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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

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|CHECKBOX |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001

OR

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|BOX |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
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For the transition period from     to     .

COMMISSION FILE NUMBER 000-31687

EVERGREEN SOLAR, INC.

(Exact name of registrant as specified in its charter)


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|DELAWARE                                 |  | 04-3242254         
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|(State or other jurisdiction of          |  | (I.R.S. Employer   
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|incorporation or organization)           |  | Identification No.)
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|259 CEDAR HILL STREET                    |  | 01752              
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|MARLBORO, MASSACHUSETTS                  |  | (Zip Code)         
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|(Address of principal executive offices) |  |                    

Registrants telephone number, including area code: 508-357-2221

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    CHECKBOX NoBOX

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. BOX

As of March 11, 2002, there were 11,397,947 shares of the registrants
Common Stock, $.01 par value per share, outstanding. The aggregate market value
of the registrants voting stock held by non-affiliates as of March 11, 2002
was approximately $30 million.

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,
2001. Portions of such proxy statement are incorporated by reference into Part
III of this Annual Report on Form 10-K.





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PART I

ITEM 1. BUSINESS:

OVERVIEW

We develop, manufacture and market solar power products that are capable
of providing reliable and environmentally clean electric power throughout the
world. Our solar power products are targeted at the global solar power market.
We believe our proprietary and patented solar power technologies, including our
String Ribbon® technology, will offer significant design, cost and
manufacturing advantages over competing solar power technologies. We intend to
become a leading producer of high-quality solar power products by expanding our
manufacturing capacity, reducing our manufacturing costs, developing innovative
solar power products, increasing our distribution capabilities and pursuing
strategic relationships.

Since our formation in 1994, we have conducted research and development of
advanced process and product technologies and, between 1997 and June 2001, we
used pilot manufacturing facilities to refine our solar power products and
manufacturing processes. Also in 1997, we began shipping small quantities of
commercial products. In 2001, we expanded our manufacturing capacity by
relocating our operations to a 56,250 square foot facility in Marlboro,
Massachusetts. We are continuing 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 panel designs. Through December 31, 2001, we shipped over 10,000
solar panels 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 and seek new distribution and
marketing arrangements.

HISTORICAL MILESTONES

We were incorporated in August 1994 and to date we have achieved the
following major milestones along our product development and commercialization
schedule:

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|Date     |  |  |      |  |  | Historical Milestone                                                                                 
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|October  |  |  | 1994 |  |  | Evergreen Solar founded with four employees in a 2,500 square foot laboratory.                       
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|October  |  |  | 1995 |  |  | First String Ribbon wafers produced.                                                                 
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|April    |  |  | 1997 |  |  | 9,400 square foot pilot manufacturing facility operational.                                          
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|October  |  |  | 1997 |  |  | First commercial sale of solar panels produced using String Ribbon technology.                       
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|June     |  |  | 1999 |  |  | Total sales of solar panels of 2,500 units and 100 kilowatts achieved.                               
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|December |  |  | 1999 |  |  | Kawasaki investment of $5 million and execution of a strategic distribution and marketing agreement. 
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|March    |  |  | 2000 |  |  | Leased 56,250 square foot manufacturing and headquarters facility located in Marlboro, Massachusetts.
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|August   |  |  | 2000 |  |  | Renovation of our Marlboro manufacturing facility and headquarters begun.                            
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|June     |  |  | 2001 |  |  | First shipment of solar panels from our new Marlboro manufacturing facility.                         
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|November |  |  | 2001 |  |  | Three new distribution relationships in the U.S., United Kingdom, and Germany.                       
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|December |  |  | 2001 |  |  | Shipment of our 10,000th solar panel.                                                                

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. A
principal driver of this growth is increasing reliance on electricity-dependent
advanced technologies, such as in the Internet and telecommunications
industries. 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

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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.

SOLAR POWER APPLICATIONS AND BENEFITS

Unlike many other distributed generation technologies that have been under
development but not in widespread commercial use, solar power technology has
had a growing worldwide market for over 20 years in the following 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, largely 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 and building facades and are available for both new
construction and existing structures.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
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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 low cost, 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
sailboats and recreational vehicles.                                                                                                                                                                                                                                                                   

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:



| |  |  | Modular and scaleable. From tiny solar cells powering a hand-held
calculator to an array of roof panels powering an entire home to acres
of panels 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.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Reliable. 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. Solar panels typically
carry warranties of 20 years or more.    
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| |  |  | Dual use. Solar panels are expected to increasingly serve as both a
power generator and the skin of the building. Like architectural glass,
solar panels can be installed on the roofs or facades of residential and
commercial buildings.                                                                         
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| |  |  | Environmentally cleaner. Solar power systems produce no air or water
emissions.                                                                                                                                                                                                                                    

THE SOLAR POWER CHALLENGE

Although solar power can provide a low cost alternative for off-grid
applications, we believe the principal challenge to widespread adoption of
solar power is reducing manufacturing costs without impairing product
performance or 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 slicing silicon by conventional crystalline
silicon technology.                                            
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
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| |  |  | Simplified and continuous processing. Reduce reliance on expensive,
multi-step manufacturing processes.                                                                                               
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| |  |  | 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.

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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 power technology and remains the foundation for most solar
power applications. Conventional crystalline silicon technology involves
slicing 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 slicing, and complicated processing
procedures have limited the ability of conventional crystalline silicon
manufacturers to reduce manufacturing costs.

Thin Films. While most major solar power manufacturers currently rely on
crystalline silicon technology for the majority of their solar cell production,
many 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, reduced product performance
and reliability, and, in some cases, concerns with toxic materials have
resulted in, and will continue to result in, limited commercial acceptance.

