If our
quarterly revenue or results of operations fall below the expectations of investors or public
market analysts in any quarter, the market value of our common stock would likely decrease, and it
could decrease rapidly and substantially. Risks Relating to Our Industry, Products and Operations We will need to raise significant additional capital in order to fund our operations and to
continue to grow our business, which subjects us to the risk that we may be unable to maintain or
grow our business as planned and that our stockholders may be subject to substantial additional
dilution. In order to satisfy our existing capital requirements and to fund the continuing capacity expansion
of our Marlboro, Massachusetts manufacturing facility, in June 2004 we consummated a $20 million
private placement financing and in August 2004 we secured a $5 million line of credit. We also
raised an additional $61.9 million, net of offering costs of approximately $4.8 million, from the
public sale of our common stock in February 2005.We believe that our current cash, cash equivalents
and short-term investments, together with the proceeds available under our line of credit, will be
sufficient to fund our operating expenditures over the next 12 months. However, we will need to
raise additional capital in order to further enhance our operating infrastructure, to further
increase manufacturing capacity through the build-out of other manufacturing facilities, including
the manufacturing facility we plan to build in Germany as contemplated by our strategic partnership
with Q-Cells and to advance our research and development programs that are key to refining our
products and to lowering our manufacturing costs. We may also require additional capital to
respond to competitive pressures and acquire complementary businesses or necessary technologies.
We do not know whether or not we will be able to raise additional financing or financing on terms
favorable to us. If adequate funds are not available or are not available on acceptable terms, our
ability to fund our operations, develop and expand our manufacturing operations and distribution
network, maintain our research and development efforts or otherwise respond to competitive
pressures would be significantly impaired. In such a case, our stock price would likely be
materially and adversely impacted. In addition, if we raise additional funds through the issuance of equity or convertible or
exchangeable securities, the percentage ownership of our existing stockholders will be reduced.
These newly issued securities may have rights, preferences and privileges senior to those of
existing stockholders. Our ability to expand our manufacturing capacity and therefore to increase revenue and achieve
profitability depends to a large extent upon the success of our strategic partnership with Q-Cells.
Our strategic partnership with Q-Cells is subject to numerous risks, many of which are outside of
our control, and we cannot assure you that the strategic partnership will achieve its objective or
otherwise be successful. If the strategic partnership is not successful, our business would be
materially and adversely harmed and our stock price would decline. In January 2005, we entered into a strategic partnership agreement with Q-Cells. The purpose of
the strategic partnership is to develop and operate a facility in Germany to manufacture, market
and sell solar products based on our proprietary String 29




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Ribbon technology. As part of the
strategic partnership, subject to certain conditions under the strategic partnership agreement, we
and Q-Cells have agreed to finance a majority of the expenditures necessary for the establishment
and initial operation of the strategic partnership through cash capital contributions in amounts
payable over time that total to 44 million Euros, of which we would be responsible for 75.1%.
However, we plan to finance a significant portion of such expenditures through public grants under
a German government grant program. If we and Q-Cells are unsuccessful in obtaining the
German government grants, or if either party is unable to finance its pro rata share of the
required capital, we and Q-Cells would have the ability to terminate the strategic partnership. As
a result, the strategic partnership remains subject to the risk that the parties may be unable to
finance, both directly and through government or third party sources, the costs of building the
facility, which could cause the strategic partnership to be terminated before the facility is built
and result in a significant delay in our ability to expand our manufacturing capacity and our
ability to significantly grow revenues and achieve profitability.
In addition, our strategic partnership with Q-Cells subjects us to the risks inherent in complex
strategic partnership transactions with third parties located in international markets, including
the following:  
    the strategic partnership will be highly dependent on Q-Cellss expertise in the
rapid development of solar product manufacturing facilities in Germany; therefore, if
for any reason, Q-Cells does not devote the personnel necessary to assist us in the
development of the facilities, the strategic partnership may experience delays and
cost-overruns or may be unsuccessful in the establishment of the operation;
    the strategic partnership contemplates that both we and Q-Cells will contribute
certain technologies to the strategic partnership in order to establish a novel
manufacturing processes based on a combination of our respective technologies; as such,
the success of the strategic partnership depends on our ability to integrate our
respective technologies and manufacturing processes in order to produce competitive
solar products in the world marketplace; such integration is unproven and if we are
unable to integrate our technologies and manufacturing processes, the prospects for the
strategic partnership would be limited;
    the establishment of the facility may result in cost overruns, delays, equipment
problems and construction, start-up and other operating difficulties, any of which
could adversely affect the ability of the strategic partnership to achieve or grow
revenue on the timeframe we expect;
    although initially a minority shareholder in the strategic partnership, Q-Cells will
have the ability to influence the strategic direction of the strategic partnership and
other material decisions of the strategic partnership; as a result, we may be unable to
take certain actions that we believe would be in our best interests, which, given the
expected materiality of the strategic partnership to our combined operations, could
significantly harm our business; further, we may be liable to third parties for the
material decisions and actions of Q-Cells in the strategic partnership, which actions
may harm the strategic partnership and our business;
    the establishment of the strategic partnership will require significant management
attention and will place significant strain on our ability to manage effectively both
our operations in Marlboro and the operations of the strategic partnership in Germany;
    the strategic partnership may subject us to multiple, conflicting and changing laws,
regulations and tax schemes;
    the strategic partnership may be unable to obtain, maintain or enforce adequate
intellectual property rights and protection due to limited or unfavorable intellectual
property protection and may be subject to claims or suits alleging infringement of
third party intellectual property rights;
    under certain circumstances, if we exit the strategic partnership with Q-Cells, the
strategic partnership entity will continue to have certain rights to our proprietary
technologies that we are licensing to it and thereby compete with us;
    two years after the date of the strategic partnership agreement, Q-Cells may engage
in ribbon technology-related activities in competition with us;
    limitations on dividends or restrictions against repatriation of earnings may limit
our ability to capitalize on earnings from the strategic partnership;
    the operation of the manufacturing facility may experience seasonal reductions in
productivity common in certain foreign countries, such as the summer months in Europe; 30




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
    the strategic partnership may be subject to increases in tariffs, duties, price
controls or other restrictions on foreign currencies or trade barriers imposed by
foreign countries;
    the strategic partnership may be unable to successfully hire and retain the
additional personnel necessary to operate the facility, which is expected to require
approximately 400 employees for the initial capacity expansion;
    we will be exposed to fluctuations in currency exchange rates; and
    we may experience difficulties in staffing and managing international operations,
including the difficulty in managing a geographically dispersed workforce in compliance
with diverse local laws and customs. As a result, there can be no assurance that the strategic partnership will be successful in
establishing the facility or, once established, that the strategic partnership will attain the
manufacturing capacity or the financial results that we currently expect. The continuing improvement of our manufacturing facility in Marlboro, Massachusetts may take
longer, cost more than we expect and may not deliver the performance improvements that we expect,
which would likely result in lower revenues and earnings than anticipated. If we fail to successfully continue the improvement of our Marlboro manufacturing facility, our
business and results of operations would likely be materially impaired. We are in the process of
implementing improvements to the manufacturing equipment in order to decrease the operating costs
and to increase the annualized production rate of the manufacturing facility to a target level of
approximately 15 MW. This process has required and will continue to require a significant
investment of capital and substantial engineering expenditures and is subject to significant risks
including:  
    we may experience cost overruns, delays, equipment problems and other operating
difficulties;  
    our manufacturing processes use custom-built equipment that may not be delivered and
installed in a timely manner;
    our custom-built equipment may take longer and cost more to debug than planned and
may never operate as designed;
    we are incorporating first-time equipment designs and technology improvements, which
we expect to lower unit capital and operating costs, but this new technology may not be
successful; and
    we may elect to use a portion of our manufacturing capacity for research and
development purposes, thereby reducing our commercial output from our Marlboro
facility. If we experience any of these or similar difficulties, we may be unable to complete the build-out
of our Marlboro facility and our manufacturing capacity could be substantially constrained, in
which case our per unit manufacturing costs would increase, we would be unable to increase sales as
planned and our revenues and earnings would likely be materially impaired. 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; 31




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
    the build-out of any additional facility 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 that incorporate improvements to our
String Ribbon technology, are unproven at large scale and may prove difficult to
implement in any new facility;
    we may be required to depend on third parties or strategic partnerships that we
establish in the development and operation of a facility, which may subject us to risks
that such third parties do not fulfill their obligations to us under our arrangements
with them;
    the establishment of any new facility will require significant management attention,
and our management team, which has limited experience in the development of such
facilities, may be unable to execute the expansion plan effectively; 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 solar power products at these production levels or that we will
increase our revenues or achieve profitability. Because we depend on single and sole source suppliers for a number of specialized materials,
including silicon, string and others necessary to manufacture our solar power products, we are
susceptible to supplier and industry-wide supply shortages and price volatility, which could
adversely affect our ability to meet existing and future customer demand for our products and cause
us to make fewer shipments, generate lower than anticipated revenues and manufacture our products
at higher than expected costs. We have single and sole source suppliers for a number of specialized materials necessary to
manufacture our solar power products, which makes us susceptible to quality issues, shortages and
price changes for these materials. Specifically, our supplier of the silicon we use in the
manufacture of our solar power products is also a supplier to the semiconductor industry, which has
significantly greater buying power and market influence than we have or anyone else in the solar
power industry has. As a result, the recent increase in the demand for silicon from the
semiconductor industry may cause us to encounter shortages or delays in obtaining the specialized
silicon to be used in the manufacture of our solar power products, which could result in customer
dissatisfaction and decreased revenues. In addition, by December 2004
our silicon supplier raised prices approximately 43% since the second
quarter,
and has since raised the price an additional 38%, which has in the past
negatively impacted, and could in the future negatively impact, our manufacturing costs. We
acquire silicon from our supplier through purchase orders and we have no long-term commitments
regarding supply or price from this supplier, which leaves us vulnerable to the risk that our
supplier may stop supplying silicon to us for any reason, including its financial viability. If
this occurs, our ability to manufacture our solar power products may be limited in any given
period, which would cause our revenues to decline in any such period. Our dependence on a limited number of third party suppliers for raw materials, key components for
our solar power products and custom-built equipment for our operations could prevent us from
delivering our products to our customers within required timeframes, which could result in order
cancellations and loss of market share. We manufacture all of our solar power products using materials and components procured from a
limited number of third-party suppliers. If we fail to develop or maintain our relationships with
these or our other suppliers, we may be unable to manufacture our products or our products may be
available only at a higher cost or after a long delay, which could prevent us from delivering our
products to our customers within required timeframes and we may experience order cancellation and
loss of market share. We currently do not have contracts with many of our suppliers and may not be
able to procure sufficient quantities of the materials and components necessary to manufacture our
products on acceptable commercial terms or at all. To the extent the processes that our suppliers
use to manufacture materials and components are proprietary, we may be unable to obtain comparable
materials and components from alternative suppliers. The failure of a supplier to supply materials
and components in a timely manner, or to supply materials and components that meet our quality,
quantity and cost requirements could impair our ability to manufacture our products or increase
their costs, particularly if we are unable to obtain substitute 32




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sources of these materials and
components on a timely basis or on terms acceptable to us. Certain of the capital equipment used
in the manufacture of our solar power products has been developed and made specifically for us, is
not readily available from multiple vendors and would be difficult to repair or replace if it were
to become damaged or stop working. Consequently, any damage to or break down of our manufacturing
equipment at a time we are manufacturing commercial quantities of our products may have a material
adverse impact on our business. For example, a suppliers failure to supply this equipment in a
timely manner, with adequate quality and on terms acceptable to us, could delay our capacity
expansion of our manufacturing facility and otherwise disrupt our production schedule or increase
our costs of production. We may fail to successfully bring to market our new solar power products under development, which
may prevent us from achieving increased sales and market share. Although we have been selling our solar power products since 1997, we expect to derive a
substantial portion of our revenues from sales of our new solar power products that are under
development and not yet commercially available. Some of these new products are derived from our
innovative cell fabrication and advanced module design technologies, which are under development.
Our total research and development expenses were $3.7 million, $3.8 million and $4.9 million for
the years ended December 31, 2002, 2003 and 2004, respectively. If we fail to successfully develop
our new solar power products or technologies, we will likely be unable to recover the losses we
have incurred to develop these products and technologies and may be unable to increase our sales
and market share and to become profitable. Many of our new product and manufacturing technologies
are novel and represent a departure from conventional solar power technologies, and it is difficult
to predict whether we will be successful in completing their development. Our manufacturing
technologies have been tested only in our pilot manufacturing facility and, in most cases, only
limited pre-production prototypes of our new products have been field-tested. Our solar power products may not gain market acceptance, which would prevent us from achieving
increased sales and market share. The development of a successful market for our solar power products may be adversely affected by a
number of factors, many of which are beyond our control, including:  
    our failure to produce solar power products that compete favorably against other
solar power products on the basis of cost, quality and performance;
    our failure to produce solar power products 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;
    whether or not customers accept our new module designs under development and the
techniques we are developing to mount them; and
    our failure to develop and maintain successful relationships with distributors,
systems integrators and other resellers, as well as strategic partners. If our solar power products 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 solar power products
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 new solar power products
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 for our solar power products. 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. 33




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Our ability to increase market share and sales depends on our ability to successfully maintain our
existing distribution relationships and expand our distribution channels. We currently sell our solar power products primarily to distributors, system integrators and other
value-added resellers within and outside of North America, which typically resell our products to
end users on a global basis. For the year ended December 31, 2004, we sold our solar power
products to approximately 40 distributors, system integrators and other value-added resellers. If
we are unable to successfully refine our existing distribution relationships and expand our
distribution channels, our revenues and future prospects will be materially harmed. As we seek to
grow our sales by entering new markets in which we have little experience selling our solar power
products, our ability to increase market share and sales will depend substantially on our ability
to expand our distribution channels by identifying, developing and maintaining relationships with
resellers both within and outside of North America. We may be unable to enter into relationships
with resellers in the markets we target or on terms and conditions favorable to us, which could
prevent us from entering these markets or entering these markets in accordance with our plans. Our
ability to enter into and maintain relationships with resellers will be influenced by the
relationships between these resellers and our competitors, market acceptance of our solar power
products and our low brand recognition as a new entrant. We face risks associated with the marketing, distribution and sale of our solar power products
internationally, and if we are unable to effectively manage these risks, it could impair our
ability to expand our business abroad. From our inception through December 31, 2004, approximately 71% of our product sales have been made
to distributors outside of the United States. Sales in Germany constituted approximately 69% of
our total product sales for the year ended December 31, 2004. We expect that our sales both to
resellers and distributors outside of North America and through our resellers and distributors to
end users outside of North America, which could increase upon the establishment and operation of
the manufacturing facility contemplated by our strategic partnership with Q-Cells, will continue to
be significant. It will require significant management attention and financial resources to
successfully develop our international sales channels. In addition, the marketing, distribution
and sale of our solar power products internationally expose us to a number of markets with which we
have limited experience. If we are unable to effectively manage these risks, it could impair our
ability to grow our business abroad. These risks include:  
    difficult and expensive compliance with the commercial and legal requirements of
international markets, with which we have only limited experience;
    inability to obtain, maintain or enforce intellectual property rights;
    encountering trade barriers such as export requirements, tariffs, taxes and other
restrictions and expenses, which could affect the competitive pricing of our solar
power products and reduce our market share in some countries;
    fluctuations in currency exchange rates relative to the U.S. dollar;
    difficulty in recruiting and retaining individuals skilled in international business operations;
    increased costs associated with maintaining international marketing efforts;
    difficulty of enforcing revenue collection internationally; and
    inability to develop, manufacture, market and sell our products and services in
German and other international markets due to, for example, third-party intellectual
property rights. 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. For the
foreseeable future, market conditions will require us to denominate a majority of our sales in
local currencies, which will further expose us to foreign exchange gains or losses. Our strategy includes establishing local manufacturing facilities in international markets.
Although we have not yet constructed such a facility, our strategic partnership with Q-Cells
contemplates the establishment of a manufacturing facility in Germany in 2005. As we implement our
strategy, we may encounter legal restrictions and liability, encounter commercial restrictions and
incur taxes and other expenses to establish our manufacturing facilities in certain countries. In
addition, we 34