OUR TECHNOLOGY SOLUTION

We believe our technologies and processes are unique among our competitors
and have been designed to reduce manufacturing costs while improving product
design. Our innovative technologies include:

String Ribbon Wafer Manufacturing. 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. Once the ribbon has reached the desired length, it is cut and prepared
for cell fabrication. The use of strings to aid in the growth of a silicon
ribbon is what distinguishes our proprietary and patented String Ribbon
technology from other advanced crystalline silicon wafer technologies that do
not involve slicing. Our String Ribbon technology for the growth of solar
wafers has the following significant advantages:



| |  |  | Efficient materials use. Unlike conventional crystalline silicon
wafer technology, in which solid blocks of silicon are sliced 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 slicing solid blocks, we can use about half as much
silicon as conventional crystalline silicon techniques and we believe we
can reduce this amount to about one-fifth in the future.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
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| |  |  | Continuous processing. Our technology permits the continuous growth
of crystalline silicon ribbon, which can lead to high automation,
efficient equipment use and improved productivity.                                                                                                                                                                                                                                                                                                      

Innovative Solar Cell Fabrication. We believe our innovative solar cell
fabrication techniques will enable us to reduce our manufacturing costs,
improve product appearance and increase design flexibility. Our solar cell
fabrication techniques include:



| |  |  | Wrap-around solar cells. We have patented and are currently
developing a process for manufacturing wrap-around solar cells in
which the front metal conductors literally wrap-around to the back of
the solar cell. As a result, instead of the conventional practice of
electrically wiring the front of the solar cell to the back of the
adjacent cell, our wrap-around solar cell can allow all of the
electrical wiring to be accomplished on the back of the solar cell. We
believe our wrap-around solar cell will enable us to reduce
manufacturing costs, increase manufacturing output and produce more
attractive solar panels in a wider range of sizes.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
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| |  |  | Simplified processing. We have developed an innovative approach of
using fewer, simpler steps combined with simplified and continuous
processing in much of our solar cell fabrication line. We believe this
approach will lower manufacturing costs relative to conventional
crystalline silicon processing that involves clean rooms and requires
processing wafers in batches.                                                                                                                                                                                                                                                                                         

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Advanced Solar Panel Designs. We are currently developing innovative solar
panels using improved designs and production processes. We believe our new
technology will ultimately reduce costs, both in the factory and during
shipping and installation, and improve solar panel appearance, performance,
ease of use and longevity. In particular, we are developing what we believe is
a simplified and less expensive method for interconnecting solar cells, which
we call monolithic integration, as well as better lamination materials and
methods.



| |  |  | Monolithic integration. Monolithic solar panel integration is a
simplified and less expensive method of electrically wiring solar cells
using our wrap-around technology. This method allows solar cells to be
electrically wired in a nearly continuous process without front-to-back
electrical wiring. This is a novel approach in crystalline silicon
manufacturing, where expensive front-to-back electrical wiring is
standard practice.
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| |  |  | Improved lamination materials and methods. We expect our lamination
improvements to include the following:                                                                                                                                                                                                                                                                                                                                      
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| |  |  | Replacement of the two-inch-thick, expensive, aluminum-framed
solar panels with quarter-inch-thick, polymer-based frameless solar
panels that we expect will permit as much as ten-times greater
packing density during shipping and use of less-expensive mounting
approaches.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
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| |  |  | Replacement of the junction box, which is the conventional box
on the back of a solar panel through which electrical wiring
connections are made, with a thin wire on the edge of one panel to
simplify field wiring.                                                          
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| |  |  | Creation of an improved encapsulant, used to seal the solar
panel, which we expect will extend solar panel life.                                                                                                                                                               
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| |  |  | Replacement of the conventional lamination process, which
requires processing in batches in a vacuum, with a continuous process
which permits lamination in air.                                                                                                               

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, approximately palm-sized, that can be processed into a solar
cell.                                                                                                                                                                                                                                                                                                                                                    
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| |  |  | 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. A typical solar cell produces from one to three
watts of power and is approximately palm-sized.                                                                                                                                                                                                                                                 
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| |  |  | Panels. A solar panel is an assembly of solar cells that have been
electrically interconnected and laminated in a physically durable and
weather-tight package. A typical solar panel can produce from 20 to 150
watts of power and range in size from two to 15 square feet. A 100-watt
solar panel 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 panels range from 47 to 110 watts in power.
|
| |  |  | Systems. A solar system is an assembly of one or more solar panels
that have been physically mounted and electrically interconnected, often
with batteries and/or power electronics, to produce electricity.                                                                                                                                                                                                                                                                                      

We sell primarily solar panels. We expect our solar panel technology to
provide us with a number of competitive advantages and, ultimately, lower
manufacturing costs. We believe that the frameless solar panel we are
developing will provide a distinctive advantage in on-grid, building-integrated
solar systems and off-grid rural electrification solar systems, as well as for other
applications where international shipping, remote installation and/or thin
solar panels are required. We expect our frameless solar panel will be thinner,
lighter, easier to ship, easier to install, and more attractive than those of
our competitors. We are developing solar roofing tiles and other
building-integrated solar power products that we believe will accelerate the
acceptance and penetration of solar power products in the building industry.

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We further believe that our solar panels will be enhanced by our
wrap-around solar cells. We expect our wrap-around cells, currently under
development, to provide simplified interconnection procedures allowing greater
range in solar panel design and a distinctive, attractive appearance for
on-grid solar systems.

Our current solar panels range from 47 to 110 watts. Our solar panels are
certified to international standards for safety and quality. If our development
programs are successful, we expect to continue to increase the conversion
efficiency and wattage of our solar panels as we expand our manufacturing
capacity.

SALES AND MARKETING

Market Focus

We intend to primarily target the on-grid markets and the off-grid rural
electrification market, where we believe growth prospects are the largest and
where we expect our solar power technology will provide us the greatest
competitive advantage. These markets are characterized as follows:



| |  |  | On-grid. The on-grid market is currently the fastest growing solar
power market. Within the on-grid market, Japan has been the largest
market for several years, but the German market is growing rapidly with
the passage of an additional government subsidy program. We also expect
on-grid markets to grow in the Netherlands, Spain and the United States.                 
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
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| |  |  | Off-grid rural electrification. 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 remain the principal challenges to greater
expansion of this market.

Competitive Advantage

We expect to gain a competitive advantage in our target markets through
product differentiation, strong marketing, distribution and manufacturing
partners in local markets, and ultimately low manufacturing costs.

In the on-grid market, our distinctive solar power products are expected
to include building-integrated roofing products, both framed and frameless.

We expect our building-integrated solar power products will include solar
panels with wrap-around solar cells that will offer a distinctive, attractive
appearance, which we believe is particularly important to architects and
homebuilders.

In the off-grid rural electrification market, we expect our frameless
panels to have a competitive advantage because we believe that they will be:



| |  |  | easier and less expensive to ship due to their thinness and improved packing density;
| | - |  | -------------------------------------------------------------------------------------
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| |  |  | lighter and easier to physically mount and electrically wire; and                    
|
| |  |  | able to be mounted using local mounting materials.                                   

Distribution, Marketing and Other Strategic Relationships

We bring our solar power products to market using distributors, system
integrators and other value-added resellers. Our resellers often add value
through system design by incorporating our panels with batteries, associated
electronics, structures and wiring systems. Most of our resellers have a
geographic or applications focus.

We expect to collaborate closely with a relatively small number of
resellers. We entered into our first of these collaborations with Kawasaki in
December 1999. In 2001 we entered into distribution agreements with Hutton
Communications, Inc., a leading marketer and distributor of wireless
telecommunications and power products in North
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America, Krannich Solartechnik, a marketer and distributor of photovoltaic
modules and systems in Germany, and Solar Century Holdings Ltd., a maker and
distributor of photovoltaic products in the United Kingdom.

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 reseller partners who
have particular expertise in a selected geographic or applications market
segment. As a result, we have focused on smaller resellers whose needs have not
vastly exceeded our production levels. Sales to our ten largest resellers have
accounted for approximately 96% of our total product revenues since inception.
No one reseller has accounted for more than 30% of total revenues over that
period. As we continue to expand manufacturing capacity and sales volumes, we
anticipate developing relationships with additional resellers. Through December
31, 2001, approximately 59% of our sales were made to resellers in the United
States. In fiscal year 2001, revenues from Schott Applied Power and Kawasaki
Heavy Industries accounted for approximately 33% and 14% of total revenues,
respectively.

In addition, we market our products through trade shows, on-going customer
communications, promotional material, direct mail and advertising. Our staff
provides limited customer service and applications engineering support to
customers while also gathering information on current product performance and
future product requirements. A small internal sales force currently handles all
solar power product sales.

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. In March 2000, we signed a
lease agreement for a 56,250 square foot facility in Marlboro, Massachusetts,
which 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 panels and has
been designed to support approximately seven megawatts of capacity when both
manufacturing lines are fully installed. The first of the facilitys two
manufacturing lines became operational in 2001. We have begun engineering and
have authorized capital expenditures for longer lead-time equipment for the
second manufacturing line, which we expect to become operational during 2003.

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. Because the market opportunity
for solar power encompasses numerous applications in both developed and
developing nations worldwide, we expect a significant portion of our sales will
be made outside of 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 than other competing technologies, which
we believe will enable us to establish fully integrated 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

Because we believe continuously improving our technology is an important
part of our overall strategy, 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.

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We have and will continue to selectively pursue contract research programs
funded by various United States and other governmental agencies to help support
the development of new proprietary technologies. As of December 31, 2001, we
have one research contract that expires on October 31, 2003. The estimated
research revenues from this contract from January 1, 2002 through its
expiration in 2003, is approximately $1.4 million.

This and other research contracts we have obtained generally provide for
development of advanced materials and methods for wafer, cell and panel
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 if we
do not commercialize the technology and certain rights universities retain for
work they perform under subcontract to us. These contracts usually require the
submission of technical progress reports, most of which can 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 had research revenues of $2.1 million in
1999, $1.8 million in 2000, and $932,000 in 2001 from several
government-sponsored research contracts. We recorded research and development
expenditures, including the cost of research revenue, of $3.1 million in 1999,
$3.3 million in 2000 and $2.9 million in 2001. For each of the years ended
December 31, 1999 and 2000, revenues received from each of the Commonwealth of
Massachusetts, National Institute of Standards and Technology and the National
Renewable Energy Laboratory accounted for over 10% of our total revenues. For
the year ended December 31, 2001 revenues received from the National Institute
of Standards and Technology and the National Renewable Energy Laboratory
accounted for 24% and 15%, respectively, of our total revenues.

INTELLECTUAL PROPERTY RIGHTS

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 panels. We own or have licensed 18 issued United
States patents and one issued Israeli patent in the solar power field, which
expire beginning in 2003 and ending in 2019. In addition, we have 3 United
States patent applications pending. We decide whether and in what foreign
countries to file counterparts of our United States patent applications. 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.

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 three issued
United States patents for the String Ribbon technology. An additional issued
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 begin to expire in 2003. This agreement permits us to sublicense any
of our license and other rights under the agreement. The license is exclusive
worldwide, subject only to nonexclusive, nontransferable rights held by the
United States Department of Energy to practice the String Ribbon technology on
its own behalf. Our rights to the String Ribbon technology depend upon the
survival of our license from Dr. Sachs. Although our license is by its terms
irrevocable and terminates only upon expiration of the underlying patents, it
is possible that Dr. Sachs could seek to terminate the license if we materially
breach or default on our obligations to Dr. Sachs under the license, in
particular our obligation to pay royalties to Dr. Sachs. The termination of our
license from Dr. Sachs to the String Ribbon technology and our loss of the
right to practice under the String Ribbon patents would substantially impair
our business and prospects.