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may potentially forfeit, voluntarily or involuntarily, foreign assets due to economic
or political instability in the countries where our local manufacturing facilities are located. Our dependence on a small number of resellers may cause significant fluctuations or declines in our
product revenues. From our inception through December 31, 2004, our three largest resellers accounted for
approximately 62% of our product sales and our 10 largest resellers accounted for approximately 80%
of our product sales. Substantially all of our sales to these resellers are made through purchase
orders without long-term commitments, including under arrangements that may be cancelled without
cause on short notice and that generally do not require them to make minimum purchases.
Consequently, our resellers are generally permitted to obtain products from other providers of
solar power products without further obligation to us. The concentration of our product sales also
exposes us to credit risks associated with the financial viability of these resellers. We
anticipate that sales of our solar power products to a limited number of key resellers will
continue to account for a significant portion of our total product revenues for the foreseeable
future. Consequently, any one of the following events may cause material fluctuations or declines
in our product revenues and negatively impact our operating results:  
    reduction, delay or cancellation of orders from one or more of our significant resellers;
    selection by one or more of our significant resellers of products competitive with ours;
    loss of one or more of our significant resellers and our failure to recruit
additional or replacement resellers; and
    failure of any of our significant resellers to make timely payment of our invoices. Problems with product quality or product performance may cause us to incur warranty expenses and
may damage our market reputation and prevent us from achieving increased sales and market share. As is consistent with standard practice in our industry, the duration of our product warranties is
lengthy relative to expected product life and has recently been increasing. Our current standard
product warranty includes a one or two-year warranty period for defects in material and workmanship
and a 25-year warranty period for declines in power performance. We believe our warranty periods
are consistent with industry practice. Due to the long warranty period, we bear the risk of
extensive warranty claims long after we have shipped product and recognized revenues. Although we
have sold solar modules since 1997, none of these modules has been operating more than seven years,
and a majority of them have been operating less than two years. The possibility of future product
failures could cause us to incur substantial expense to repair or replace defective products.
Furthermore, widespread product failures may damage our market reputation and reduce our market
share and cause sales to decline. Our success in the future may depend on our ability to establish and maintain strategic alliances,
and any failure on our part to establish and maintain such relationships would adversely affect our
market penetration and revenue growth. As part of our plan to accelerate the expansion of our manufacturing capacity and our distribution
channels, we have recently entered into a strategic partnership with Q-Cells, a German company that
is a leading manufacturer of solar cells. We intend to continue to establish strategic
relationships with third parties in the solar power industry, particularly in international
markets. Our ability to establish strategic relationships will depend on a number of factors, many
of which are outside our control, such as the competitive position of our technology and our
products relative to our competitors. We can provide you with no assurance that we will be able to
establish other strategic relationships in the future, or that our strategic partnership with
Q-Cells will be successful, and our inability in this regard will materially adversely affect our
market penetration, our revenue growth and our ability to achieve profitability. In addition, our strategic partnership with Q-Cells, as well as any other strategic alliances that
we establish, will subject us to a number of risks, including risks associated with sharing
proprietary information, loss of control of operations that are material to our business and
profit-sharing arrangements. Moreover, strategic alliances may be expensive to implement and
subject us to the risk that the third party will not perform its obligations under the relationship, which may
subject us to losses over which we have no control or expensive termination arrangements. As a
result, even if our strategic alliances with third parties are successful, our business may be
adversely affected by a number of factors that are outside of our control, which would in turn
cause our stock price to decline. 35




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The success of our business depends on the continuing contributions of our key personnel and our
ability to attract and retain new qualified employees in a competitive labor market. We have attracted a highly skilled management team and specialized workforce, including scientists,
engineers, researchers and manufacturing and marketing professionals. If we were to lose the
services of Richard M. Feldt, our Chief Executive Officer, President and a director, or any of our
other executive officers and key employees, our business could be materially and adversely
impacted. We do not carry key person life insurance on any of our senior management or other key
personnel. We had approximately 250 employees as of December 31, 2004, and we anticipate that we will need to
hire a significant number of new highly-skilled technical, manufacturing, sales and marketing and
administrative personnel if we are to successfully develop and market our products, develop our
distribution network and operate our expanded manufacturing facility and the manufacturing facility
we plan to be build in Germany as contemplated by our strategic partnership with Q-Cells.
Competition for personnel is intense, and qualified technical personnel are likely to remain a
limited resource for the foreseeable future. Locating candidates with the appropriate
qualifications, particularly in the desired geographic location, can be costly and difficult. We
may not be able to hire the necessary personnel to implement our business strategy, or we may need
to provide higher compensation or more training to our personnel than we currently anticipate.
Moreover, any officer or employee can terminate his or her relationship with us at any time. We may be affected by skilled labor shortages and labor disputes. We require experienced engineers, technicians and machinists to conduct our business. No assurance
can be given that the supply of these skilled persons will always be adequate to meet our
requirements or that we will be able to attract an adequate number of skilled persons. Labor
disputes could also occur at our manufacturing facilities, which may affect our business. While
our employees are not currently represented by labor unions or organized under collective
bargaining agreements, labor disputes could occur at any of our facilities, including our Marlboro
facility and the facility we plan to build in Germany in connection with our strategic partnership
with Q-Cells, which could adversely impact our revenues and operations. If we fail to maintain an effective system of internal controls, we may not be able to accurately
report our financial results or prevent fraud. As a result, current and potential stockholders
could lose confidence in our financial reporting, which could harm our business and the trading
price of our common stock. Effective internal controls are necessary for us to provide reliable financial reports and
effectively prevent fraud. We have in the past discovered, and may in the future discover, areas
of our internal controls that need improvement. In addition, Section 404 of the Sarbanes-Oxley Act
of 2002 requires us to evaluate and report on our internal controls over financial reporting and
have our independent registered public accounting firm annually attest to our evaluation, as well
as issue their own opinion on our internal control over financial reporting, beginning with this
Annual Report on Form 10-K for the fiscal year ending December 31, 2004. We have prepared for
compliance with Section 404 by strengthening, assessing and testing our system of internal controls
to provide the basis for our report. The process of strengthening our internal controls and
complying with Section 404 is expensive and time consuming, and requires significant management
attention. We cannot be certain that these measures will ensure that we will maintain adequate
controls over our financial processes and reporting in the future. Furthermore, as we rapidly grow
our business, including expansion related to our strategic partnership with Q-Cells, our internal
controls will become more complex and will require significantly more resources to ensure our
internal controls overall remain effective. Failure to implement required new or improved
controls, or difficulties encountered in their implementation, could harm our operating results or
cause us to fail to meet our reporting obligations. If we or our auditors discover a material
weakness, the disclosure of that fact, even if quickly remedied, could reduce the markets
confidence in our financial statements and harm our stock price. In addition, non-compliance with
Section 404 could subject us to a variety of administrative sanctions, including the suspension or
delisting of our common stock from the Nasdaq National Market and the inability of registered
broker-dealers to make a market in our common stock, which would further reduce our stock price. Our management team may not be able to successfully implement our business strategies because it
has limited experience managing a rapidly growing company. If our management team is unable to manage the rapid growth of our business operations, then our
product development, the expansion of our manufacturing operations and distribution network and our
sales and marketing activities would be materially and adversely affected. In connection with the
planned expansion of our manufacturing capacity, including the manufacturing facility we plan to
build in Germany as contemplated by our strategic partnership with Q-Cells, we have undergone and
anticipate undergoing further rapid growth in the scope of our operations and the number of our
employees, which is likely to place a significant strain on our senior management team and other
resources. In addition, we may encounter difficulties in 36




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effectively managing the budgeting, forecasting and other process control issues presented by this
rapid growth. We may seek to augment or replace members of our management team or we may lose key
members of our management team, and we may not be able to attract new management talent with
sufficient skill and experience. If solar power technology is not suitable for widespread adoption or sufficient demand for solar
power products does not develop or takes longer to develop than we anticipate, our sales would not
significantly increase and we would be unable to achieve or sustain profitability. The market for solar power products is emerging and rapidly evolving, and its future success is
uncertain. If solar power technology proves unsuitable for widespread commercial deployment or if
demand for solar power products fails to develop sufficiently, we would be unable to generate
enough revenues to achieve and sustain profitability. In addition, demand for solar power products
in the markets and geographic regions we target may not develop or may develop more slowly than we
anticipate. Many factors will influence the widespread adoption of solar power technology and
demand for solar power products, including:  
    cost-effectiveness of solar power technologies as compared with conventional and
non-solar alternative energy technologies;
    performance and reliability of solar power products as compared with conventional
and non-solar alternative energy products;
    success of alternative distributed generation technologies such as fuel cells, wind
power and micro turbines;
    fluctuations in economic and market conditions that impact the viability of
conventional and non-solar alternative energy sources, such as increases or decreases
in the prices of oil and other fossil fuels;
    capital expenditures by customers that tend to decrease when the United States or global economy slows;
    continued deregulation of the electric power industry and broader energy industry; and
    availability of government subsidies and incentives. We face intense competition from other companies producing solar power and other energy generation
products. If we fail to compete effectively, we may be unable to increase our market share and
sales. The solar power market is intensely competitive and rapidly evolving. Our competitors have
established a market position more prominent than ours, and if we fail to attract and retain
customers and establish a successful distribution network for our solar power products, we may be
unable to increase our sales and market share. There are over 20 companies in the world that
produce solar power products, including BP Solar, Kyocera Corporation, Royal Dutch Shell, Sharp
Corporation, RWE SCHOTT Solar, GE Energy and Sanyo Corporation. Other existing and potential
competitors in the solar power market include universities and research institutions. We also
expect that future competition will include new entrants to the solar power market offering new
technological solutions. Further, many of our competitors are developing and are currently
producing products based on new solar power technologies, including other crystalline silicon
ribbon and sheet technologies, that they believe will ultimately have costs similar to, or lower
than, our projected costs. Most of our competitors are substantially larger than we are, have longer operating histories and
have substantially greater financial, technical, manufacturing and other resources than we do. Our
competitors greater size in some cases provides them with a competitive advantage with respect to
manufacturing costs due to their ability to allocate fixed costs across a greater volume of
production and purchase raw materials at lower prices. Many also have greater name recognition, a
more established distribution network and a larger installed base of customers. In addition, many
of our competitors have well-established relationships with our current and potential resellers and
their customers and have extensive knowledge of our target markets. As a result, our competitors
may be able to devote greater resources to the research, development, promotion and sale of their
products and respond more quickly to evolving industry standards and changing customer requirements
than we can. 37




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If we are unable to protect our intellectual property adequately, we could lose our competitive
advantage in the solar power market. Our ability to compete effectively against competing solar power technologies will depend, in part,
on our ability to protect our current and future proprietary technology, product designs and
manufacturing processes through a combination of patent, copyright, trademark, trade secret and
unfair competition laws. We may not be able to adequately protect our intellectual property and
may need to defend our products and services against infringement claims, either of which could
result in the loss of our competitive advantage in the solar power market and materially harm our
business and profitability. We face the following risks in protecting our intellectual property
and in developing, manufacturing, marketing and selling our products and services:  
    we cannot be certain that our pending United States and foreign patent applications
will result in issued patents or that the claims allowed are or will be sufficiently
broad to protect our technology or processes;
    given the costs of obtaining patent protection, we may choose not to protect certain
innovations that later turn out to be important;
    our license, but not our right, to practice the String Ribbon technology terminated
upon the expiration of the underlying patents, which occurred during 2003 and 2004, and
our historical operating experience with String Ribbon technology and our related
patented and proprietary manufacturing processes may not adequately protect our
competitive advantage;
    third parties may design around our patented technologies or seek to challenge or
invalidate our intellectual property rights and there is no assurance that our
intellectual property rights will deter infringement or misappropriation of our
intellectual property;
    we may incur significant costs and diversion of management resources in prosecuting
or defending intellectual property infringement suits;
    we may not be successful in prosecuting or defending intellectual property
infringement suits and, as a result, may need to seek to obtain a license of the third
partys intellectual property rights, which may not be available to us, whether on
reasonable terms or at all;
    the contractual provisions we rely on to protect our trade secrets and proprietary
information, such as our confidentiality and non-disclosure agreements with our
employees, consultants and other third parties, may be breached and our trade secrets
and proprietary information may be disclosed to competitors, strategic partners and the
public; and
    while our license to the underlying patents directed to the String Ribbon technology
has expired, we own 4 United States patents, 9 pending United States patent
applications, 2 granted European patent applications that have each been validated with
enforceable rights in 18 foreign jurisdictions and 14 pending foreign patent
applications directed to various aspects of the String Ribbon technology; however, our
historical operating experience with String Ribbon technology and our related patented
and proprietary manufacturing processes may not adequately protect our competitive
advantage now that the licensed patents have expired. If we are subject to litigation and infringement claims, they could be costly and disrupt our
business. In recent years, there has been significant litigation involving patents and other intellectual
property rights in many technology-related industries. There may be patents or patent applications
in the United States or other countries that are pertinent to our business of which we are not
aware. The technology that we incorporate into and use to develop and manufacture our current and
future solar power products may be subject to claims that they infringe the patents or proprietary
rights of others. The success of our technology efforts will also depend on our ability to develop
new technologies without infringing or misappropriating the proprietary rights of others. We may receive notices from third parties alleging patent, trademark or copyright infringement,
claims regarding trade secrets or contract claims. Receipt of these notices could result in
significant costs as a result of the diversion of the attention of management from our technology
efforts. No third party has a current filed intellectual property lawsuit, arbitration or other
proceeding against us. If a successful claim were brought against us, we would have to attempt to
license the intellectual 38




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property right from the claimant or to spend time and money to design around or avoid the
intellectual property. Any such license may not be available at reasonable terms, or at all. We may, however, be involved in future lawsuits, arbitrations or other legal proceedings alleging
patent infringement or other intellectual property rights violations. In addition, litigation,
arbitration or other legal proceedings may be necessary to:  
    assert claims of infringement or misappropriation of or otherwise enforce our intellectual property rights;
    protect our trade secrets or know-how; or
    determine the enforceability, scope and validity of our intellectual property rights or those of others. We may be unsuccessful in defending or pursuing these lawsuits or claims. Regardless of the
outcome, litigation can be very costly and can divert managements efforts. An adverse
determination may subject us to significant liabilities or require us to seek licenses to other
parties intellectual property rights. We may also be restricted or prevented from developing,
manufacturing, marketing or selling a solar power product or service that we develop. Further, we
may not be able to obtain any necessary licenses on acceptable terms, if at all. In addition, we may have to participate in proceedings before the United States Patent and
Trademark office, or before foreign patent and trademark offices, with respect to our patents,
patent applications, trademarks or trademark applications or those of others. These actions may
result in substantial costs to us as well as a diversion of management attention. Furthermore,
these actions could place our patents, trademarks and other intellectual property rights at risk
and could result in the loss of patent, trademark or other intellectual property rights protection
for the products and services on which our business strategy depends. We may be unable to adequately protect or enforce our proprietary information, which may result in
its unauthorized use or reduced sales or otherwise reduce our ability to compete. Our business and competitive position depend upon our ability to protect our proprietary
technology, including any solar power products that we develop. Despite our efforts to protect
this information, unauthorized parties may attempt to obtain and use information that we regard as
proprietary. Any patents issued in connection with our efforts to develop new technology for solar
power products may not be broad enough to protect all of the potential uses of the technology. In addition, when we do not control the prosecution, maintenance and enforcement of certain
important intellectual property, such as a technology in-licensed to us, the protection of the
intellectual property rights may not be in our hands. If the entity that controls the intellectual
property rights does not adequately protect those rights, our rights may be impaired, which may
impact our ability to develop, market and commercialize the related solar power products. Our means of protecting our proprietary rights may not be adequate, and our competitors may:  
    independently develop substantially equivalent proprietary information, products and techniques;
    otherwise gain access to our proprietary information; or
    design around our patents or other intellectual property. We pursue a policy of having our employees, consultants and advisors execute proprietary
information and invention agreements when they begin working for us. However, these agreements may
not provide meaningful protection for our trade secrets or other proprietary information in the
event of unauthorized use or disclosure. If we fail to maintain trade secret and patent
protection, our potential, future revenues may be decreased. If the effective term of our patents is decreased due to changes in patent laws or if we need to
refile some of our patent applications, the value of our patent portfolio and the revenues we
derive from it may be decreased. The value of our patents depends in part on their duration. A shorter period of patent protection
could lessen the value of our rights under any patents that we obtain and may decrease the revenues
we derive from our patents. For example, the United States patent laws were amended in 1995 to
change the term of patent protection from 17 years after the date of a patents issuance to 20
years after the earliest effective filing date of the application for a patent, unless the
application was pending on 39




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June 8, 1995, in which case the term of a patents protection expires either 17 years after its
issuance or 20 years after its filing, whichever is later. Because the average time from filing of
patent application to issuance of a patent there from is usually at least one year and, depending
on the subject matter, may be more than three years, a 20-year patent term from the filing date may
result in substantially shorter patent protection. Also, we may need to refile some of our patent
applications to disclose additional subject matter and, in these situations, the patent term will
be measured from the date of the earliest priority application to which benefit is claimed in such
a patent application. This would shorten our period of patent exclusivity and may decrease the
revenues that we might obtain from the patents. International intellectual property protection is particularly uncertain and costly, and we have
not obtained or sought patent or trademark protection in many foreign countries where our solar
power products and services may be developed, manufactured, marketed or sold. Intellectual property law outside the United States is even more uncertain and costly than in the
United States and is currently undergoing review and revision in many countries. Further, the laws
of some foreign countries may not protect our intellectual property rights to the same extent as
United States laws. Moreover, we have not sought, obtained or maintained patent and trademark
protection in many foreign countries in which our solar power products and services may be
developed, manufactured, marketed or sold by us or by others. Existing regulations and changes to such regulations may present technical, regulatory and economic
barriers to the purchase and use of solar power products, which may significantly reduce demand for
our products. The market for electricity generation products is heavily influenced by foreign, federal, state and
local government regulations and policies concerning the electric utility industry, as well as
internal policies and regulations promulgated by electric utilities. These regulations and
policies often relate to electricity pricing and technical interconnection of customer-owned
electricity generation. In the United States and in a number of other countries, these regulations
and policies are being modified and may continue to be modified. Customer purchases of, or further
investment in the research and development of, alternative energy sources, including solar power
technology, could be deterred by these regulations and policies, which could result in a
significant reduction in the potential demand for our solar power products. For example, utility
companies commonly charge fees to larger, industrial customers for disconnecting from the electric
grid or for having the capacity to use power from the electric grid for back-up purposes. These
fees could increase the cost to our customers of using our solar power products and make them less
desirable, thereby harming our business, prospects, results of operations and financial condition. We anticipate that our solar power products and their installation will be subject to oversight and
regulation in accordance with national and local ordinances relating to building codes, safety,
environmental protection, utility interconnection and metering and related matters. There is also
a burden in having to track the requirements of individual states and design equipment to comply
with the varying standards. Any new government regulations or utility policies pertaining to our
solar power products may result in significant additional expenses to us and our resellers and
their customers and, as a result, could cause a significant reduction in demand for our solar power
products. The reduction or elimination of government subsidies and economic incentives for on-grid
applications could cause our revenues to decline. We believe that the growth of some of our target markets, including the market for on-grid
applications, depends in part on the availability and size of government subsidies and economic
incentives. Accordingly, the reduction or elimination of government subsidies and economic
incentives may adversely affect the growth of these markets or result in increased price
competition, which could cause our revenues to decline. Today, the cost of solar power
substantially exceeds the cost of power furnished by the electric utility grid. As a result,
federal, state and local governmental bodies in many countries, most notably the United States,
Japan and Germany, have provided subsidies in the form of cost reductions, tax write-offs and other
incentives to end users, distributors, systems integrators and manufacturers of solar power
products to promote the use of solar energy in on-grid applications and to reduce dependency on
other forms of energy. These government subsidies and economic incentives could be reduced or
eliminated altogether. The lack or inaccessibility of financing for off-grid solar power applications could cause our
sales to decline. One of the markets our products address is off-grid solar power applications to developed and
developing countries. In some developing countries, government agencies and the private sector
have, from time to time, provided subsidies or financing on preferred terms for rural
electrification programs. We believe that the availability of financing could have a significant
effect on the level of sales of off-grid solar power applications, particularly in developing
countries where users may not have sufficient resources or credit to otherwise acquire solar power
systems. If existing financing programs for off-grid solar power 40