We have been awarded 3 issued United States patents and have filed 2
patent applications on our own, internally-developed inventions related to
String Ribbon and wafer fabrication, which are method inventions relating to
automated, high-yield production techniques.

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Solar Cell Fabrication. We have been awarded 4 issued United States
patents and have filed 2 additional United States patent applications relating
to our solar cell processing technology. The issued United States patents
relate to the method for forming wrap-around contacts on solar cells and a
method for processing solar cells. The pending patent applications relate to
methods for processing solar cells.

Solar Panels. We have been awarded 7 issued United States patents and have
filed 1 additional United States patent application relating to advanced solar
panel designs. The 7 issued 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. The pending patent application relates to new materials for
encasing the panel, which we believe will lower cost, extend panel life and
enhance panel performance.

Patent positions of companies like ours are generally uncertain and
involve complex legal and factual questions. Furthermore, even if patents are
licensed or issued to us, others may design around the patented technologies.
In addition, we could incur substantial costs in litigation if we are required
to initiate patent litigation to enforce our patent rights, and the outcome of
any patent litigation is uncertain. The following may impair our patent
positions:



| |  |  | our pending patent applications may not result in issued patents;                                                                                                                     
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | the claims of patents which are issued may not provide meaningful protection;                                                                                                         
|
| |  |  | we may not develop additional proprietary technologies that are patentable;                                                                                                           
|
| |  |  | patents licensed or issued to us may not provide a basis for
commercially viable products or may not provide us with competitive
advantages and may be challenged by third parties; or
|
| |  |  | patents of others may have an adverse effect on our ability to do
business.                                                                                                           

Although we do not believe that our technologies infringe the rights of
third parties, third parties could in the future assert infringement claims
against us, which may result in costly litigation or require us to obtain a
license to third-party intellectual property rights. We may be unable to obtain
required licenses or obtain these licenses on terms that are acceptable to us,
either of which would substantially impair our business.

Trade Secrets and Other Rights

With respect to proprietary know-how that is not patentable and for
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. We have taken security measures to protect
proprietary know-how and technologies and confidential data, and continue to
explore further 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 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 market for solar power products is intensely competitive. There are
over 20 companies in the world that produce solar power products, including BP
Solar, Kyocera Corporation, Royal Dutch Shell (currently acquiring the solar
business of Siemens Solar Group), Sharp Corporation, AstroPower, Inc. and
Photowatt International S.A. All six of these solar power product producers, as
well as several others, derive all or a majority of their sales from
conventional manufacturing technology that involves using wafers made from
slicing solid blocks of crystalline silicon. In addition, many of these
companies are developing advanced crystalline silicon or thin film
technologies, including technologies such as advanced crystalline sheet and
ribbon technologies and thin films of amorphous silicon, cadmium telluride and
copper indium diselenide, and project future cost savings similar to or greater
than ours. We believe several of our
9

competitors are developing and are currently producing products based on
crystalline silicon wafer technologies that, like String Ribbon, do not involve
slicing silicon blocks.

We believe our current solar power products have features similar to other
crystalline silicon products, including those made using other crystalline
silicon ribbon technologies. However, because our solar power products are made
from crystalline silicon, we believe they may be more reliable than those made
from thin film technologies which often use materials, such as amorphous
silicon, which we believe may be less stable. In addition, we believe the
polymer-framed solar panels we are developing will be thinner, lighter and
easier to install than our competitors panels, including those produced using
other crystalline silicon ribbon technologies. However, because these panels
will require different mounting techniques than our customers typically use,
our customers will need to adopt these new mounting techniques and therefore
may be reluctant to use our polymer-framed panels.

Solar power has certain advantages and disadvantages when compared to
other alternative energy sources. 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. However, unlike most alternative energy generators, which can
produce power on demand, solar power cannot generate power when sunlight is not
available. In addition, based on current technology, the upfront cost,
including installation, of alternative energy generators is often lower than
that of solar power products. However, we believe that the relative cost of
power produced over the lifetime of solar products as compared with alternative
energy generators often depends on the application. For example, solar power
products may be more cost-effective over the long-term for remote applications
that are not connected to the utility grid and that have smaller power
requirements, while alternative power sources may be more cost effective for
larger, grid-connected applications.

Many of our competitors have substantially greater financial resources,
research and development staff, manufacturing facilities, sales and marketing
experience, distribution channels and human resources than we do. In order to
compete effectively against these companies, we will need to demonstrate to
potential customers and partners that our solar power products perform better,
or are less expensive than those of our competitors.

In addition, we believe that the market for solar power specifically, and
electric power in general, will be subject to rapid technological development.
This rapid development may result in some of our solar power products becoming
obsolete before we can recover development expenses. We also expect that future
competition will come not only from existing competitors, but also from new
entrants to the market with new technological solutions. We may be unable to
compete successfully against present and future competitors and our failure to
successfully compete could significantly reduce our market share, our revenues
and our prospects for profitability.

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 federal, state and local
governmental regulations related to the storage, use and disposal of hazardous
materials. 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.

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 federal or state agencies involving our past or current
facilities. 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 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.

10



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##### 



EMPLOYEES

As of December 31, 2001, we had 145 full-time employees, including 14
engaged in research and development and 98 engaged in manufacturing. 19 of our
employees have advanced degrees, including 4 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.

11



---



##### 



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. Our lease expires on June
30, 2010.

ITEM 3. LEGAL PROCEEDINGS:

We are not a party to any material legal proceedings.

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, 2001.