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applications are eliminated or if financing is inaccessible, the growth of the market for off-grid
applications may be adversely affected, which could cause our sales to decline. Our reliance on government contracts to partially fund our research and development programs could
impair our ability to commercialize our solar power technologies and would increase our research
and development expenses. We intend to continue our policy of selectively pursuing contract research, product development and
market development programs funded by various agencies of the United States, state and
international governments to complement and enhance our own resources. The percentage of our total
revenues derived from government-related contracts was approximately 6% for the year ended December
31, 2004. As of December 31, 2004, we had one active research contract with the National Renewable
Energy Laboratory. These government agencies may not continue their commitment to programs to which our development
projects are applicable. Moreover, we may not be able to compete successfully to obtain funding
through these or other programs. A reduction or discontinuance of these programs or of our
participation in these programs would increase our research and development expenses, which could
impair our ability to develop our solar power technologies. In addition, contracts involving
government agencies may be terminated or modified at the convenience of the agency. Other risks
include potential disclosure of our confidential information to third parties and the exercise of
march-in rights by the government. Our government-sponsored research contracts are subject to
audit and require that we provide regular written technical updates on a monthly, quarterly or
annual basis, and, at the conclusion of the research contract, a final report on the results of our
technical research. Because these reports are generally available to the public, third parties may
obtain some aspects of our sensitive confidential information. Moreover, the failure to provide
these reports or to provide inaccurate or incomplete reports may provide the government with rights
to any intellectual property arising from the related research. March-in rights refer to the right
of the United States government or government agency to require us to grant a license to the
technology to a responsible applicant or, if we refuse, the government may grant the license
itself. The government can exercise its march-in rights if it determines that action is necessary
because we fail to achieve practical application of the technology or because action is necessary
to alleviate health or safety needs, to meet requirements of federal regulations or to give the
United States industry preference. Funding from government contracts also may limit when and how
we can deploy our technology developed under those contracts. Compliance with environmental regulations can be expensive, and noncompliance with these
regulations may result in adverse publicity and potentially significant monetary damages and fines. We are required to comply with all foreign, federal, state and local regulations regarding
protection of the environment. If more stringent regulations are adopted in the future, the costs
of compliance with these new regulations could be substantial. We believe that we have all
necessary permits to conduct our business as it is presently conducted. If we fail to comply with
present or future environmental regulations, however, we may be required to pay substantial fines,
suspend production or cease operations. We use, generate and discharge toxic, volatile and
otherwise hazardous chemicals and wastes in our research and development and manufacturing
activities. Any failure by us to control the use of, or to restrict adequately the discharge of,
hazardous substances could subject us to potentially significant monetary damages and fines or
suspensions in our business operations. In addition, under some foreign, federal and state
statutes and regulations, a governmental agency may seek recovery and response costs from operators
of property where releases of hazardous substances have occurred or are ongoing, even if the
operator was not responsible for such release or otherwise at fault. Product liability claims against us could result in adverse publicity and potentially significant
monetary damages. Like other retailers, distributors and manufacturers of products that are used by consumers, we
face an inherent risk of exposure to product liability claims in the event that the use of the
solar power products we sell results in injury. Since our products are electricity producing
devices, it is possible that consumers could be injured or killed by our products, whether by
product malfunctions, defects, improper installation or other causes. In addition, since sales of
our existing products have been modest and the products we are developing incorporate new
technologies and use new installation methods, we cannot predict whether or not product liability
claims will be brought against us in the future or the effect of any resulting adverse publicity on
our business. Moreover, we may not have adequate resources in the event of a successful claim
against us. We have evaluated the potential risks we face and believe that we have appropriate
levels of insurance for product liability claims. We rely on our general liability insurance to
cover product liability claims and have not obtained separate product liability insurance. The
successful assertion of product liability claims against us could result in potentially significant
monetary damages and if our insurance protection is inadequate to cover these claims, they could
require us to make significant payments. 41




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Risks Related to Our Common Stock Our
officers and directors control approximately 21% of our voting stock and may be able to
significantly influence corporate actions. As
of March 2, 2005, our executive officers and directors and entities affiliated with them
beneficially owned approximately 21% of our voting stock. As a result, these stockholders, acting
together, may be able to significantly influence all matters requiring approval by our
stockholders, including the election of directors, the approval of charter and by-law amendments
and the approval of mergers or other business combinations. The interests of these and other of
our existing stockholders may conflict with the interests of our other stockholders. The price of our common stock has been volatile. Our common stock is quoted on the Nasdaq National Market. The trading price of our common stock
has been and may continue to be volatile. The closing sale prices of our common stock, as reported
by the Nasdaq National Market, have ranged from $2.04 to $7.30 for the 52-week period ended March
2, 2005. Our operating performance will significantly affect the market price of our common stock.
To the extent we are unable to compete effectively and gain market share or the other factors
described in this section affect us, our stock price will likely decline. The market price of our
common stock also may be adversely impacted by broad market and industry fluctuations regardless of
our operating performance, including general economic and technology trends. The Nasdaq National
Market has, from time to time, experienced extreme price and trading volume fluctuations, and the
market prices of technology companies such as ours have been extremely volatile.
In addition, companies that have experienced volatility in the market price of their stock have
been the subject of securities class action litigation. We may be involved in securities class
action litigation in the future. This litigation often results in substantial costs and a
diversion of managements attention and resources. Because we do not intend to pay dividends, stockholders will benefit from an investment in our
common stock only if it appreciates in value. We have never declared or paid any cash dividends on our common stock. We anticipate that we will
retain our earnings to support operations and to finance the growth and development of our business
and do not expect to pay cash dividends in the foreseeable future. As a result, the success of an
investment in our common stock will depend upon any future appreciation in its value. There is no
guarantee that our common stock will appreciate in value or even maintain the price at which
stockholders have purchased their shares. We are subject to anti-takeover provisions in our charter and by-laws and under Delaware law that
could delay or prevent an acquisition of our company, even if the acquisition would be beneficial
to our stockholders. Provisions of our certificate of incorporation and by-laws, as well as Delaware law, could make it
more difficult and expensive for a third party to pursue a tender offer, change in control
transaction or takeover attempt that is opposed by our board of directors. Stockholders who wish
to participate in these transactions may not have the opportunity to do so. We also have a
staggered board of directors, which makes it difficult for stockholders to change the composition
of our board of directors in any one year. If a tender offer, change in control transaction,
takeover attempt or change in our board of directors is prevented or delayed, the market price of
our common stock could decline. Even in the absence of a takeover attempt, the existence of these
provisions may adversely affect the prevailing market price of our common stock if they are viewed
as discouraging takeover attempts in the future. We can issue shares of preferred stock that may adversely affect your rights as a stockholder of
our common stock. Our certificate of incorporation authorizes us to issue up to 27,227,668 shares of preferred stock
with designations, rights and preferences determined from time-to-time by our board of directors.
Accordingly, our board of directors is empowered, without stockholder approval, to issue preferred
stock with dividend, liquidation, conversion, voting or other rights superior to those of
stockholders of our common stock. For example, an issuance of shares of preferred stock could:  
    adversely affect the voting power of the stockholders of our common stock;
    make it more difficult for a third party to gain control of us;
    discourage bids for our common stock at a premium; 42




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
    limit or eliminate any payments that the stockholders of our common stock could
expect to receive upon our liquidation; or
    otherwise adversely affect the market price of our common stock. We have in the past and we may in the future issue additional shares of authorized preferred stock
at any time. Our failure to comply with applicable listing standards could result in the ineligibility of our
common stock for quotation on the Nasdaq National Market and severely limit the ability to sell our
common stock. Our common stock is quoted on the Nasdaq National Market. Under Nasdaqs listing maintenance
standards, if the closing bid price of our common stock is under $1.00 per share for 30 consecutive
trading days, Nasdaq will notify us that we may be delisted from the Nasdaq National Market. If
the closing bid price of our common stock does not thereafter regain compliance for a minimum of
ten consecutive trading days during the 90 days following notification by Nasdaq, our common stock
may no longer be eligible for quotation on the Nasdaq National Market. There can be no assurance
that our common stock will remain eligible for quotation on the Nasdaq National Market. In
addition, if our common stock were no longer eligible for such quotation, our stockholders would
not be able to sell our common stock on the Nasdaq National Market, and their ability to sell any
of our common stock could be severely if not completely limited. 43




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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK: INTEREST RATE RISK We do not use derivative financial instruments to manage interest rate risk. Interest income earned
on our cash, cash equivalents and marketable securities is subject to interest rate fluctuations,
but we believe that the impact of these fluctuations does not have a material effect on our
financial position due to the immediate available liquidity or short-term nature of these financial
instruments. For these reasons, a hypothetical 100-basis point adverse change in interest rates
would not have a material effect on our consolidated financial position, results of operations or
cash flows. FOREIGN CURRENCY EXCHANGE RATE RISK For the year ended December 31, 2004, all of our product sales into Europe were denominated in
Euros, which exposes us to foreign exchange gains or losses. Product sales into Europe accounted
for approximately 73% of product revenues for the year ended December 31, 2004. Since our
Euro-denominated sales represent a significant portion of our total revenue, a hypothetical 10
percent adverse change in exchange rate would have had a material effect on our consolidated
financial position, reducing revenue and earnings by approximately 7%. As we expand our manufacturing operations
and distribution network internationally, our exposure to fluctuations in currency exchange rates
may increase. Additionally, from time to time we may purchase equipment and materials
internationally, and to the extent that such purchases are billed in foreign currency, we will be
exposed to currency gains or losses. In 2004, the Company began to manage its foreign exchange risk through the use of derivative
financial instruments. These financial instruments serve to protect cash flow against the impact
of the translation into U.S. dollars of foreign exchange denominated transactions. As of December
31, 2004, the Company had forward currency contracts denominated in foreign currency totaling
#eu#8.5 million. At December 31, 2004, the translated fair market value of outstanding forward
exchange contracts was $11.6 million. The Company recorded unrealized losses of approximately
$683,000 for the year ended December 31, 2004, respectively in connection with the marking to
market of its forward contracts. 
 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA: The Companys Financial Statements and related Notes and the Report of Independent Registered
Public Accounting Firm are included beginning on page F-1 of this Annual Report on Form 10-K. 
 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE: None. 
 ITEM 9A. CONTROLS and PROCEDURES: Evaluation of Disclosure Controls and Procedures We have carried out an evaluation under the supervision and with the participation of management,
including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the
design and operation of our disclosure controls and procedures. There are inherent limitations to
the effectiveness of any system of disclosure controls and procedures, including the possibility of
human error and the circumvention or overriding of the controls and procedures. Accordingly, even
effective disclosure controls and procedures can only provide reasonable assurance of achieving
their control objectives. Based upon our evaluation, the Chief Executive Officer and the Chief
Financial Officer have concluded that, as of December 31, 2004, the disclosure controls and
procedures were effective to provide reasonable assurance that information required to be disclosed
in the reports we file and submit under the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported as and when required. Management Report on Internal Control Over Financial Reporting Management is responsible for establishing and maintaining adequate internal control
over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange
Act of 1934. Internal control over financial reporting designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for
external reporting purposes in accordance with generally accepted accounting principles. Internal
control over financial reporting includes those policies and procedures that: 44




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 pertain to the maintenance of records that, in reasonable detail, accurately and
fairly reflect the transactions and dispositions of the assets of the company;  provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles,
and that receipts and expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and  provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of the companys assets that could have a material effect on the
financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods
are subject to the risk that controls may become inadequate because of changes in conditions and
that the degree of compliance with the policies or procedures may deteriorate. Management assessed the effectiveness of the Companys internal control over financial reporting as
of December 31, 2004. In making its assessment, management has utilized the criteria set forth in
Internal ControlIntegrated Frameworkissued by the Committee of Sponsoring Organizations (COSO) of
the Treadway Commission. Based on its assessment, management concluded that, as of December 31, 2004, the Companys internal
control over financial reporting was effective to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principals. Managements assessment of
the effectiveness of the Companys internal control over financial reporting as of December 31,
2004 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting
firm as stated in their report, which appears on page F-2 of this Annual Report on Form 10-K. Changes in Internal Controls Over Financial Reporting There have been no changes in our internal control over financial reporting during the quarter
ended December 31, 2004 that have materially affected, or are reasonably likely to materially
affect our internal control over financial reporting. 
 ITEM 9B. OTHER INFORMATION: On December 15, 2004, the Compensation Committee (the Compensation Committee) of the Board of
Directors recommended for approval by the Board of Directors (i) a bonus pool for non-CEO employees
of up to $300,000, (ii) an stock option bonus pool for non-CEO employees of up to 300,000 shares,
and (iii) a cash bonus to the Chief Executive Officer of $150,000 (of which $100,000 is due
pursuant to the Chief Executive Officers employment offer letter and $50,000 of which is in
addition to such amounts due). On December 15, 2004, the Board of Directors approved the Compensation Committees recommendations
to establish a cash bonus pool for non-CEO employees of up to $300,000 and an stock option bonus
pool of up to 300,000 shares (both to be distributed as determined by the Compensation Committee),
and a cash bonus to Richard M . Feldt, the Companys Chief Executive Officer, of $150,000 (of which
$100,000 is due pursuant to the Mr. Feldts employment offer letter and $50,000 of which is in
addition to such amounts due). In February 2005, the Compensation Committee approved cash bonus payments from the
previously approved bonus pool for the non-CEO named executive officers as follows: CashName
    
    Position
    
    BonusRichard G. Chleboski
    
    Chief Financial Officer, Vice President, Treasurer and Secretary
    
    $
    17,852Mark A. Farber
    
    Vice President, Strategic Planning
    
    $
    22,314Dr. Jack I.
Hanoka
    
    Vice President and Chief Technical
Officer
    
    $
    17,757John J.
McCaffrey, Jr.
    
    Vice President, Manufacturing and
Engineering
    
    $
    19,764
 45




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PART III 
 ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT: Directors and Executive Officers The following table sets forth certain information with respect to our
executive officers and directors, with ages as of March 10, 2005. Name
    
    Age
    
    PositionRichard M. Feldt
    
    
    53
    
    
    Chief Executive Officer, President and DirectorRichard G. Chleboski
    
    
    39
    
    
    Chief Financial Officer, Vice President,
Treasurer and SecretaryDr. Jack I. Hanoka
    
    
    69
    
    
    Vice President and Chief Technical OfficerDr. Terry Bailey
    
    
    50
    
    
    Senior Vice President, Marketing and SalesMark A. Farber
    
    
    52
    
    
    Vice President, Strategic PlanningJohn J. McCaffrey, Jr.
    
    
    53
    
    
    Vice President, Manufacturing and EngineeringDr. Brown F. Williams
    
    
    64
    
    
    Vice President, Research and DevelopmentGary T. Pollard
    
    
    45
    
    
    Vice President, Human ResourcesTimothy Woodward(1)(3)
    
    
    44
    
    
    Chairman of the Board of DirectorsPhillip J. Deutch(1)
    
    
    40
    
    
    DirectorMichael El-Hillow(2)
    
    
    53
    
    
    DirectorCharles J. McDermott(2)(3)
    
    
    54
    
    
    DirectorDr. Robert W. Shaw, Jr.(1)
    
    
    63
    
    
    DirectorDr. William P. Sommers(2)
    
    
    71
    
    
    Director
   (1)
    
    Member of the Compensation Committee.(2)
    
    Member of the Audit Committee.(3)
    
    Member of the Nominating and Corporate Governance Committee. Richard M. Feldthas served as our President and Chief Executive Officer and a
director since December 2003. Previously he was employed by Perseid, a developer of optical phased
array technology created by Raytheon, where he served as Chief Executive Officer in 2002. Prior to
that, from 2000 to 2001, Mr. Feldt served as Chief Operating Officer of SupplierMarket.com, a B2B
internet supply chain management company that was sold to Ariba. From 1995 to 2000, Mr. Feldt was
Senior Vice President and General Manager of Worldwide Operations at Symbol Technologies, a data
transaction systems company. In addition, Mr. Feldt has held senior positions at A.T. Cross
Company, Eastman Kodak Company and Spectra-Physics, Inc. He received a B.S. in Industrial
Engineering from Northeastern University. Richard G. Chleboskihas served as our Chief Financial Officer, Vice President
and Treasurer since August 1994 and our Secretary since May 2000. From June 1995 until May 2003,
Mr. Chleboski served as a director. From July 1987 until February 1994, Mr. Chleboski worked at
Mobil Solar Energy Corporation, the solar power subsidiary of Mobil Corporation, where he was the
Strategic Planner from March 1991 until February 1994 and a Process Engineer from 1987 until 1991.
Mr. Chleboski received an M.B.A. from Boston College and a B.S. in Electrical Engineering from the
Massachusetts Institute of Technology. Dr. Jack I. Hanokahas served as our Vice President and Chief Technical
Officer since August 1994. From December 1978 until February 1994, Dr. Hanoka worked at Mobil Solar
Energy Corporation, the solar power division of Mobil Corporation, where he was a Research
Associate. Dr. Hanoka received a Ph.D. in Solid State Physics and an M.S. in Ceramic Science from
Pennsylvania State University and a B.A. in Liberal Arts and a B.S. in Ceramic Engineering from
Rutgers University. Dr. Terry Baileyhas served as our Senior Vice President, Marketing and Sales since August
2004. Prior to this position, Dr. Bailey was a consultant for GE Power Systems from April 2004 to
August 2004. From February 2003 to April 2004, Dr. Bailey served as Vice President of Marketing and
Sales for AstroPower, Inc., a leading solar technology supplier which was acquired by General
Electric in August 2004. Prior to that, Dr. Bailey served as the President and Chief Executive
Officer of Salus Micro Technologies from February 1999 to November 2002. Dr. Bailey served as
Executive Vice President, Chief Operating Officer of NEC Technologies, Inc., a wholly owned
subsidiary of NEC. Dr. Bailey earlier served as Senior Vice President, Marketing and Sales at NEC
Technologies. Prior to NEC, Dr. Bailey was an executive at Apple Computer, where he served in
various positions, including Senior Vice President and General Manager for Apples Imaging
Division. Dr. Bailey received a Ph.D. in Analytical Chemistry from Florida State University,
specializing in nuclear magnetic resonance research and computer system graphics integration, and
he received a B.S. in Chemistry from the University of Alabama. Mark A. Farberhas served as our Vice President, Strategic Planning since
December 2003. Mr. Farber was appointed President at our inception in August 1994 and was later
also appointed as our first Chief Executive Officer in May 2000. He served as President and Chief
Executive Officer until December 2003. He was also a director from our inception in August 1994
until October 2004. From July 1988 until February 1994, Mr. Farber worked at Mobil Solar Energy
Corporation, the solar power subsidiary of Mobil Corporation, where he was responsible for
marketing, sales and corporate partnering activities. From June 1976 until June 1988, Mr. Farber
was employed by Temple, Barker and Sloane, now Mercer Management Consulting, as a management
consultant where he advised electric utilities, equipment manufacturers and government agencies on
economic, business and policy issues related to energy. Mr. Farber received an M.S. in Management
from the Sloan School of Management of the Massachusetts Institute of Technology and a B.S. in
Industrial Engineering and Operations Research from Cornell University. 46




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John J. McCaffrey, Jr.has served as our Vice President, Manufacturing and
Engineering since December 2000 and previously served as our Vice President, Manufacturing since
June 1999. From June 1979 until June 1999, Mr. McCaffrey worked for Polaroid Corporation where he
managed manufacturing, equipment engineering and quality control, including factory start-ups and
international operations. Mr. McCaffrey received a B.S. in Chemistry and General Engineering from
The United States Naval Academy, Annapolis. Dr. Brown F. Williamshas served as Vice President, Research and Development
since November 2004. Dr. Williams served as a director since 1999 and served as Chairman of our
board of directors since January 2004. From 1990 to 2003, Mr. Williams served as Chief Executive
Officer and Chairman of the board of directors of Princeton Video Image, Inc., a company he founded
in 1990. From 1988 to 1990, Mr. Williams was an independent consultant to venture capital firms.
Dr. Williams has also held several research and managerial positions at RCA Laboratories from 1966
to 1998. He received a Ph.D., M.A. and A.B. and degrees in Physics from the University of
California Riverside and was both a University of California Regents Fellow and a National Science
Foundation Fellow. Gary T. Pollardhas served as our Vice President, Human Resources since June
2004. Prior to joining Evergreen, Mr. Pollard worked as an independent consultant for regional and
international companies in high technology, healthcare, pharmaceuticals and food services
developing hiring, recruitment and HR programs, and designing benefit plans. From 1996 to 2002, he
served as Vice President of Human Resources for The Mentor Network, a Boston-based company with
6,000 employees and 150 locations in 22 states. He was also Vice President of Human Resources for
Advantage Health Corporation of Woburn, Massachusetts, and Director of Human Resources for Critical
Care America, based in Westborough, Massachusetts. He has also held positions at Signal Capital
Corporation, Martin Marietta Aerospace and General Electric Information Services. Mr. Pollard
received a B.A. in Economics from Saint Michaels College in Vermont. He is a member of the Society
of Human Resource Management and the Northeast Human Resources Association. Timothy Woodwardhas served as director since May 2003, and he has served as
the Chairman of our board of directors since November 2004. Mr. Woodward is a Managing Director of
Nth Power, L.L.C., a venture capital firm dedicated to the global energy sector. Mr. Woodward
joined Nth Power in 1998 following eight years of managing venture capital investments at Liberty
Environmental Partners, a venture capital firm focused on environmental, industrial and energy
technologies. In 1991, Mr. Woodward assisted in the formation of Liberty Environmental Partners,
where he co-managed the firms venture capital activities. Prior to forming Liberty Environmental
Partners, Mr. Woodward was part of the founding senior management team of First Source, a company
providing industrial solvent recycling services, and from 1982 to 1987 he worked in international
marketing at Claude Laval Corporation, an industrial filtration equipment manufacturer. Mr.
Woodward serves on the board of directors of AllConnect, Comverge,Wellspring International and
H2Gen. Mr. Woodward received an M.B.A. from the University of California, Los Angeles and a B.S. in
Resource Economics from the University of California, Berkeley. Philip J. Deutchhas served as a director since May 2003. Mr. Deutch is a
Managing Director of Perseus, L.L.C., a Washington, D.C. and New York City-based private equity
firm and has lead Perseuss energy technology investing since 1997. Mr. Deutch serves on the board
of directors of Beacon Power Corporation. Prior to joining Perseus, Mr. Deutch worked at Williams &
Connolly and in the Mergers and Acquisitions Department of Morgan Stanley & Co. Mr. Deutch is a
member of the board of directors of the International Center for Research on Women. Mr. Deutch
received a J.D. from Stanford Law School and a B.A. from Amherst College. Michael El-Hillowhas served as a director since August of 2004, and our board
of directors has determined that he qualifies as an audit committee financial expert for purposes
of applicable SEC rules. Mr. El-Hillow has been Executive Vice President and Chief Financial
Officer of Advanced Energy since September 2001. Prior to joining Advanced Energy, he was Senior
Vice President and Chief Financial Officer at Helix Technology Corporation, a major supplier of
high-vacuum products principally to the semiconductor capital equipment industry, from 1997 until
2001. Prior to Helix, he was Vice President, Finance, Treasurer and Chief Financial Officer at A.T.
Cross Company and an audit partner at Ernst & Young. Mr. El-Hillow received an M.B.A. from Babson
College in Babson Park, Massachusetts, received a B.S. in Accounting from the University of
Massachusetts and he is a certified public accountant. Charles J. McDermotthas served as a director since May 2003. Mr. McDermott is
a Partner in RockPort Capital Partners and Chief Executive Officer of the RockPort Group. From 1990
to 1998, Mr. McDermott was Vice President of Waste Management Inc., overseeing advocacy before the
U.S. Congress, the Environmental Protection Agency and other federal agencies and the White House.
During his tenure from 1984 to 1986 at Citizens Energy, a non-profit energy company, Mr. McDermott
helped pioneer the creation of the nations first bulk electric power trading company. Mr.
McDermott later served as Campaign Director and then as Chief of Staff for Congressman Joseph P.
Kennedy II from 1986 to 1990 and has served on various EPA advisory councils and presidential task
forces. Mr. McDermott serves on the board of directors and as President of the CEO Coalition to
Advance Sustainable Technologies, is a member of the Board of Governors of the National Association
of Small Business Investment Companies and also serves on the board of directors of Cerox
Corporation. Dr. Robert W. Shaw, Jr.served as the Chairman of our board of directors from
October 1994 until January 2004 and continues to serve as a director. Since 1983, Dr. Shaw has
served as President of Arete Corporation, a venture capital management firm with a focus on the
energy technology sector, and has been general partner of six venture capital funds. Prior to that
time, Dr. Shaw was a senior vice president and director of Booz-Allen & Hamilton, an international
management and technology consulting firm, where he founded the firms energy division. Dr. Shaw is
Chairman of the board of directors of Distributed Energy Systems Corporation. Dr. Shaw has been a
director of Cell Tech Power, Inc. since 2000 and H2Gen Innovations, Inc. since 2001. Dr. Shaw
received a Ph.D. in Applied Physics from Stanford University, an M.P.A. from American University,
and an M.S. and a B.E.P. in Electrical Engineering from Cornell University. Dr. William P. Sommershas served as a director since January 1999. From 1994
to 1998, Dr. Sommers was President and Chief Executive Officer of SRI International, formerly
Stanford Research Institute, a not-for-profit contract research and development organization. Dr.
Sommers retired in 1998. From 1963 to 1993, he was an Executive Vice President and director of
Booz-Allen & Hamilton. Dr. Sommers has served on the board of directors of Litton Industries, Inc.,
Scudder Mutual Funds, Pressure Systems, Inc., H2Gen Innovations, Inc. and Zassi Medical Evolutions,
Inc. Dr. Sommers received a Ph.D. in Aeronautical Engineering from the University of Michigan, with
highest honors, and an M.S. and a B.S. in Mechanical Engineering. 47




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Additional information required under this item may be found under the sections captioned Election of
Directors, Occupations of Directors and Executive Officers, Audit Committee, Section 16(a)
Beneficial Ownership Reporting Compliance and Code of Ethics in our Proxy Statement (the 2005
Proxy Statement), to be filed with the Securities and Exchange Commission not later than 120 days
after the close of our fiscal year ended December 31, 2004, and is incorporated herein by
reference. 
 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS: The information required under this item may be found under the caption Certain Relationships and
Related Transactions in the 2005 Proxy Statement, and is incorporated herein by reference. 
 ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES: The information required under this item may be found under the caption Independent Registered
Public Accounting Firm in the 2005 Proxy Statement, and is incorporated herein by reference. 
 ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K: (a) The following documents are filed as part of this Annual Report on Form 10-K: 1. Consolidated Financial Statements. The financial statements included in Item 8 of Part II
which appear beginning on page F-1 of this Annual Report on Form 10-K. 2. Exhibits. The following exhibits: ExhibitNumber
    
    Description3.1 (1)
    
    Third Amended and Restated Certificate of Incorporation of the Registrant. (Exhibit 3.2)3.2 (1)
    
    Second Amended and Restated By-laws of the Registrant. (Exhibit 3.4)3.3 (2)
    
    Certificate of Amendment of Third Amended and Restated Certificate of Incorporation of the
Registrant filed with the Secretary of State of the State of Delaware on May 15, 2003.
(Exhibit 4.3)3.4 (2)
    
    Certificate of the Powers, Designations, Preferences and Rights of the Series A Convertible
Preferred Stock of the Registrant. (Exhibit 4.4)3.5 (3)
    
    Certificate of Amendment of Third Amended and Restated Certificate of Incorporation filed
with the Secretary of State of the State of Delaware on August 30, 2004. (Exhibit 4.5)4.1
    
    Warrant issued to CRT Capital Group LLC. (filed herewith)4.2 (4)
    
    Warrant to Purchase Stock Issued to Silicon Valley Bank on August 26, 2004. (Exhibit 4.1)4.3 (4)
    
    Registration Rights Agreement dated as of August 26, 2004. (Exhibit 4.2)10.1 (1)*
    
    1994 Stock Option Plan. (Exhibit 10.1)10.2 (1)*
    
    2000 Stock Option and Incentive Plan. (Exhibit 10.2)10.3 (2)*
    
    Amended 2000 Stock Option and Incentive Plan. (Exhibit 4.5)10.4 (1)*
    
    2000 Employee Stock Purchase Plan. (Exhibit 10.3)10.5 (1)
    
    Lease Agreement between Registrant
and W9/TIB Real Estate Limited Partnership dated as of January 31, 2000, as amended. (Exhibit 10.5)10.6
    
    Lease between Registrant and One
Hundred Twenty Bartlett Street Marlboro LLC dated as of
January 26, 2004  (filed herewith)10.7 (1)+
    
    Agreement between Registrant and Emanuel M. Sachs dated as of September 30, 1994, as
amended.(Exhibit 10.7)10.8 (1)
    
    Series D Preferred Stock Purchase Agreement dated as of December 28, 1999. (Exhibit 10.8)10.9 (1)
    
    Form of Indemnification Agreement between Registrant and each of its directors and executive
officers. (Exhibit 10.9)10.10 (7)
    
    Stock and Warrant Purchase Agreement dated as of March 21, 2003. (Exhibit 10.1)10.11 (7)
    
    Form of Registration Rights Agreement . (Exhibit 10.3)
 48




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##### Table of Contents



ExhibitNumber
    
    Description10.12 (7)
    
    Voting Agreement dated as of March 21, 2003. (Exhibit 10.2)10.13 (5)
    
    Stock and Warrant Purchase Agreement dated June 16, 2004. (Exhibit 10.1)10.14 (5)
    
    Warrant Agreement dated June 21, 2004. (Exhibit 10.2)10.15 (5)
    
    Form of Warrants. (Exhibit 10.3)10.16 (5)
    
    Registration Rights Agreement dated June 21, 2004. (Exhibit 10.4)10.17 (5)
    
    Conversion, Consent, Voting and Lock-Up Agreement dated June 21, 2004. (Exhibit 10.5)10.18 (6) ++
    
    Master Strategic partnership Agreement entered into as of January 14, 2005 by and between Evergreen Solar, Inc. and Q-Cells AG. (Exhibit 10.1)10.19 (6) ++
    
    License and Technology Transfer
Agreement by and between Evergreen Solar, Inc. and EverQ GmbH, dated January 14, 2005. (Exhibit 10.2)23.1
    
    Consent of PricewaterhouseCoopers LLP, an Independent Registered Public Accounting Firm.
(filed herewith)24.1
    
    Power of Attorney (included on Page II-2)31.1
    
    CEO Certification pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange
Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (filed
herewith)31.2
    
    CFO Certification pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange
Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (filed
herewith)32.1
    
    CEO Certification pursuant to Rule 13a-14(b) and Rule 15d-14(b) of the Securities Exchange
Act of 1934, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (filed
herewith)32.2
    
    CFO Certification pursuant to Rule 13a-14(b) and Rule 15d-14(b) of the Securities Exchange
Act of 1934, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (filed
herewith)
   
  (1)
    Incorporated herein by reference to the exhibits to the Companys Registration
Statement on Form S-1, as amended (File No. 333-43140). The number given in parenthesis
indicates the corresponding exhibit number in such Form S-1.(2)
    Incorporated herein by reference to the exhibits to the Companys Registration
Statement on Form S-8 dated June 9, 2003 (File No. 333-105963). The number given in
parenthesis indicates the corresponding exhibit number in such Form S-8.(3)
    Incorporated herein by reference to the exhibits to the Companys Registration
Statement on Form S-3 dated October 21, 2004 (File No. 333-106126). The number given in
parenthesis indicates the corresponding exhibit number in such Form S-3.(4)
    Incorporated herein by reference to the exhibits to the Companys Quarterly Report on
Form 10-Q for the period ended September 30, 2004 filed on
November 12, 2004. The number given in parenthesis indicates the
corresponding exhibit number in such Form 10-Q.(5)
    Incorporated herein by reference to the exhibits to the Companys Current Report on
Form 8-K dated June 22, 2004 (File No. 000-31687). The number given in parenthesis
indicates the corresponding exhibit number in such Form 8-K.(6)
    Incorporated herein by reference to the exhibits to the Companys Current Report on
Form 8-K dated January 14, 2005 (File No. 000-31687). The number given in parenthesis
indicates the corresponding exhibit number in such Form 8-K.(7)
    Incorporated herein by reference to the exhibits to the Companys Current Report on
Form 8-K dated March 24, 2003 (File No. 000-31687). The number given in parenthesis
indicates the corresponding exhibit number in such Form 8-K. (b) Reports on Form 8-K: 49




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##### Table of Contents



During the quarter ended December 31, 2004, the Company filed a report on form 8-K dated
November 11, 2004, reporting information under Items 2.02 and 9.01 relating to the press release
regarding its financial results for the quarter ending September 30, 2004. The Company also filed
reports on form 8-K on the following dates:  
    October 7, 2004, reporting information under Item 5.02 relating to the resignation
of Mark A. Farber as a member of the Companys Board of Directors; and
    November 17, 2004, reporting information under Item 5.02 relating to the resignation
of Dr. Brown F. Williams as a member and Chairman of the Companys Board of Directors. (c) Exhibits: The Company hereby files as part of this Annual Report on Form 10-K the exhibits listed in
Item 15(a)(3) set forth above. Exhibits which are incorporated herein by reference may be inspected
and copied at the public reference facilities maintained by the SEC at the SECs Public Reference
Room at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the SECs regional offices located
at 233 Broadway, New York, New York 10279, and at Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60611-2511. Copies of such material may be obtained by mail from the Public
Reference Section of the SEC at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. The public may obtain information on the operation of the Public Reference Room
by calling 1-800-SEC-0330. The SEC also maintains a web site that contains reports, proxy and
information statements and other information regarding registrants that file electronically with
the SEC at the address http://www.sec.gov. 50