PART II

ITEM 5. MARKET FOR THE COMPANYS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS:

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 |        | Low
|      |                                              |  |      |        |    
|2000: |                                              |  |      |        |     |  |   |      
|     
|     
|     
|     
|      | Fourth Quarter (commencing November 2, 2000) |  | $    | 20.75  |     |  | $ | 6.00  | 
|     
|     
|     
|     
|2001: |                                              |  |      |        |     |  |   |      
|     
|     
|     
|     
|      | First Quarter                                |  | $    | 13.625 |     |  | $ | 6.375 | 
|     
|     
|     
|     
|      | Second Quarter                               |  | $    | 15.00  |     |  | $ | 8.17  | 
|     
|     
|     
|     
|      | Third Quarter                                |  | $    | 11.00  |     |  | $ | 3.25  | 
|     
|     
|     
|     
|      | Fourth Quarter                               |  | $    | 3.90   |     |  | $ | 1.90  | 

On March 11, 2002 there were approximately 95 stockholders of record of our
common stock. We have never declared or paid cash dividends. We currently
intend to retain any earnings for use in our business and do not anticipate
paying any cash dividends on our capital stock in the foreseeable future.

Use of Proceeds

On October 31, 2000, the Securities and Exchange Commission declared effective
our registration statement on Form S-1 (file number 333-43140), relating to the
initial public offering of 3,000,000 shares of our common stock, $.01 par value
per share, at a price to the public of $14.00 per share. The offering commenced
on November 2, 2000 and closed on November 7, 2000. The aggregate offering
price to the public of the initial public offering was $42,000,000. The
proceeds to us, net of underwriting discounts and commissions of $2,940,000 and
offering expenses of $1,300,000, was approximately $37.7 million. Through
December 31, 2001, approximately $11.4 million of the net offering proceeds was
spent, of which $4.8 million was spent on capital equipment and the remainder
on general operations. We have invested all of such proceeds in investment
grade, interest-bearing securities. Other than for compensation and
reimbursement for expenses incurred in the performance Evergreen business, none
of the net proceeds from the offering were used to pay, directly or indirectly,
directors, officers, persons owning ten percent or more of our equity
securities, or affiliates of us.

Recent Sales of Unregistered Securities

Effective April 30, 2001, a shareholder exercised in full a warrant to purchase
up to 16,904 shares of the Companys Common Stock at an exercise price equal to
$4.33 per share. Pursuant to the warrants cashless exercise feature, the
Company issued to the shareholder 9,728 shares of the Companys Common Stock.
Effective May 3, 2001, a second
12

shareholder exercised in full a warrant to purchase up to 9,237 shares of the
Companys Common Stock at an exercise price equal to $4.33 per share. Pursuant
to the warrants cashless exercise feature, the Company issued to the second
shareholder 5,843 shares of the Companys Common Stock. Effective May 23,
2001, a third shareholder exercised in full a warrant to purchase up to 184,757
shares of the Companys Common Stock at an exercise price equal to $4.33 per
share. Effective July 30, 2001, a fourth shareholder exercised in full a
warrant to purchase up to 15,195 shares of the Companys Common Stock at an
exercise price equal to $4.33 per share. Pursuant to the warrants cashless
exercise feature, the Company issued to the fourth shareholder 8,476 shares of
the Companys Common Stock. The Company made the foregoing issuances in
reliance upon an exemption from the registration provisions of the Securities
Act of 1933 set forth in Section 4(2) thereof as a transaction by an issuer not
involving a public offering.

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, 1999, 2000, and 2001 and the balance sheet data at December
31, 2000, and 2001 have been derived from our financial statements which have
been audited by PricewaterhouseCoopers LLP, independent accountants, and which
appear elsewhere in this filing. The statement of operations data presented
below for the years ended December 31, 1997 and 1998, and the balance sheet
data at December 31, 1997, 1998 and 1999 have been derived from our financial
statements that have been audited by PricewaterhouseCoopers LLP and are not
included in this filing.

|                                                                                               |  |                                           |        |      |  |      |        |      |  |      |        |   |  |   |        |   |  |   |         |  
|---------------------------------------------------------------------------------------------- |  | ----------------------------------------- | ------ | ---- |  | ---- | ------ | ---- |  | ---- | ------ | - |  | - | ------ | - |  | - | ------- | -
|                                                                                               |  | Year Ended December 31,                  
|                                                                                               |  |                                          
|                                                                                               |  | 1997                                      |        | 1998 |  | 1999 |        | 2000 |  | 2001
|                                                                                               |  |                                           |        |      |  |      |        |      |  |     
|                                                                                               |  | (in thousands, except for per share data)
|STATEMENT OF OPERATIONS DATA:                                                                  |  |                                           |        |      |  |      |        |      |  |      |        |   |  |   |        |   |  |   |         |  
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                              
|Product revenues                                                                               |  | $                                         | 153    |      |  | $    | 163    |      |  | $    | 189    |   |  | $ | 419    |   |  | $ | 1,546   |  
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                              
|Research revenues                                                                              |  |                                           | 556    |      |  |      | 1,395  |      |  |      | 2,113  |   |  |   | 1,753  |   |  | $ | 932     |  
|                                                                                               |  |                                           |        |      |  |      |        |      |  |      |        |   |  |   |        |   |  |   |         |  
|Total revenues                                                                                 |  |                                           | 709    |      |  |      | 1,558  |      |  |      | 2,302  |   |  |   | 2,172  |   |  |   | 2,478   |  
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                              
|Operating Expenses:                                                                            |  |                                           |        |      |  |      |        |      |  |      |        |   |  |   |        |   |  |   |         |  
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                              
|Cost of product revenues                                                                       |  |                                           | 1,007  |      |  |      | 955    |      |  |      | 991    |   |  |   | 2,757  |   |  |   | 9,577   |  
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                              
|Research and development expenses, including
cost of
        research revenues                 |  |                                           | 2,051  |      |  |      | 2,373  |      |  |      | 3,085  |   |  |   | 3,266  |   |  |   | 2,916   |  
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                              
|Selling, general and administrative expenses                                                   |  |                                           | 809    |      |  |      | 917    |      |  |      | 1,303  |   |  |   | 2,365  |   |  |   | 4,017   |  
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                              
|Stock-based compensation expense                                                               |  |                                           |       |      |  |      |       |      |  |      | 18     |   |  |   | 294    |   |  |   | 290     |  
|                                                                                               |  |                                           |        |      |  |      |        |      |  |      |        |   |  |   |        |   |  |   |         |  
|Total operating expenses                                                                       |  |                                           | 3,867  |      |  |      | 4,245  |      |  |      | 5,397  |   |  |   | 8,682  |   |  |   | 16,800  |  
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                              
|Operating income (loss)                                                                        |  |                                           | (3,158 | )    |  |      | (2,687 | )    |  |      | (3,095 | ) |  |   | (6,510 | ) |  |   | (14,322 | )
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                              
|Net interest income                                                                            |  |                                           | 102    |      |  |      | 165    |      |  |      | 163    |   |  |   | 1,305  |   |  |   | 1,845   |  
|                                                                                               |  |                                           |        |      |  |      |        |      |  |      |        |   |  |   |        |   |  |   |         |  
|Net income (loss)                                                                              |  |                                           | (3,056 | )    |  |      | (2,522 | )    |  |      | (2,932 | ) |  |   | (5,205 | ) |  |   | (12,477 | )
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                              
|Accretion of redeemable convertible preferred stock                                            |  |                                           | (537   | )    |  |      | (953   | )    |  |      | (1,231 | ) |  |   | (2,283 | ) |  |   |        |  
|                                                                                               |  |                                           |        |      |  |      |        |      |  |      |        |   |  |   |        |   |  |   |         |  
|Net income (loss) attributable to common stockholders                                          |  | $                                         | (3,593 | )    |  | $    | (3,475 | )    |  | $    | (4,163 | ) |  | $ | (7,488 | ) |  | $ | (12,477 | )
|                                                                                               |  |                                           |        |      |  |      |        |      |  |      |        |   |  |   |        |   |  |   |         |  
|Net income (loss) per common share (basic and diluted)                                         |  | $                                         | (4.47  | )    |  | $    | (4.33  | )    |  | $    | (5.18  | ) |  | $ | (2.96  | ) |  | $ | (1.10   | )
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                              
|Weighted average shares used in computing basic and
diluted net income (loss) per common share |  |                                           | 803    |      |  |      | 803    |      |  |      | 803    |   |  |   | 2,530  |   |  |   | 11,304  |  