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##### Table of Contents



INDEX TO FINANCIAL STATEMENTS PageReport of Independent Registered Public Accounting Firm
    
    F-2Consolidated Balance Sheets as of December 31, 2003 and 2004
    
    F-4Consolidated Statements of Operations for the years ended December 31, 2002, 2003 and 2004
    
    F-5Consolidated Statements of Stockholders Equity for the years ended December 31, 2002,2003 and 2004
    
    F-6Consolidated Statements of Cash Flows for the years ended December 31, 2002, 2003 and 2004
    
    F-7Notes to Financial Statements
    
    F-8
 F-1




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##### Table of Contents



Report of Independent Registered Public Accounting Firm To the Board of Directors and Stockholders of
Evergreen Solar, Inc.: We have completed an integrated audit of Evergreen Solar, Inc.s 2004 consolidated financial
statements and of its internal control over financial reporting as of December 31, 2004 and audits
of its 2003 and 2002 consolidated financial statements in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Our opinions, based on our audits, are
presented below. Consolidated financial statements In our opinion, the accompanying consolidated balance sheets and the related consolidated
statements of operations, stockholders equity and cash flows present fairly, in all material
respects, the financial position of Evergreen Solar, Inc. and its subsidiaries at December 31, 2004
and 2003, and the results of their operations and their cash flows for each of the three years in
the period ended December 31, 2004 in conformity with accounting principles generally accepted in
the United States of America. 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 of these statements in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit of financial statements includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a reasonable basis for our
opinion. Internal control over financial reporting Also, in our opinion, managements assessment, included in the accompanying Managements Report on
Internal Control Over Financial Reporting, that the Company maintained effective internal control
over financial reporting as of December 31, 2004 based on criteria established in Internal Control
- Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO), is fairly stated, in all material respects, based on those criteria.
Furthermore, in our opinion, the Company maintained, in all material respects, effective internal
control over financial reporting as of December 31, 2004, based on criteria established in
Internal Control  Integrated Frameworkissued by the COSO. The Companys management is
responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting. Our responsibility
is to express opinions on managements assessment and on the effectiveness of the Companys
internal control over financial reporting based on our audit. We conducted our audit of internal
control over financial reporting in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. An audit of internal control over financial reporting
includes obtaining an understanding of internal control over financial reporting, evaluating
managements assessment, testing and evaluating the design and operating effectiveness of internal
control, and performing such other procedures as we consider necessary in the circumstances. We
believe that our audit provides a reasonable basis for our opinions. A companys internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles. A
companys internal control over financial reporting includes those policies and procedures that (i)
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of management and directors of the company;
and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the companys assets that could have a material effect on the
financial statements. F-2




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##### Table of Contents



Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate. PricewaterhouseCoopers LLP
Boston, Massachusetts
March 10, 2005 F-3




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##### Table of Contents



EVERGREEN SOLAR, INC.
CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2003 and 2004
(IN THOUSANDS, EXCEPT SHARE DATA) 
 December 31,
    
    
    December 31,2003
    
    
    2004AssetsCurrent assets:Cash and cash equivalents
    
    $
    4,620
    
    
    $
    5,379Marketable securities
    
    
    15,720
    
    
    
    6,563Accounts receivable, net of allowance for doubtful accounts of $227
and $84 at December 31, 2003 and December 31, 2004, respectively
    
    
    983
    
    
    
    6,166Inventory
    
    
    2,019
    
    
    
    2,906Interest receivable
    
    
    154
    
    
    
    57Other current assets
    
    
    543
    
    
    
    1,411Total current assets
    
    
    24,039
    
    
    
    22,482Restricted cash
    
    
    414
    
    
    
    414Fixed assets, net
    
    
    21,523
    
    
    
    26,825Total assets
    
    $
    45,976
    
    
    $
    49,721Liabilities, convertible preferred stock and stockholders equityCurrent liabilities:Accounts payable
    
    $
    905
    
    
    $
    3,074Short term borrowings
    
    
    
    
    
    
    1,500Accrued employee compensation
    
    
    425
    
    
    
    1,187Accrued warranty
    
    
    426
    
    
    
    705Other accrued expenses
    
    
    244
    
    
    
    1,295Deferred revenue
    
    
    
    
    
    
    440Total current liabilities
    
    
    2,000
    
    
    
    8,201Convertible preferred stock:Series A, $0.01 par value, 27,227,668 shares authorized, 22,679,125 and 0
issued and outstanding at December 31, 2003 and December 31, 2004, respectively
(stated at liquidation value)
    
    
    27,032
    
    
    
    Stockholders equity:Common stock, $0.01 par value, 70,000,000 and 100,000,000 shares authorized,
15,126,268 and 47,541,823 issued and outstanding at December 31, 2003
and December 31, 2004, respectively
    
    
    151
    
    
    
    475Additional paid-in capital
    
    
    73,239
    
    
    
    116,764Deferred compensation
    
    
    (89
    )
    
    
    Accumulated deficit
    
    
    (56,330
    )
    
    
    (75,693
    )Accumulated other comprehensive loss
    
    
    (27
    )
    
    
    (26
    )Total stockholders equity
    
    
    16,944
    
    
    
    41,520Total liabilities, convertible preferred stock and stockholders equity
    
    $
    45,976
    
    
    $
    49,721
 The accompanying notes are an integral part of these consolidated financial statements. F-4




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##### Table of Contents



EVERGREEN SOLAR, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)  For the Years Ended December 31,2002
    
    
    2003
    
    
    2004Revenues:Product revenues
    
    $
    5,296
    
    
    $
    7,746
    
    
    $
    22,240Research revenues
    
    
    1,448
    
    
    
    1,565
    
    
    
    1,296Total revenues
    
    
    6,744
    
    
    
    9,311
    
    
    
    23,536Operating expenses:Cost of product revenues
    
    
    12,405
    
    
    
    15,379
    
    
    
    29,717Research and development expenses, including costs of research revenues
    
    
    3,692
    
    
    
    3,791
    
    
    
    4,931Selling, general and administrative expenses
    
    
    4,520
    
    
    
    5,337
    
    
    
    7,797Total operating expenses
    
    
    20,617
    
    
    
    24,507
    
    
    
    42,445Operating loss
    
    
    (13,873
    )
    
    
    (15,196
    )
    
    
    (18,909
    )Other income (loss), net
    
    
    674
    
    
    
    222
    
    
    
    (454
    )Net loss
    
    
    (13,199
    )
    
    
    (14,974
    )
    
    
    (19,363
    )Accretion, dividends and conversion premiums on Series A convertible preferred stock
    
    
    
    
    
    
    (13,498
    )
    
    
    (2,904
    )Net loss attributable to common stockholders
    
    $
    (13,199
    )
    
    $
    (28,472
    )
    
    $
    (22,267
    )Net loss per share attributable to common stockholders (basic and diluted)
    
    $
    (1.16
    )
    
    $
    (2.39
    )
    
    $
    (0.67
    )Weighted average shares used in computing basic and diluted
net loss per share attributable to common stockholders
    
    
    11,405
    
    
    
    11,899
    
    
    
    33,204
 The accompanying notes are an integral part of these consolidated financial statements. F-5




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##### Table of Contents



EVERGREEN SOLAR, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
(IN THOUSANDS) AccumulatedAdditional
    
    
    
    
    
    
    
    
    
    
    Other
    
    
    TotalCommon Stock
    
    
    Paid-In
    
    
    Deferred
    
    
    Accumulated
    
    
    Comprehensive
    
    
    Stockholders
    
    
    ComprehensiveShares
    
    
    Amount
    
    
    Capital
    
    
    Compensation
    
    
    Deficit
    
    
    Income (Loss)
    
    
    Equity
    
    
    IncomeBalance at January 1, 2002
    
    
    11,399
    
    
    $
    114
    
    
    $
    71,497
    
    
    $
    (649
    )
    
    $
    (28,157
    )
    
    $
    249
    
    
    $
    43,054Issuance of common stock pursuant to exercise of options
    
    
    12
    
    
    
    
    
    
    
    11
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11Compensation expense associated with stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    289
    
    
    
    
    
    
    
    
    
    
    
    289Comprehensive loss:Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (13,199
    )
    
    
    
    
    
    
    (13,199
    )
    
    $
    (13,199
    )Other comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (242
    )
    
    
    (242
    )
    
    
    (242
    )Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (13,441
    )Balance at December 31, 2002
    
    
    11,411
    
    
    $
    114
    
    
    $
    71,508
    
    
    $
    (360
    )
    
    $
    (41,356
    )
    
    $
    7
    
    
    $
    29,913Issuance of common stock pursuant to exercise of options
    
    
    5
    
    
    
    
    
    
    
    8
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8Shares of common stock issued under ESPP
    
    
    3
    
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2Conversion of Series A convertible preferred stock to common stock
    
    
    3,707
    
    
    
    37
    
    
    
    4,116
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,153Compensation expense associated with stock options
    
    
    
    
    
    
    
    
    
    
    80
    
    
    
    271
    
    
    
    
    
    
    
    
    
    
    
    351Accretion of Series A convertible preferred stock
    
    
    
    
    
    
    
    
    
    
    (11,688
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (11,688
    )Beneficial conversion feature of Series A convertible preferred stock
    
    
    
    
    
    
    
    
    
    
    10,314
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,314Dividend on Series A convertible preferred stock
    
    
    
    
    
    
    
    
    
    
    (1,810
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,810
    )Issuance of warrants in connection with Series A convertible preferred stock
    
    
    
    
    
    
    
    
    
    
    625
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    625Reversal of overaccrued IPO financing costs
    
    
    
    
    
    
    
    
    
    
    84
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    84Comprehensive loss:Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (14,974
    )
    
    
    
    
    
    
    (14,974
    )
    
    $
    (14,974
    )Other comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (34
    )
    
    
    (34
    )
    
    
    (34
    )Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (15,008
    )Balance at December 31, 2003
    
    
    15,126
    
    
    $
    151
    
    
    $
    73,239
    
    
    $
    (89
    )
    
    $
    (56,330
    )
    
    $
    (27
    )
    
    $
    16,944Issuance of common stock pursuant to exercise of options
    
    
    18
    
    
    
    
    
    
    
    22
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22Shares of common stock issued under ESPP
    
    
    2
    
    
    
    
    
    
    
    11
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11Conversion of Series A convertible preferred stock to common stock
    
    
    24,733
    
    
    
    247
    
    
    
    27,457
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    27,704Compensation expense associated with stock options
    
    
    
    
    
    
    
    
    
    
    58
    
    
    
    89
    
    
    
    
    
    
    
    
    
    
    
    147Issuance of common stock in connection with private equity financing, net of
offering costs
    
    
    7,663
    
    
    
    77
    
    
    
    18,694
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    18,771Dividend on Series A convertible preferred stock
    
    
    
    
    
    
    
    
    
    
    (2,904
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,904
    )Issuance of common stock warrant to Silicon Valley Bank
    
    
    
    
    
    
    
    
    
    
    187
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    187Comprehensive loss:Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (19,363
    )
    
    
    
    
    
    
    (19,363
    )
    
    $
    (19,363
    )Other
comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    1
    
    
    
    1Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (19,362
    )Balance at December 31, 2004
    
    
    47,542
    
    
    $
    475
    
    
    $
    116,764
    
    
    $
    
    
    
    $
    (75,693
    )
    
    $
    (26
    )
    
    $
    41,520
 The accompanying notes are
an integral part of these consolidated financial statements. F-6




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##### Table of Contents



EVERGREEN SOLAR, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)   For the Years Ended December 31,2002
    
    
    2003
    
    
    2004Cash flows from operating activities:Net loss
    
    $
    (13,199
    )
    
    $
    (14,974
    )
    
    $
    (19,363
    )Adjustments to reconcile net loss to net cash used in operating activities:Depreciation expense
    
    
    1,968
    
    
    
    2,005
    
    
    
    3,455Loss on disposal of fixed assets
    
    
    43
    
    
    
    513
    
    
    
    2,093Bad debt expense
    
    
    127
    
    
    
    87
    
    
    
    28Amortization of bond premiums
    
    
    331
    
    
    
    381
    
    
    
    357Issuance of stock options to consultants
    
    
    
    
    
    
    80
    
    
    
    58Compensation expense associated with employee stock options
    
    
    289
    
    
    
    271
    
    
    
    89Changes in
operating assets and liabilities:Inventory
    
    
    (1,195
    )
    
    
    175
    
    
    
    (887
    )Interest receivable
    
    
    332
    
    
    
    (97
    )
    
    
    97Accounts receivable
    
    
    (2,487
    )
    
    
    1,778
    
    
    
    (5,211
    )Other current assets
    
    
    (754
    )
    
    
    469
    
    
    
    (681
    )Accounts payable
    
    
    3
    
    
    
    44
    
    
    
    2,169Accrued expenses
    
    
    241
    
    
    
    (94
    )
    
    
    2,092Deferred revenue
    
    
    
    
    
    
    
    
    
    
    440Net cash used in operating activities
    
    
    (14,301
    )
    
    
    (9,362
    )
    
    
    (15,264
    )Cash flows from investing activities:Purchases of fixed assets
    
    
    (2,916
    )
    
    
    (7,136
    )
    
    
    (10,851
    )Restricted cash
    
    
    
    
    
    
    50
    
    
    
    Purchases of marketable securities
    
    
    (10,762
    )
    
    
    (26,850
    )
    
    
    (2,418
    )Proceeds from sale and maturity of marketable securities
    
    
    26,609
    
    
    
    18,088
    
    
    
    11,218Net cash
provided by (used in) investing activities
    
    
    12,931
    
    
    
    (15,848
    )
    
    
    (2,051
    )Cash flows from financing activities:Issuance of Series A convertible preferred stock, net of offering costs
    
    
    
    
    
    
    28,526
    
    
    
    Proceeds from issuance of common stock and warrants, net of offering costs
    
    
    
    
    
    
    
    
    
    
    18,771Proceeds from issuance of common stock warrant
    
    
    
    
    
    
    100
    
    
    
    Dividend and conversion premium paid on Series A convertible preferred stock
    
    
    
    
    
    
    
    
    
    
    (2,230
    )Increase in short-term borrowings
    
    
    
    
    
    
    
    
    
    
    1,500Proceeds from exercise of stock options and
shares purchased under Employee Stock Purchase Plan
    
    
    10
    
    
    
    10
    
    
    
    33Net cash flow provided by financing activities
    
    
    10
    
    
    
    28,636
    
    
    
    18,074Net (decrease) increase in cash and cash equivalents
    
    
    (1,360
    )
    
    
    3,426
    
    
    
    759Cash and cash equivalents at beginning of year
    
    
    2,554
    
    
    
    1,194
    
    
    
    4,620Cash and cash equivalents at end of year
    
    $
    1,194
    
    
    $
    4,620
    
    
    $
    5,379Supplemental cash flow information:Taxes paid
    
    $
    32
    
    
    $
    36
    
    
    $
    23Interest paid
    
    
    
    
    
    
    
    
    
    
    27Non-cash Series A convertible preferred stock dividends earned
    
    
    
    
    
    
    1,810
    
    
    
    674Non-cash conversion of Series A convertible preferred stock to common stock
    
    
    
    
    
    
    4,153
    
    
    
    27,704Issuance of common stock warrant to Silicon Valley Bank
    
    
    
    
    
    
    
    
    
    
    187
 The accompanying notes are an integral part of these consolidated financial statements. F-7




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##### Table of Contents



EVERGREEN SOLAR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. NATURE OF BUSINESS Evergreen Solar, Inc. (the Company), incorporated in August 1994, develops, manufactures and
markets solar power products, including solar cells, panels and systems. In April 1997, the Company
commenced product sales. The Company has incurred losses since inception and has an accumulated
deficit, which has been funded by issuing debt and equity securities The Company has historically financed operations and met capital expenditures requirements
primarily through sales of capital stock and, to a lesser extent, research and product revenues.
The first of the Marlboro facilitys two manufacturing lines became operational in 2001. In January 2005, the Company entered into a strategic partnership agreement with Q-Cells. The
purpose of the strategic partnership is to develop and operate a facility in Germany to
manufacture, market and sell solar products based on its proprietary String Ribbon technology. The
Company believes this strategic partnership will accelerate the availability of wafer, cell and
module manufacturing capacity based on String Ribbon technology and provide greater access to the
European Union solar market. The Company believes that its current cash, cash equivalents, marketable securities and revolving
credit facility will be sufficient to fund its planned manufacturing capacity expansion to its
target level of 15 megawatts, fund its expected commitments to its strategic partnership with
Q-Cells for its initial 30 megawatts of capacity and to fund its operating expenditures over the
next the twelve months. The Company will need to raise additional capital in order to further
enhance its operating infrastructure and to further increase capacity. The Company may also require
additional capital to respond to competitive pressures and acquire complementary businesses or
necessary technologies. The Company do not know whether the Company will be able to raise
additional financing or financing on favorable terms. If adequate funds are not available or are
not available on acceptable terms, the Companys ability to fund its operations, develop and expand
its manufacturing operations and distribution network, or otherwise respond to competitive
pressures would be significantly limited. The Company is subject to risks common to companies in the high technology and energy industries
including, but not limited to, development by the Company or its competitors of new technological
innovations, dependence on key personnel, protection of proprietary technology and compliance with
government regulations. Any delay in the Companys plan to scale up to full capacity may result in
increased costs and could impair business operations. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A summary of the major accounting policies followed by the Company in the preparation of the
accompanying financial statements is set forth below. BASIS OF PRESENTATION The consolidated financial statements include the accounts of the Companys wholly owned
subsidiaries, Evergreen Solar Securities, Inc. and Evergreen Solar GmbH. All material intercompany
accounts and transactions have been eliminated. The functional currency for Evergreen Solar GmbH is
predominantly Euros. Revenues and expenses of Evergreen Solar GmbH are translated into U.S. dollars
at the average rates of exchange during the year, and assets and liabilities are translated into
U.S. dollars at year-end rates of exchange. CASH AND INVESTMENTS Cash and cash equivalents consist of cash and highly liquid investments with maturities of three
months or less from the date of purchase and whose carrying amount approximates fair value. The Companys investments are classified as available-for-sale. At December 31, 2003 and 2004, the
Company held US government agency bonds, treasury notes, municipal bonds, corporate bonds and
commercial paper. The investments mature within one year from the date of purchase and are carried
at market value. At December 31, 2004 and 2003, there were unrealized losses of $26,000 and
$27,000, respectively, which are reported as part of stockholders equity. F-8