|                                                  |  |                         |        |      |  |      |        |      |  |      |         |   |  |   |        |  |  |   |        | 
|------------------------------------------------- |  | ----------------------- | ------ | ---- |  | ---- | ------ | ---- |  | ---- | ------- | - |  | - | ------ |  |  | - | ------ | 
|                                                  |  | Year Ended December 31,
|                                                  |  |                        
|                                                  |  | 1997                    |        | 1998 |  | 1999 |        | 2000 |  | 2001
|                                                  |  |                         |        |      |  |      |        |      |  |     
|                                                  |  | (in thousands)         
|BALANCE SHEET DATA:                               |  |                         |        |      |  |      |        |      |  |      |         |   |  |   |        |  |  |   |        | 
|                                                 
|                                                 
|                                                 
|                                                 
|Cash, cash equivalents and short-term investments |  | $                       | 2,623  |      |  | $    | 4,805  |      |  | $    | 14,455  |   |  | $ | 45,994 |  |  | $ | 26,263 | 
|                                                 
|                                                 
|                                                 
|                                                 
|Working capital                                   |  |                         | 426    |      |  |      | 4,985  |      |  |      | 14,982  |   |  |   | 46,056 |  |  |   | 26,591 | 
|                                                 
|                                                 
|                                                 
|                                                 
|Total assets                                      |  |                         | 3,755  |      |  |      | 5,893  |      |  |      | 16,318  |   |  |   | 55,783 |  |  |   | 44,861 | 
|                                                 
|                                                 
|                                                 
|                                                 
|Total redeemable convertible preferred stock      |  |                         | 7,250  |      |  |      | 15,014 |      |  |      | 29,293  |   |  |   |       |  |  |   |       | 
|                                                 
|                                                 
|                                                 
|                                                 
|Total stockholders equity (deficit)              |  |                         | (5,955 | )    |  |      | (9,357 | )    |  |      | (13,502 | ) |  |   | 54,143 |  |  |   | 43,055 | 

13



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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 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, including, among other things,
those risks and uncertainties described below in this Annual Report under the
caption Certain Factors Which May Affect Future Results and in our other
filings with the Securities and Exchange Commission. 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.

OVERVIEW

We develop, manufacture and market solar power products for the global
marketplace. Solar cells are semiconductor devices that convert sunlight into
electricity and form the building block for all solar power products. To date,
our product sales have been primarily solar panels, which have been used to
generate electricity for on-grid and off-grid applications. Off-grid
applications have included the electrification of rural homes, lighting for
small, rural schools and power supplies for water pumping. More recently, an
increasing percentage of our products have been used by on-grid customers as a
clean, renewable source of alternative or supplemental electricity.

Product revenues. Product revenues consist of revenues from the sale of
solar cells, panels and systems. We recognize product revenues upon shipment.
Product revenues represented 62.4% of total revenues for the year ended
December 31, 2001 and 19.0% of total revenues for the year ended December 31,
2000. For the year ended December 31, 2001, sales to Kawasaki Heavy Industries,
Ltd. accounted for approximately $338,000 of our total $1.5 million of product
revenues. International product sales accounted for approximately 35% and 93%
of total product revenues for the years ended December 31, 2001 and 2000,
respectively. We anticipate that international sales, including sales to
Kawasaki, will continue to account for a significant portion of our product
revenues for the foreseeable future. Currently, all product revenues are
denominated in United States dollars. Foreign exchange rate fluctuations have
impacted the relative competitiveness of our products in other markets, but we
have not had any direct foreign exchange exposure.

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 using the percentage of completion method.

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 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 unless we are
able to achieve greater manufacturing efficiencies, higher yields, and higher
production levels.