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##### Table of Contents



CONCENTRATION OF CREDIT RISK AND SIGNIFICANT CUSTOMERS Financial instruments that potentially subject the Company to significant concentrations of credit
risk consist principally of cash and cash equivalents, investments and accounts receivable. The
Company places its cash and cash equivalents and foreign exchange contracts with high quality
financial institutions. With respect to accounts receivable, such receivables are primarily from
distributors and integrators in the solar power industry located throughout the world. The Company
performs ongoing credit evaluations of its customers  ́ financial conditions. The Company generally
does not require collateral or other security against accounts receivable; however, it maintains
reserves for potential credit losses and such losses have historically been within managements
expectations. The table below summarizes the Companys concentration of credit risk for the years ended December
31, 2002, 2003 and 2004: % of product revenue
    
    2002
    
    
    2003
    
    
    2004European distributor #1
    
    
    57
    %
    
    
    47
    %
    
    
    46
    %European distributor #2
    
    
    
    
    
    
    10
    %
    
    
    20
    %Top 5 customers
    
    
    79
    %
    
    
    75
    %
    
    
    79
    %
 % of accounts receivable
    
    2002
    
    
    2003
    
    
    2004European distributor #1
    
    
    64
    %
    
    
    
    
    
    
    50
    %European distributor #2
    
    
    
    
    
    
    11
    %
    
    
    US distributor #1
    
    
    
    
    
    
    13
    %
    
    
    National Renewable Energy Laboratory
    
    
    
    
    
    
    19
    %
    
    
    Top 5 customers
    
    
    83
    %
    
    
    60
    %
    
    
    75
    %
 INVENTORY Inventory
is valued at the lower of cost or market determined on a first-in,
first-out basis. Certain factors may impact the realizable
value of the Companys inventory including, but not limited to, technological changes, market demand, changes
in product mix strategy, new product introductions and significant
changes to its cost structure.
The Company sold its finished goods inventory at prices that are below the sum of our fixed and variable
costs per unit during the first nine months in 2004. Estimates of reserves are made for
obsolescence based on the current product mix on hand and its expected net realizability. If actual
market conditions are less favorable or other factors arise that are significantly different than
those anticipated by management, additional inventory write-downs or increases in obsolescence
reserves may be required. The Company treats lower of cost or market adjustments and inventory reserves as
an adjustment to the cost basis of the underlying inventory. Accordingly, favorable changes in
market conditions are not recorded to inventory in subsequent periods. GUARANTOR ARRANGEMENTS The following is a summary of the Companys agreements that we have determined are within the scope
of FIN No. 45 Guarantors Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others, an interpretation of FASB Statements No. 5, 57, and
107 and rescission of FASB Interpretation No. 34. Product warranty The Company provides for the estimated cost of product warranties at the time revenue is
recognized. Given the Companys limited operating history, historical industry solar panel failure
rates are used as the primary basis for the warranty provision calculation. The Companys current
standard product warranty includes a one or two-year warranty period for defects in material and
workmanship and a 25-year warranty period for declines in power performance. While the Company
engages in product quality programs and processes, including monitoring and evaluating the quality
of component suppliers, its warranty obligation is affected by product failure rates and material
usage and service delivery costs incurred in correcting a product failure. If the Companys actual
product failure rates, material usage or service delivery costs differ from estimates, revisions to
the estimated warranty liability would be required. Since the Company has a limited operating
history and its manufacturing process differs from industry standards, its experience may be
different from the industry data used as a basis for its estimate. While the Companys methodology
takes into account these uncertainties, adjustments in future periods may be required as its
products mature. F-9




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##### Table of Contents



The following table summarizes the activity regarding the Companys warranty accrual: Balance at January 1, 2002
    
    $
    138,000Accruals for warranties issued during the period
    
    
    188,000Balance at December 31, 2002
    
    
    326,000Accruals for warranties issued during the period
    
    
    100,000Balance at December 31, 2003
    
    
    426,000Accruals for warranties issued during the period
    
    
    279,000Balance at December 31, 2004
    
    $
    705,000
 Indemnification agreements The Company enters into standard indemnification agreements in its ordinary course of business.
Pursuant to these agreements, the Company indemnifies, holds harmless, and agrees to reimburse the
indemnified party for losses suffered or incurred by the indemnified party, generally our business
partners, customers, directors and officers. The term of these indemnification agreements is
generally perpetual any time after execution of the agreement. The maximum potential amount of
future payments the Company could be required to make under these indemnification agreements is
unlimited. However, the Company has never incurred costs to defend lawsuits or settle claims
related to these indemnification agreements. The Company believes the estimated fair value of
such agreements is minimal. The Company agreed to indemnify, defend and hold harmless each
of the purchasers participating in the Companys Series A convertible preferred stock financing
transaction, their affiliates and their respective officers, directors, agents, employees,
subsidiaries, partners, members and controlling persons to the fullest extent permitted by law
from and against any and all losses, claims or written threats thereof, damages, expenses
(including reasonable fees, disbursements and other charges of counsel) resulting from or arising
out of the Companys breach of any representation or warranty, covenant or agreement in the
purchase agreement. The Company believes the estimated fair value of this indemnification
agreement is minimal. FIXED ASSETS Fixed assets are recorded at cost. Provisions for depreciation are based on their estimated useful
lives using the straight-line method over three to seven years for all laboratory and manufacturing
equipment, computers, and office equipment. Leasehold improvements are depreciated over the shorter
of the remainder of the leases term or the life of the improvements. Upon retirement or disposal,
the cost of the asset disposed of and the related accumulated depreciation are removed from the
accounts and any gain or loss is reflected in income. Expenditures for repairs and maintenance are
expensed as incurred. IMPAIRMENT OF LONG-LIVED ASSETS The Companys policy regarding long-lived assets is to evaluate the recoverability or usefulness of
these assets when the facts and circumstances suggest that these assets may be impaired. This
analysis relies on a number of factors, including changes in strategic direction, business plans,
regulatory developments, economic and budget projections, technological improvements, and operating
results. The test of recoverability or usefulness is a comparison of the asset value to the
undiscounted cash flow of its expected cumulative net operating cash flow over the assets
remaining useful life. If such a test indicates that impairment is required, then the asset is
written down to its estimated fair value. Any write-downs would be treated as permanent reductions
in the carrying amounts of the assets and an operating loss would be recognized. To date, the
Company has had recurring operating losses and the recoverability of its long-lived assets is
contingent upon executing its business plan that includes further reducing its manufacturing costs
and significantly increasing sales. If the Company is unable to execute its business plan, the
Company may be required to write down the value of its long-lived assets in future periods. No
impairments were required to be recognized during the years ended December 31, 2002, 2003 and 2004
for long-lived assets other than fixed assets. REVENUE RECOGNITION The Company recognizes revenue if persuasive evidence of an arrangement exists, shipment has
occurred, risk of loss has transferred to the customer, sales price is fixed or determinable, and
collectibility is reasonably assured. The market for solar power products is emerging and rapidly
evolving. The Company currently sells its solar power products primarily to distributors, system
integrators and other value-added resellers within and outside of North America, which typically
resell its products to end users throughout the world. For new customers requesting credit, the Company
evaluates creditworthiness based on credit applications, feedback from provided references, and
credit reports from independent agencies. For existing customers, the Company evaluates
creditworthiness based on payment history and known changes in their financial condition. F-10




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##### Table of Contents



The Company also evaluates the facts and circumstances related to each sales transaction and
considers whether risk of loss has passed to the customer upon shipment. The Company considers
whether its customer is purchasing its product for stock, and whether contractual or implied rights
to return the product exist or whether its customer has an end user contractually committed. The
Company does not offer rights to return its product other than for normal warranty conditions and
has had no history of product returns. During 2004, the Company entered into contracts with acceptance clauses which required the deferral
of $440,000 in revenue. Revenue on the contracts will be recognized upon final acceptance by the
customer, which is expected to occur during 2005. At the time revenue is recognized, the Company provides for the estimated cost of product
warranties. Revenue from research grants is generally recognized as services are rendered to the extent of
allowable costs incurred. These contracts are generally cost-shared between the funding agency and
the Company with the Companys share of the total contract cost historically ranging from
approximately 30% to 70%. The contracts normally expire between six months and three years from
their initiation. While the Companys accounting for research contract costs are subject to audit
by the sponsoring agency, in the opinion of management, no material adjustments are expected as a
result of such audits. RESEARCH AND DEVELOPMENT Research and development costs are generally expensed as incurred. INCOME TAXES The Company accounts for income taxes under the liability method, which requires recognition of
deferred tax assets, subject to valuation allowances, and liabilities for the expected future tax
consequences of events that have been included in the financial statements or tax returns. Deferred
income taxes reflect the net tax effects of temporary differences between the carrying amounts of
assets and liabilities for financial reporting and income tax purposes. A valuation allowance is
established if it is more likely than not that all or a portion of the net deferred tax assets will
not be realized. COMPREHENSIVE INCOME Comprehensive income consists of unrealized gains and losses on available-for-sale securities. As
of December 31, 2004 and 2003, accumulated other comprehensive loss was $26,000 and $27,000,
respectively. Other comprehensive income (loss) is reflected in the Consolidated Statement of
Stockholders Equity. STOCK-BASED COMPENSATION The Company applies the accounting provisions of Accounting Principles Board (APB) Opinion 25,
and related interpretations, as they relate to stock-based compensation and has elected the
disclosure-only alternative permitted under Statement of Financial Accounting Standards, (SFAS)
No. 123, Accounting for Stock-Based Compensation. The Company has disclosed herein pro forma net
loss using the fair value based method. All stock-based awards to non-employees are accounted for
at their fair market value, as calculated using the Black-Scholes model in accordance with SFAS No.
123, as amended by SFAS No. 148, Accounting for Stock-Based Compensation-Transition and
Disclosure. F-11




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##### Table of Contents



Had compensation expense for the employee stock option plan been determined based on the fair value
at the grant dates for options granted under the plan consistent with the method of SFAS 123, the
net loss would have been as follows (in thousands, except per share data): 2002
    
    
    2003
    
    
    2004Net Loss
    
    
    Net Loss
    
    
    Net Loss
    
    
    Net Loss
    
    
    Net Loss
    
    
    Net LossAttributable
    
    
    Per
    
    
    Attributable
    
    
    Per
    
    
    Attributable
    
    
    PerTo Common
    
    
    Common
    
    
    To Common
    
    
    Common
    
    
    To Common
    
    
    CommonStockholders
    
    
    Share
    
    
    Stockholders
    
    
    Share
    
    
    Stockholders
    
    
    ShareNet loss attributable to common stockholders, as reported
    
    $
    (13,199
    )
    
    $
    (1.16
    )
    
    $
    (28,472
    )
    
    $
    (2.39
    )
    
    $
    (22,267
    )
    
    $
    (0.67
    )Add: Stock-based employee compensation expense
included in reported results
    
    
    289
    
    
    
    0.03
    
    
    
    271
    
    
    
    0.02
    
    
    
    89
    
    
    
    Deduct: Total stock-based employee compensation expense
determined under the fair value-based method for all awards
    
    
    (1,177
    )
    
    
    (0.10
    )
    
    
    (1,561
    )
    
    
    (0.13
    )
    
    
    (2,556
    )
    
    
    (0.08
    )Pro forma net loss attributable to common stockholders
    
    $
    (14,087
    )
    
    $
    (1.23
    )
    
    $
    (29,762
    )
    
    $
    (2.50
    )
    
    $
    (24,734
    )
    
    $
    (0.75
    )
 The fair value of employee options at the date of grant were estimated using the Black-Scholes
option pricing model with the following assumptions for the years ended December 31, 2002, 2003 and
2004: 2002
    
    
    2003
    
    
    2004Expected options term
    
    
    7
    
    
    
    7
    
    
    
    7Risk-free interest rate
    
    
    4.0
    %
    
    
    4.0
    %
    
    
    4.0
    %Expected dividend yield
    
    None
    
    None
    
    NoneVolatility
    
    
    90
    %
    
    
    90
    %
    
    
    90
    %
 Through December 31, 2000, the Company accumulated deferred compensation of $1.3 million
related to stock option grants to employees. The deferred compensation represents differences
between the estimated fair value of common stock on the date of grant and the exercise price. The
deferred compensation is being amortized and charged to operations over the vesting period of the
related options. As of December 31, 2004, deferred compensation related to stock option grants
through December 31, 2000 was fully amortized. NET LOSS PER COMMON SHARE The Company computes net loss per common share by dividing net loss attributable to common
stockholders by the weighted average number of common shares outstanding. The calculation of
diluted net loss per common share for the years ended December 31, 2002, 2003 and 2004 does not
include 1,146,378, 27,526,462 and 10,663,540 potential shares of common stock equivalents
outstanding at December 31, 2002, 2003 and 2004, respectively, as their inclusion would be
antidilutive. Common stock equivalents include outstanding common stock options, common stock
warrants and Series A convertible preferred stock. SEGMENT REPORTING The Company operates in a single segment: the sale of solar panels that generate electricity. The
Company has no organizational structure dictated by product lines, geography or customer type.
Major customer and geographic area revenue disclosures are presented in Note 13. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principals
requires management to make estimates and assumptions that affect the reported amounts of assets
and liabilities, disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates. The Company bases its estimates on historical
experience and various other factors believed to be reasonable under the circumstances, the results
of which form the basis for making judgments about the carrying value of assets and liabilities
that are not readily apparent from other sources. Estimates are used when accounting for
the collectibility of receivables, realizability of finished goods inventory, estimated warranty
costs, and deferred tax assets. Provisions for depreciation are based on their estimated useful
lives using the straight-line method over three to seven years for all laboratory and manufacturing
equipment, computers, and office equipment. Leasehold improvements are depreciated over the shorter
of the remainder of the leases term or the life of the improvements. Some of these estimates can be subjective and complex and,
consequently, actual results may differ from these estimates under different assumptions or
conditions. While for any given estimate or assumption made by the Companys management there may
be other estimates or assumptions that are reasonable, the Company believes that, given the current
facts and circumstances, it is unlikely that applying any such other reasonable estimate or
assumption would materially impact the financial statements. F-12




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FAIR VALUE OF FINANCIAL INSTRUMENTS Financial instruments, including cash equivalents, marketable securities, accounts receivable and
accounts payable are carried in the consolidated financial statements at amounts that approximate
fair value at December 31, 2003 and 2004. Fair values are based on market prices and assumptions
concerning the amount and timing of estimated future cash flows and assumed discount rates,
reflecting varying degrees of perceived risk. The fair market value of forward foreign exchange
contracts is determined based on the fair value of similar contracts with similar terms and
remaining maturities. RECENT ACCOUNTING PRONOUNCEMENTS In March 2004, the Emerging Issues Task Force (EITF) reached a consensus on Issue 03-6,
Participating Securities and the Two-Class Method under Statement No. 128, Earnings per Share.
This issue involves the computation of earnings per share for companies that have multiple classes
of common stock or have issued securities other than common stock that participate in dividends
with common stock (participating securities). The EITF concluded that companies having
participating securities are required to apply the two-class method to compute earnings per share.
The two-class method is an earnings allocation method under which earnings per share is calculated
for each class of common stock and participating security considering both dividends declared (or
accumulated) and participation rights in undistributed earnings as if all such earnings had been
distributed during the period. We have incurred losses for the years ended December 31, 2004 and
2003 and as our Series A convertible preferred stock outstanding did not have a contractual
obligation to share in our losses, EITF 03-6 has no effect on our reported earnings per share. On December 16, 2004,
FASB published Statement No. 123 (revised 2004), or Statement
123(R),
Share-Based Payment. Statement 123(R) requires that the compensation cost relating to share-based
payment transactions be recognized in financial statements. That cost will be measured based on the
fair value of the equity or liability instruments issued. Statement 123(R) covers a wide range of
share-based compensation arrangements including share options, restricted share plans,
performance-based awards, share appreciation rights and employee share purchase plans. Statement
123(R) replaces FASB Statement No. 123, Accounting for Stock-Based Compensation, and supersedes APB
Opinion No. 25, Accounting for Stock Issued to Employees. The Company is required to adopt SFAS
123R in the second quarter of 2005. The pro forma disclosures previously permitted under SFAS 123
no longer will be an alternative to financial statement recognition.
See Note 2 in the Companys Notes to
Consolidated Financial Statements for the pro forma net income and net income per share amounts,
for the years 2002 through 2004, as if the Company had used a fair-value-based method similar to the methods
required under SFAS 123R to measure compensation expense for employee stock incentive awards. It is
expected that the adoption of SFAS 123R will have a significant
impact on the Companys consolidated
statements of operations and net income (loss) per share if the adoption results in amounts similar to those
in the current proforma disclosure. On November 24, 2004, the Financial Accounting Standards Board (FASB or the Board) issued
Statement No. 151, Inventory Costs, an amendment of ARB No. 43, Chapter 4 (FAS 151). The standard
adopts the IASB view related to inventories that abnormal amounts of idle capacity and spoilage
costs should be excluded from the cost of inventory and expensed when incurred. Additionally, the
Board made the decision to clarify the meaning of the term normal capacity. The provisions of
FAS 151 are applicable to inventory costs incurred during fiscal years beginning after June 15,
2005. The Company does not expect the adoption of FAS 151 to have a material impact on our
financial position or results of operations. 3. INVENTORY Inventory consisted of the following at December 31, 2003 and 2004 (in thousands): 2003
    