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 expenses, and
prototype costs related to the design, development, testing and enhancement of
our products and manufacturing technology. We expense our research and
development expenses 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 and our operations as a public company.

14



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##### 



Stock-based compensation expense. Through December 31, 2000, we recorded
total cumulative deferred compensation of approximately $1.3 million
representing the difference between fair market value of the common stock and
the exercise price on the option grant date. These amounts were presented as a
reduction of stockholders equity and are being amortized ratably over the
vesting period of the options, which is generally four years. The amortization
resulted in charges to operations of $294,000 for the year ended December 31,
2000 and $290,000 for the year ended December 31, 2001. We expect to recognize
stock-based compensation expense for past grants of approximately $290,000 for
each of the years ended December 31, 2002 and 2003, and $72,000 for the year
ended December 31, 2004.

Net interest income. Net interest income consists primarily of interest
earned on the holding of short-term, high quality commercial paper, corporate
bonds and United States government-backed securities, less any interest paid.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The preparation of consolidated financial statements 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. On an on-going basis, we evaluate estimates, including those
related to bad debts, inventories, investments, and warranty obligations. 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 its more
significant judgments and estimates used in the preparation of its consolidated
financial statements. We maintain allowances for doubtful accounts for
estimated losses resulting from the inability of its customers to make required
payments. If the financial condition of our customers were to deteriorate,
resulting in an impairment of their ability to make payments, additional
allowances may be required. We provide for the estimated cost of product
warranties at the time revenue is recognized. 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. Should actual product failure rates, material
usage or service delivery costs differ from our estimates, revisions to the
estimated warranty liability would be required. We write down its inventory for
estimated obsolescence or unmarketable inventory equal to the difference
between the cost of inventory and the estimated market value based upon
assumptions about future demand and market conditions. If actual market
conditions are less favorable than those projected by management, additional
inventory write-downs may be required. We record an investment impairment
charge when we believe an investment has experienced a decline in value that is
other than temporary. Future adverse changes in market conditions or poor
operating results of underlying investments could result in losses or an
inability to recover the carrying value of the investments that may not be
reflected in an investments current carrying value, thereby possibly requiring
an impairment charge in the future.

We recognize revenue when persuasive evidence of an arrangement exists,
delivery has occurred, the sales price is fixed or determinable and
collectibility is probable. At the time revenue is recognized, we provide for
the estimated cost of product warranties.

COMPARISON OF YEARS ENDED DECEMBER 31, 2001 AND 2000

Revenues. Our product revenues for the year ended December 31, 2001 were
$1.5 million, an increase of $1.1 million, or 269%, from $419,000 for the same
period in 2000. Our increase in product revenues was due to increases in
production volumes resulting from our move to our new manufacturing facility in
Marlboro, Massachusetts, which enabled us to increase commercial sales to key
customers. Research revenues for the year ended December 31, 2001 were
$932,000, a decrease of $821,000, or 47%, from $1.8 million for the same period
in 2000. The decline in research revenues reflects reduced expenditures on our
research contracts, as two of three multi-year contracts were completed in the
second quarter of 2001.

Cost of product revenues. Our cost of product revenues for the year ended
December 31, 2001 was $9.6 million, an increase of $6.8 million, or 247%, from
$2.8 million for the same period in 2000. The increase in cost of product
revenues was associated with the expansion of our pilot manufacturing
operations, and the relocation, preparation and
15start-up of our manufacturing operations in our Marlboro facility.
Approximately one-quarter of the increase was due to increases in materials
expense, one-third was caused by increases in salary expense, and one-third was
caused by increases in consulting fees, with the remainder mainly caused by
increases in warranty, depreciation and royalty expense. We expect our cost of
product revenues to decline as a percentage of product revenues in 2002, as we
increase our product revenues, but to remain negative unless we achieve greater
manufacturing efficiencies, higher yields and higher production levels.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, 2001 were $2.9 million, a decrease of $350,000, or
11%, from $3.3 million for the same period in 2000. The decrease was due
primarily to a decrease in consulting fees associated with designing and
developing new processes and equipment for our manufacturing operations, and
reduced expenditures on our research contracts, as two of three multi-year
contracts were completed in the second quarter of 2001.Selling, general and administrative expenses. Our selling, general and
administrative expenses for the year ended December 31, 2001 were $4.0 million,
an increase of $1.7 million, or 70%, from $2.4 million in 2000. The increase is
nearly evenly divided among increases in rent expense, salary expense, and
professional fees. The increase in salary expense represents both additional
personnel and salary increases and bonuses. The increase in professional fees
was principally due to increased legal and auditing fees associated with our
increased requirements in these areas as a newly public company.Stock-based compensation expense. Our stock-based compensation expense for
the year ended December 31, 2001 was $290,000, a decrease of $4,000, or 1%,
from $294,000 for the same period in 2000. The decrease in stock-based
compensation expense for the year ended December 31, 2001 was due to employment
terminations during 2001 of employees with non-vested balances of stock options
granted before our initial public offering.Net interest income. Our net interest income for the year ended December
31, 2001 was $1.8 million, an increase of $540,000 , or 41%, from $1.3 million
for the same period in 2000. The increase in net interest income was due to
higher average cash balances that resulted from the completion of our initial
public offering in November 2000.COMPARISON OF YEARS ENDED DECEMBER 31, 2000 AND 1999Revenues. Our product revenues for the year ended December 31, 2000 were
$419,000, an increase of $230,000, or 122%, from $189,000 for the same period
in 1999. Our increase in product revenues was due to capacity expansions at our
pilot manufacturing facility in Waltham, Massachusetts and the increase of
commercial sales to Kawasaki as a result of our distribution and marketing
arrangement with them. Research revenues for the year ended December 31, 2000
were $1.8 million, a decrease of $360,000, or 17%, from $2.1 million for the
same period in 1999. The decline in research revenues reflects reduced
expenditures on our research contracts, as one of our multi-year contracts was
completed and another neared completion in 2000.Cost of product revenues. Our cost of product revenues for the year ended
December 31, 2000 was $2.8 million, an increase of $1.8 million, or 178%, from
$991,000 for the same period in 1999. The increase in cost of product revenues
was primarily associated with our expanded pilot operations and our preparation
for the expansion and relocation of our manufacturing operations to our new
facility. Approximately one-third of the increase was due to increases in
materials expense, one-third was caused by increases in salary expense, and
one-quarter was caused by increases in consulting fees, with the remainder
caused by increases in storage, depreciation and royalty expense.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, 2000 were $3.3 million, an increase of $181,000, or
5.9%, from $3.1 million for the same period in 1999. The increase was due
primarily to an increase in consulting fees associated with designing and
developing new processes and equipment for our manufacturing expansion,
partially offset by a reduction in salary expense.Selling, general and administrative expenses. Our selling, general and
administrative expenses for the year ended December 31, 2000 were $2.4 million,
an increase of $1.1 million, or 82%, from $1.3 million in 1999. The increase is
nearly evenly divided among increases in rent expense, salary expense, and
professional fees. The increase in rent16