    
    2004Raw materials
    
    $
    1,318
    
    
    $
    2,230Work-in-process
    
    
    4
    
    
    
    138Finished goods
    
    
    697
    
    
    
    538$
    2,019
    
    
    $
    2,906
 F-13




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##### Table of Contents



4. FIXED ASSETS Fixed assets consisted of the following at December 31, 2003 and 2004 (in thousands): Useful
    
    
    December 31,
    
    
    December 31,Life
    
    
    2003
    
    
    2004Laboratory and manufacturing equipment
    
    3-7 years
    
    $
    13,542
    
    
    $
    20,310Computer and office equipment
    
    3-7 years
    
    
    280
    
    
    
    457Leasehold improvements
    
    Lesser of 15 to 20years or lease term
    
    
    6,273
    
    
    
    7,433Assets under construction
    
    
    
    
    
    
    6,812
    
    
    
    5,08426,907
    
    
    
    33,284Less: Accumulated depreciation
    
    
    
    
    
    
    (5,384
    )
    
    
    (6,459
    )$
    21,523
    
    
    $
    26,825
 Depreciation expense for the years ended December 31, 2002, 2003 and 2004 was $2.0 million, $2.0
million and $3.4 million, respectively. During 2003, the Company disposed of assets that were no
longer in service that had a cost of $718,000 and associated accumulated depreciation of $205,000.
These assets were associated with the Companys single ribbon furnace technology, which were
retrofitted to accommodate the Companys double ribbon furnace technology. The asset disposal
resulted in a loss of $513,000 to operations. During 2004, and as a result of the Companys
successful closing of the Common Stock Private Placement consummated on June 21, 2004, the Company
disposed of several pieces of manufacturing equipment in order to replace them with more
technologically advanced equipment expected to increase total manufacturing capacity in its
Marlboro facility to a target level of 15 megawatts. Equipment with a gross value of $3.7 million
was disposed of during the 2004, for no proceeds, and the Company realized a loss on disposal of
$2.0 million. The loss on disposal of fixed assets is included in cost of product revenues. In
addition to the equipment disposals, the Company had accelerated the rate of depreciation of some
of its other equipment during 2004 that was disposed of by the end of 2004, resulting in
incremental depreciation expense of approximately $533,000 for the year ended December 31, 2004,
which is also included in cost of product revenues. 5. OTHER INCOME (LOSS), NET Other income (loss), net was due primarily to unrealized losses associated with the
marking-to-market of our forward foreign exchange contracts offset by net interest income for the
year ended December 31, 2004. Total unrealized losses for the period ended December 31, 2004 were
approximately $621,000 which was offset by net interest income of $167,000. Other income (loss),
net for the years ended December 31, 2003 and 2002 represents net interest income of $222,000 and
$674,000, respectively. 6. INCOME TAXES Income taxes computed using the federal statutory income tax rate differ from the Companys
effective tax rate primarily due to the following for the years ended December 31, 2002, 2003 and
2004: 2002
    
    
    2003
    
    
    2004Income tax benefit at US federal statutory tax rate
    
    $
    (4,488,000
    )
    
    $
    (5,091,000
    )
    
    $
    (6,630,000
    )State income taxes, net of federal tax effect
    
    
    (661,000
    )
    
    
    (758,000
    )
    
    
    (1,498,000
    )Permanent items
    
    
    102,000
    
    
    
    95,000
    
    
    
    39,000Other
    
    
    (52,000
    )
    
    
    (3,000
    )
    
    
    (136,000
    )Change in deferred tax asset valuation allowance
    
    
    5,099,000
    
    
    
    5,757,000
    
    
    
    8,225,000$
    
    
    
    $
    
    
    
    $
    
 As of December 31, 2004, the Company had federal and state net operating loss carryforwards
estimated to be approximately $40.1 million and $51.9 million, respectively, available to reduce
future taxable income and tax liabilities which begin to expire in 2009 and 2005, respectively.
The Company also had federal and state research and development tax credit carryforwards of
approximately $182,000 and $489,000, respectively, which begin to expire in 2009 and state
Investment Tax Credit carryforwards of approximately $665,000 which begin to expire in 2005
available to reduce future tax liabilities. Under provisions of the Internal Revenue Code, certain
changes in the Companys ownership may result in a limitation on the amount F-14




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##### Table of Contents



of net operating loss
carryforwards and research and development credit carryforwards, which can be used in future years.
As a result of its May 2003 Series A convertible preferred stock financing, it is likely that an
ownership change occurred within the definition of Internal Revenue
Code Section 382. The Company has estimated its annual net operating loss and tax
credit limitation to be approximately $800,000. The Company has reduced both federal net operating
loss carryforwards, tax credit carryforward, and related valuation allowances by the estimated
amount likely to expire unutilized as a result of such limitation. The Company has evaluated the
positive and negative evidence bearing upon the realizability of its deferred tax assets. The
Company has considered its history of losses and, in accordance with the applicable accounting
standards, have provided a full valuation allowance against the deferred tax asset. Deferred tax assets consist of the following at December 31, 2003 and 2004: 2003
    
    
    2004Gross deferred tax assetsNet operating loss carryforwards
    
    $
    18,793,000
    
    
    $
    16,875,000Research and development credit carryforwards
    
    
    1,090,000
    
    
    
    505,000Capitalized R&D expenses
    
    
    3,114,000
    
    
    
    4,493,000Accrued expenses and deferred compensation
    
    
    620,000
    
    
    
    1,173,000Other
    
    
    281,000
    
    
    
    489,000Total gross deferred tax assets
    
    
    23,898,000
    
    
    
    23,535,000Gross deferred tax liabilitiesDepreciation
    
    
    (990,000
    )
    
    
    (998,000
    )Deferred tax valuation allowance
    
    
    (22,908,000
    )
    
    
    (22,537,000
    )Net deferred tax asset
    
    $
    
    
    
    $
    
 The American Jobs Creation Act of 2004 (the Act) was signed into law on October 22, 2004.
The Act contains numerous amendments and additions to the U.S. corporate income tax rules. While we
continue to analyze these new provisions in order to determine their impact to our financial
statements, none of these changes, either individually or in the aggregate, is expected to have a
significant effect on our income tax liability. 7. CAPITAL STOCK The Company has two classes of capital stock: common and preferred. At December 31, 2004,
7,650,000 shares of common stock were authorized for issuance under the Companys 2000 Stock Option
Plan and 4,913,806 shares were reserved for issuance upon conversion of outstanding warrants issued
in the Series A Private Placement, the Common Stock Private Placement and to Silicon Valley Bank in
connection with the Company securing its line of credit in August 2004. On April 21, 2004, the Companys Board of Directors approved a resolution increasing the number of
authorized shares of common stock from 70,000,000 to 100,000,000 and correspondingly increasing the
total number of authorized shares of capital stock from 96,227,668 to 127,227,668. The Companys
shareholder meeting was subsequently held on August 20, 2004. At this meeting, the shareholders
approved a resolution increasing the number of authorized shares of common stock from 70,000,000 to
100,000,000 and correspondingly increasing the total number of authorized shares of capital stock
from 96,227,668 to 127,227,668. In June 2004, in order to satisfy the Companys existing capital requirements and to fund the
continuing capacity expansion of its Marlboro, Massachusetts manufacturing facilities, the Company
consummated a $18.8 million private placement financing transaction, net of offering costs of
approximately $1.2 million, whereby the Company issued 7,662,835 shares of its common stock, and
warrants to purchase up to 2,298,851 shares of its common stock, to certain institutional investors
pursuant to a stock and warrant purchase agreement dated June 16, 2004, and a warrant agreement
dated June 21, 2004 (Common Stock Private Placement). The shares of common stock were sold at a
per share price of $2.61, which represented a 10% discount to the $2.90 closing price of shares of
the Companys common stock on the Nasdaq National Market as of the close of business on June 15,
2004. The warrants entitle the holders to shares of the Companys common stock at an exercise price
of $3.34. The warrants are exercisable at any time on or after December 22, 2004 and prior to June
22, 2009. In May 2003, the Company increased the number of authorized shares of preferred stock to
27,227,668, of which 26,227,668 shares were designated Series A convertible preferred stock. On
May 15, 2003, the Company consummated a private placement transaction with certain investors to
raise $29.5 million through the issuance of 26,227,668 shares of Series A convertible preferred
stock and the sale of a warrant to purchase 2,400,000 shares of common stock. The proceeds to the
Company, net of offering costs of approximately $849,000, were approximately $28.6 million. The
Company classified the F-15




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##### Table of Contents



Series A convertible preferred stock outside of permanent equity since the
holders of the Series A convertible preferred stock could redeem their shares at any time for
shares of the Companys common stock. As a result of the preferred stock financing, accretion and dividends of $13.5 million were
recorded through December 31, 2003. Approximately $11.7 million of this charge relates to accretion
that was recognized immediately because the holders of shares of the Series A convertible preferred
stock are entitled to convert their shares into common stock at any time. The sources of the
discounts on issuance requiring this accretion charge are summarized in the following table: Beneficial conversion feature
    
    $
    10,314,000Proceeds allocated to the fair value of common stock warrant
    
    
    525,000Financing costs
    
    
    849,000Total preferred stock accretion and dividends
    
    $
    11,688,000
 The difference between the issuance price of the Series A convertible preferred stock and the fair
value of the Companys common stock on the date of issuance of the Series A convertible preferred
stock resulted in a beneficial conversion feature totaling approximately $10.3 million, which was
calculated in accordance with EITF 00-27, Application of Issue No. 98-5 to Certain Convertible
Instruments. Dividend Rights of Series A Convertible Preferred Stock On June 21, 2004, holders of all outstanding shares of Series A convertible preferred stock agreed
to convert all of their shares of Series A convertible preferred stock into shares of our common
stock in connection with the Common Stock Private Placement. During the first quarter of 2004, the
Series A preferred stock earned a dividend of approximately $700,000, which the Company elected to
add to the liquidation preference of the Series A convertible preferred stock. As an inducement to convert their shares into common stock in connection with the Common Stock
Private Placement consummated on June 21, 2004, the remaining Series A preferred shareholders
received the dividend earned for the period between April 1, 2004 and June 21, 2004 in cash, which
totaled approximately $500,000. In addition, the Series A preferred shareholders received a cash
conversion premium of 7% of the accreted value of Series A Preferred Stock as of March 31, 2004,
which totaled $1.7 million. Therefore, the total dividend charged recorded by the Company for year
ended December 31, 2004 was approximately $2.9 million. 8. STOCK BASED COMPENSATION On October 24, 1994, the Board of Directors approved the Companys 1994 Stock Option Plan (the
1994 Plan), whose purpose is to encourage employees and other individuals who render services to
the Company, by providing opportunities to purchase stock in the Company. The 1994 Plan authorizes
the issuance of incentive stock options and nonqualified stock options. The 1994 Plan was
terminated as to all new issuances of options effective as of the closing of the Companys initial
public offering. All options granted will expire ten years from their date of issuance. Incentive
stock options granted generally have a four-year vesting period from their date of issuance and
nonqualified options granted vest immediately upon their issuance. In August 2000, the Board of Directors and stockholders approved the Companys 2000 Stock Option
and Incentive Plan (the 2000 Plan), which became effective on the closing of the Companys
initial public offering. The purpose is to encourage employees and other individuals who render
services to the Company, by providing opportunities to purchase stock in the Company. The 2000 Plan
authorizes the issuance of incentive stock options and nonqualified stock options. All options
granted will expire ten years from their date of issuance. Incentive stock options granted
generally have a four-year vesting period from their date of issuance and nonqualified options
granted generally vest immediately upon their issuance. F-16




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##### Table of Contents



The following is a summary of stock option activity: Weighted-AverageShares
    
    
    Exercise PriceOutstanding at January 1, 2002
    
    
    1,115,312
    
    
    $
    4.94Granted
    
    
    60,000
    
    
    
    1.86Exercised
    
    
    (11,429
    )
    
    
    0.84Terminated
    
    
    (17,505
    )
    
    
    3.34Outstanding at December 31, 2002
    
    
    1,146,378
    
    
    $
    4.84Granted
    
    
    4,137,447
    
    
    
    1.75Exercised
    
    
    (5,500
    )
    
    
    1.21Terminated
    
    
    (14,388
    )
    
    
    3.65Outstanding at December 31, 2003
    
    
    5,263,937
    
    
    $
    2.42Granted
    
    
    823,301
    
    
    
    2.83Exercised
    
    
    (17,514
    )
    
    
    1.19Terminated
    
    
    (319,990
    )
    
    
    3.72Outstanding at December 31, 2004
    
    
    5,749,734
    
    
    $
    2.41
 Summarized information about stock options outstanding at December 31, 2004 is as follows: Options Outstanding
    
    
    Options ExercisableWeightedAverage
    
    
    Weighted
    
    
    
    
    
    
    WeightedRange of
    
    
    
    
    
    
    Remaining
    
    
    Average
    
    
    
    
    
    
    AverageExercise
    
    
    Number
    
    
    Contractual
    
    
    Exercise
    
    
    Number
    
    
    ExercisePrices
    
    
    Outstanding
    
    
    Life (Years)
    
    
    Price
    
    
    Exercisable
    
    
    Price$
    0.22

    
    
    
    
    $
    1.54
    
    
    
    733,646
    
    
    
    6.87
    
    
    $
    1.27
    
    
    
    460,146
    
    
    $
    1.111.55
    
    
    
    
    
    1.61
    
    
    
    2,045,000
    
    
    
    8.94
    
    
    
    1.61
    
    
    
    537,500
    
    
    
    1.611.68
    
    
    
    
    
    1.95
    
    
    
    42,560
    
    
    
    8.71
    
    
    
    1.73
    
    
    
    42,529
    
    
    
    1.732.00
    
    
    
    
    
    2.00
    
    
    
    1,390,938
    
    
    
    8.88
    
    
    
    2.00
    
    
    
    367,936
    
    
    
    2.002.08
    
    
    
    
    
    2.59
    
    
    
    634,159
    
    
    
    7.77
    
    
    
    2.40
    
    
    
    325,334
    
    
    
    2.372.63
    
    
    
    
    
    5.00
    
    
    
    635,935
    
    
    
    8.94
    
    
    
    3.38
    
    
    
    268,242
    
    
    
    3.796.50
    
    
    
    
    
    11.04
    
    
    
    118,477
    
    
    
    5.97
    
    
    
    7.79
    
    
    
    114,477
    
    
    
    7.7312.65
    
    
    
    
    
    12.65
    
    
    
    6,000
    
    
    
    6.42
    
    
    
    12.65
    
    
    
    6,000
    
    
    
    12.6514.00
    
    
    
    
    
    14.00
    
    
    
    127,019
    
    
    
    5.84
    
    
    
    14.00
    
    
    
    127,019
    
    
    
    14.0019.00
    
    
    
    
    
    19.00
    
    
    
    16,000
    
    
    
    5.84
    
    
    
    19.00
    
    
    
    16,000
    
    
    
    19.005,749,734
    
    
    
    8.39
    
    
    $
    2.41
    
    
    
    2,265,183
    
    
    $
    3.10
 At December 31, 2002, 2003 and 2004, options exercisable were 614,394, 994,748 and 2,265,183
respectively. Estimated weighted average fair value of options granted in fiscal years 2002, 2003
and 2004 were $1.86, $1.75 and $2.83, respectively, on the date of
grant. Estimated weighted average fair value of options outstanding
as of December 31, 2002, 2003 and 2004 was $4.84, $2.42 and
$2.41, respectively. 9. EMPLOYEE STOCK PURCHASE PLAN In September 2000, the Companys Board of Directors adopted a non-compensatory Employee Stock
Purchase Plan (the ESPP). Under the ESPP, eligible employees of the Company who elect to
participate are granted options to purchase common stock at a 15% discount from the market value of
such stock. The ESPP permits an enrolled employee to make contributions to purchase shares of
common stock by having withheld from their salary an amount between 0.1 percent and 10 percent of
compensation, and a maximum of 25 shares per employee can be issued during each six-month payment
period. The total number of shares of common stock that may be issued pursuant to options granted
under the ESPP is 120,000. As of December 31, 2004, there were approximately 5,000 shares issued
under the ESPP. 10. WARRANTS In connection with the Series A convertible preferred stock financing transaction consummated in
May 2003 (described in 7), Beacon Power Corporation purchased a warrant for $100,000, which is
exercisable for 2,400,000 shares of the Companys common stock at an exercise price of $3.37 per
share. The warrant issued to Beacon Power Corporation is exercisable in F-17




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##### Table of Contents



whole (and not in part) at
any time prior to August 12, 2006 and may not be exercised on a cashless basis. Additionally,
Beacon Power Corporation purchased 892,857 shares of Series A convertible preferred stock for
$1,000,000. The total proceeds of $1.1 million from Beacon Power Corporation were allocated
between the Series A convertible preferred stock ($475,000) and the warrant ($625,000) based on
their relative fair values. The fair value of the warrant was calculated using the Black-Scholes
pricing model with the following assumptions: dividend yield of zero percent; expected volatility
of 90%; risk free interest rate of 2% and a term of three years. The difference between the
proceeds allocated to the relative fair value of the warrant, $625,000, and the amount paid for the
warrant, $100,000, or $525,000 contributed to the accretion charge of $11.7 million for the year
ended December 31, 2003. In connection with the Common Stock Private Placement consummated on June 21, 2004, the Company
issued warrants to purchase up to 2,298,851 shares of its common stock to the investors
participating in the financing as well as a warrant to purchase 125,000 shares of common stock to
CRT Capital Group LLC, as compensation for CRT Capital Groups services as the placement agent for
the Common Stock Private Placement. The terms of the placement agent warrant are identical to the
terms of the warrants issued to the investors participating in the Common Stock Private Placement.
The warrants entitle the holders to shares of the Companys common stock at an exercise price of
$3.34. The warrants are exercisable at any time on or after December 22, 2004 and prior to June 22,
2009. The Company issued a warrant to purchase 89,955 shares of common stock to Silicon Valley Bank on
August 26, 2004, as compensation for establishing the revolving credit facility. The warrant
entitles Silicon Valley Bank to shares of the Companys common stock at an exercise price of $3.34.
The warrants are exercisable at any time on or prior to August 25, 2009. The fair value of the
warrant ($187,000) has been recorded as a deferred financing charge and will be charged to interest
expense ratably over the term of the facility, which is twelve months. 11. EMPLOYEES SAVINGS PLAN The Company established a 401(k) plan in 1996 for eligible employees. Under the provisions of the
plan, eligible employees may voluntarily contribute a portion of their compensation up to the
statutory limit. The Companys 401(k) plan provides a matching contribution of 100% of
participating employee contributions, up to a maximum of $750 per year. During 2004, the Company
made matching contributions of $87,000 to participating employees. 12. COMMITMENTS LEASES On March 13, 2000, the Company entered into a ten-year lease commencing July 1, 2000, for office
and manufacturing space in Marlboro, Massachusetts. Pursuant to the terms of the lease agreement,
the Company will pay annual rent ranging from $464,000 in the first year to $534,000 during the
last year of the lease. The Company recognizes rent expense using a straight-line convention. Rent
is payable on the first day of each month and is collateralized by a $414,000 standby letter of
credit. In
connection with this arrangement, the Company invested in a certificate of deposit pledged to a
commercial bank. This certificate of deposit was classified as restricted cash on the December
31, 2003 and 2004 balance sheet. On January 24, 2004, the Company entered into a six and one-half year lease for additional office
and warehouse space in Marlboro, Massachusetts. Pursuant to the terms of the lease agreement, the
Company will pay annual rent of approximately $149,000. The lease was amended in December 2004 to
assume more office space beginning in 2005 in consideration for a small increase in office rent. The following is a schedule, by year, of future minimum rental payments required under both leases
that have remaining non-cancelable lease terms in excess of one year as of December 31, 2004: 2005
    
    $
    668,9972006
    
    
    687,7202007
    
    

    697,8712008
    
    
    715,0492009
    
    
    725,193Thereafter
    
    
    299,294Total
    
    $
    3,794,124
 Occupancy expense, which includes rent, property taxes, and other operating expenses associated
with both of our Marlboro locations, was $674,000, $680,000 and $874,000 for the years ended
December 31, 2002, 2003, and 2004, respectively. F-18




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##### Table of Contents



LICENSE AGREEMENT In September 1994, the Company signed an agreement to license String Ribbon technology from a
professor at Massachusetts Institute of Technology. Concurrently, the Company hired the professor
as a consultant. This agreement provides the Company, its successors, assigns, and legal
representatives an irrevocable, worldwide right and license in and to the technology and licensed
patents, including the right to make, have made, use, lease, sub-license, and sell products and to
enforce any of the patent rights of the licensed patents. The license is exclusive except for
rights to the licensed patents held by the U.S. Department of Energy. In exchange for these rights,
the consultant earned royalties on sales of products through the third quarter of 2004. The Company
incurred $25,000, $54,767 and $85,308 in royalty expense for the years ended December 31, 2002,
2003 and 2004, respectively. The license agreement expired in August 2004 at which point the
Company no longer had any royalty obligation. 13. SEGMENT INFORMATION The Company operates as one segment. The following table summarizes the Companys concentration of
total revenue: % of total revenue
    
    2003
    
    
    2004By geography:U.S. distributors
    
    
    23
    %
    
    
    25
    %U.S. Government (research revenue)
    
    
    17
    %
    
    
    6
    %Germany
    
    
    53
    %
    
    
    69
    %All other
    
    
    7
    %
    
    
    100
    %
    
    
    100
    %By customer:European distributor #1
    
    
    39
    %
    
    
    44
    %European distributor #2
    
    
    9
    %
    
    
    19
    %National Renewable Energy Laboratory (research revenue)
    
    
    10
    %
    
    
    5
    %All other
    
    
    42
    %
    
    
    32
    %100
    %
    
    
    100
    %
 14. FOREIGN CURRENCY HEDGING TRANSACTIONS In 2004, the Company began to manage its foreign exchange risk through the use of derivative
financial instruments. These financial instruments serve to protect cash flow against the impact
of the translation into U.S. dollars of foreign exchange denominated transactions. As of December
31, 2004, the Company had forward currency contracts denominated in foreign currencies totaling
8.5 million. At December 31, 2004, the fair market value of outstanding forward exchange
contracts was $11.6 million. The Company recorded unrealized losses of approximately $683,000 for
the year ended December 31, 2004, in connection with the marking to market of its forward
contracts. 15. SHORT-TERM BORROWINGS In August 2004, the Company entered into a one-year revolving credit facility in the amount of $5.0
million with Silicon Valley Bank pursuant to a Loan and Security Agreement dated August 26, 2004
(the Loan Agreement). The credit facility is collateralized by a first-priority security interest
granted to Silicon Valley Bank by the Company in substantially all of the Companys assets. Borrowings under the Loan Agreement bear interest at a rate per annum equal to the sum of 2% and
the Prime Rate, which is defined in the Loan Agreement as the greater of 4.00% or the rate
announced from time to time by Silicon Valley Bank as its Prime Rate. Interest is payable on a
monthly basis with the principal payable upon the maturity date of the credit facility, the
maturity date being 364 days from the date of the Loan Agreement. However, upon the occurrence and
during the continuance of any event of default set forth in the Loan Agreement, Silicon Valley Bank
may accelerate and declare all or any portion of the Companys obligations to Silicon Valley Bank
due and payable. The repayment obligations of the Company are guaranteed
by the Companys wholly owned subsidiary, Evergreen Solar Securities Corp. Additionally, the
Company issued a warrant to purchase 89,955 shares of common stock to Silicon Valley Bank, as
compensation for establishing the revolving credit facility. The warrant entitles Silicon Valley
Bank to shares of the Companys common stock at an exercise price of $3.34. The warrants are
exercisable at any time on or prior to August 25, 2009. The fair value of the warrant
(approximately $187,000) has been recorded as a deferred financing charge, along with $100,000 of
other direct expenses associated with the revolving credit facility, and will be charged to
interest expense ratably over the term of the facility, which is twelve months. F-19




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The Loan Agreement contains certain financial and other covenants that restrict the Companys
ability to, among other things, dispose of property, incur indebtedness, make certain acquisitions,
merge into another entity, declare or pay dividends above an aggregate threshold of $500,000 and
redeem, retire, repurchase or otherwise acquire shares of capital stock of the Company in excess of
$500,000 in the aggregate. In addition, the Company must comply with certain financial thresholds
including minimum tangible net worth and minimum cash or excess availability. As of December 31, 2004, the Company has drawn $1.5 million under the revolving line of credit. 16. SUBSEQUENT EVENTS In January 2005, the Company entered into a strategic partnership agreement with Q-Cells. The
purpose of the strategic partnership is to develop and operate a facility in Germany to
manufacture, market and sell solar products based on its proprietary String Ribbon technology. The
strategic partnership will be governed by a three-member advisory board consisting of two Evergreen
representatives and one Q-Cells representative. However, the Company and Q-Cells have agreed that
certain corporate actions of the strategic partnership will require the approval of at least one
designee of each of Evergreen and Q-Cells. The facility in Germany is expected to be located in
Thalheim, Germany and is currently expected to have an initial capacity of 30 MW. Under the strategic partnership agreement, the Company and Q-Cells have made a total equity
commitment of 44 million (approximately $57 million) to finance a significant part of the
construction of this facility and initial working capital requirements, of which the Company will
contribute 75.1% and Q-Cells will contribute 24.9%. Except for amounts that the Company and Q-Cells
have contributed on a pro rata basis to fund initial planning activities, its obligation to fund
the balance of the equity commitment is conditioned upon its receipt of approval from German
government authorities with respect to the public grants the Company intend to pursue or, failing
such approval, alternative funding from other public or private sites may be needed. In this
regard, the Company has applied for government grants of
approximately 26 million
(approximately $34 million) to finance a significant portion of the construction costs of the
facility. In February 2005, the Company completed a $61.9 million common stock offering, net of offering
costs of approximately $4.8 million, to satisfy existing capital requirements and to fund the
continuing capacity expansion of its Marlboro, Massachusetts manufacturing facility and the
expenditures necessary for the build-out and initial operation of the strategic partnership with
Q-Cells. A portion of the proceeds from the financing will also be used to increase research and
development spending on promising next generation technologies and to explore further expansion
opportunities. The Company issued 13,346,000 shares of its common stock. The shares of common stock
were sold at a per share price of $5.00 (before underwriting discounts), which represented a 6%
discount to the $5.30 closing price of shares of its common stock as reported on the Nasdaq
National Market as of the close of business on February 3, 2005. F-20




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##### Table of Contents



17. UNAUDITED QUARTERLY RESULTS The following tables set forth unaudited selected financial information for the periods indicated.
This information has been derived from unaudited consolidated condensed financial statements,
which, in the opinion of management, include all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of such information. The Companys independent
auditors have not audited this information. The results of operations for any quarter are not
necessarily indicative of the results to be expected for any future period. QUARTERLY STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
UNAUDITED MAR 31,
    
    
    JUN 30,
    
    
    SEP 30,
    
    
    DEC 31,
    
    
    MAR 31,
    
    
    JUN 30,
    
    
    SEP 30,
    
    
    DEC 31,2003
    
    

2003
    
    

2003
    
    

2003
    
    

2004
    
    

2004
    
    

2004
    
    

2004Revenues:Product revenues
    
    $
    1,067
    
    
    $
    2,659
    
    
    $
    2,642
    
    
    $
    1,378
    
    
    $
    2,830
    
    
    $
    4,541
    
    
    $
    5,604
    
    
    $
    9,265Research revenues
    
    
    381
    
    
    
    508
    
    
    
    463
    
    
    
    213
    
    
    
    262
    
    
    
    229
    
    
    
    369
    
    
    
    436Total revenues
    
    
    1,448
    
    
    
    3,167
    
    
    
    3,105
    
    
    
    1,591
    
    
    
    3,092
    
    
    
    4,770
    
    
    
    5,973
    
    
    
    9,701Operating expenses:Cost of product revenues
    
    
    2,666
    
    
    
    4,242
    
    
    
    4,061
    
    
    
    4,410
    
    
    
    4,553
    
    
    
    9,161
    
    
    
    7,230
    
    
    
    8,773Research and development expenses, including costs of research revenues
    
    
    713
    
    
    
    1,072
    
    
    
    1,087
    
    
    
    919
    
    
    
    902
    
    
    
    995
    
    
    
    1,335
    
    
    
    1,699Selling, general and administrative expenses
    
    
    1,317
    
    
    
    1,202
    
    
    
    1,301
    
    
    
    1,517
    
    
    
    1,673
    
    
    
    1,662
    
    
    
    2,126
    
    
    
    2,336Total operating expenses
    
    
    4,696
    
    
    
    6,516
    
    
    
    6,449
    
    
    
    6,846
    
    
    
    7,128
    
    
    
    11,818
    
    
    
    10,691
    
    
    
    12,808Operating loss
    
    
    (3,248
    )
    
    
    (3,349
    )
    
    
    (3,344
    )
    
    
    (5,255
    )
    
    
    (4,036
    )
    
    
    (7,048
    )
    
    
    (4,718
    )
    
    
    (3,107
    )Other income (loss), net
    
    
    23
    
    
    
    50
    
    
    
    83
    
    
    
    66
    
    
    
    73
    
    
    
    46
    
    
    
    111
    
    
    
    (684
    )Net loss
    
    
    (3,225
    )
    
    
    (3,299
    )
    
    
    (3,261
    )
    
    
    (5,189
    )
    
    
    (3,963
    )
    
    
    (7,002
    )
    
    
    (4,607
    )
    
    
    (3,791
    )Accretion, dividends and conversion premiums on Series A convertible preferred stock
    
    
    
    
    
    
    (12,055
    )
    
    
    (747
    )
    
    
    (696
    )
    
    
    (665
    )
    
    
    (2,239
    )
    
    
    
    
    
    
    Net loss attributable to common stockholders
    
    $
    (3,225
    )
    
    $
    (15,354
    )
    
    $
    (4,008
    )
    
    $
    (5,885
    )
    
    $
    (4,628
    )
    
    $
    (9,241
    )
    
    $
    (4,607
    )
    
    $
    (3,791
    )Net loss per share attributable to common stockholders (basic and diluted)
    
    $
    (0.28
    )
    
    $
    (1.35
    )
    
    $
    (0.35
    )
    
    $
    (0.43
    )
    
    $
    (0.30
    )
    
    $
    (0.44
    )
    
    $
    (0.10
    )
    
    $
    (0.08
    )Weighted average shares used in computing basic and diluted
net loss per share attributable to common stockholders
    
    
    11,411
    
    
    
    11,412
    
    
    
    11,497
    
    
    
    13,600
    
    
    
    15,489
    
    
    
    20,840
    
    
    
    47,523
    
    
    
    47,534
 F-21




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##### Table of Contents



17. VALUATION AND QUALIFYING ACCOUNTS The following table sets forth activity in the Companys valuation and qualifying accounts: Balance atbeginning
    
    
    Charged to
    
    
    
    
    
    
    Balance atDescription
    
    of period
    
    
    operations
    
    
    Deductions
    
    
    end of periodYear ended December 31, 2002Reserves and allowances deducted from assets accounts:Valuation allowance for deferred tax assets
    
    $
    12,052,000
    
    
    $
    5,099,000
    
    
    $
    
    
    
    $
    17,151,000Allowance for doubtful accounts
    
    
    13,000
    
    
    
    127,000
    
    
    
    
    
    
    
    140,000Year ended December 31, 2003Reserves and allowances deducted from assets accounts:Valuation allowance for deferred tax assets
    
    $
    17,151,000
    
    
    $
    5,757,000
    
    
    $
    
    
    
    $
    22,908,000Allowance for doubtful accounts
    
    
    140,000
    
    
    
    87,000
    
    
    
    
    
    
    
    227,000Year ended December 31, 2004Reserves and allowances deducted from assets accounts:Valuation allowance for deferred tax assets
    
    $
    22,908,000
    
    
    $
    8,007,000
    
    
    $
    (9,008,000
    )
    
    $
    21,907,000Allowance for doubtful accounts
    
    
    227,000
    
    
    
    28,000
    
    
    
    (171,000
    )
    
    
    84,000
 F-22




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##### Table of Contents






SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the undersigned on this
10th day of March, 2005, thereunto duly authorized.

EVERGREEN SOLAR, INC.By:
    /s/ Richard M. FeldtRichard M. FeldtChief Executive Officer,
President and Director




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##### Table of Contents



POWER OF ATTORNEY KNOW ALL PERSONS BY THERE PRESENTS, that each person whose signature appears below constitutes
and appoints Richard M. Feldt and Richard G. Chleboski, and each of them his attorneys-in-fact,
each with the power of substitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments to this Annual Report on Form 10-K with all exhibits
thereto and all documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying
and confirming all that such attorneys-in-fact and agents or any of them, or his or their
substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the capacities and on the
dates indicated. Name
    
    Title
    
    Date/s/ Richard M. Feldt
    
    Chief Executive Officer,
    
    March 10, 2005Richard M. Feldt
    
    President and Director(Principal Executive Officer)/s/ Richard G. Chleboski
    
    Chief Financial Officer
    
    March 10, 2005Richard G. Chleboski
    
    (Principal Financial and Accounting Officer)/s/ Timothy Woodward
    
    Chairman of the Board of Directors
    
    March 10, 2005Timothy Woodward/s/ Philip J. Deutch
    
    Director
    
    March 10, 2005Philip J. Deutch/s/ Charles J. McDermott
    
    Director
    
    March 10, 2005Charles J. McDermott/s/ Robert W. Shaw, Jr.
    
    Director
    
    March 10, 2005Robert W. Shaw, Jr./s/ William P. Sommers
    
    Director
    
    March 10, 2005William P. Sommers/s/ Michael El-Hillow
    
    Director
    
    March 10, 2005Michael El-Hillow