primarily reflects the start of rental payments at our Marlboro facility
and to a lesser extent an increase in our payments for our Waltham facility.
The increase in salary expense represents both additional personnel, salary
increases and bonuses. The increase in professional fees was principally due to
increased legal and auditing fees associated with our increased requirements in
these areas as a newly public company.

Stock-based compensation expense. Our stock-based compensation expense for
the year ended December 31, 2000 was $294,000, an increase of $276,000, or
1,533%, from $18,000 for the same period in 1999. The increase in stock-based
compensation expense for the year ended December 31, 2000 was due to
amortization arising from options granted in 2000.

Net interest income. Our net interest income for the year ended December
31, 2000 was $1.3 million, an increase of $1.1 million, or 701%, from $163,000
for the same period in 1999. The increase in net interest income was due to
higher average cash balances that resulted from the closing of a private
financing in December 1999 and January 2000, and the completion of our initial
public offering in November 2000.

LIQUIDITY AND CAPITAL RESOURCES

We have historically financed our operations and met our capital
expenditures requirements primarily through sales of our capital stock and to a
lesser extent from funds from operations, including research revenues. At
December 31, 2001, we had cash, cash equivalents and short-term investments of
$26.3 million and working capital of $26.6 million.

Net cash used in operating activities was $2.6 million for the year ended
December 31, 1999, $4.2 million for the year ended December 31, 2000, and $11.4
million for the year ended December 31, 2001. The increase in net cash used in
operating activities for the year ended December 31, 2001 was primarily due to
increases in our net loss and working capital associated with our inventory
build and capacity expansion. Net cash used in operating activities primarily
represents net loss and increases in working capital partially offset by
depreciation expense. We anticipate continued operating losses in 2002 and
continued use of cash to fund our operating activities. We expect net cash
used in operating activities to continue at or above these levels unless we can
reduce our cost of goods sold below our selling price and further increase our
manufacturing capacity.

Net cash used in investing activities was $8.7 million for the year ended
December 31, 1999, $27.1 million for the year ended December 31, 2000 and
$16,000 for the year ended December 31, 2001. This cash represents purchases,
sales and maturities of high quality corporate paper, corporate bonds and
United States government-backed obligations with contractual maturities
typically less than one year and capital expenditures. Capital expenditures
were $383,000 for the year ended December 31, 1999, $7.1 million for the year
ended December 31, 2000, and $9.4 million for the year ended December 31, 2001.
The increase in capital expenditures for the year ended December 31, 2001 was
for equipment needed for our Marlboro manufacturing facility. As of December
31, 2001, our outstanding commitments for capital expenditures were
approximately $500,000. Nearly all of our commitments for capital expenditures
are associated with infrastructure improvements and equipment purchases for our
Marlboro manufacturing facility. We expect to fund these outstanding capital
commitments using proceeds from our initial public offering, which closed in
November 2000. In addition to the $9.4 million of capital expenditures in 2001,
we expect substantial further capital expenditures will be required to achieve
the expected 7 MW of capacity at our Marlboro facility.

Net cash provided by financing activities was $12.6 million for the year
ended December 31, 1999, $43.0 million for the year ended December 31, 2000,
and $812,000 for the year ended December 31, 2001. The cash provided by
financing activities in the year ended December 31, 1999 represents private
placements of our redeemable convertible preferred stock, for the year ended
December 31, 2000 represents private placements of redeemable convertible
preferred stock and the sale of common stock in our initial public offering,
and for the year ended December 31, 2001 represents proceeds from the exercise
of options and warrants to purchase common stock.

We believe our current cash, cash equivalents and short-term investments,
will be sufficient to satisfy our current capital commitments and projected
operating expenditures for approximately the next 12 months. We anticipate that
we will need to raise additional financing before then to fund the expansion of
our Marlboro manufacturing facility to the full 7 MW of capacity and fund
operating losses. The first of the Marlboro facilitys two manufacturing lines
became operational in 2001. We recently began engineering and authorized
capital expenditures for longer lead-time equipment for the second
manufacturing line, which we expect to become operational during 2003. In
addition, we may need
17

additional financing to execute our business plan sooner if we need to
respond to business contingencies. These contingencies may include the need to
enhance our operating infrastructure, 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.

The following table summarizes our contractual obligations as of December
31, 2001 and the effect such obligations are expected to have on our liquidity
and cash flow in future periods:

|                                |                                    |   |             |           |                  |   |           |           |           |   |               |           |  |   |           |           |  |   |           |           | 
|------------------------------- | ---------------------------------- | - | ----------- | --------- | ---------------- | - | --------- | --------- | --------- | - | ------------- | --------- |  | - | --------- | --------- |  | - | --------- | --------- | 
|                                |                                    |   | Total Years |           | Less than 1 year |   | 1-3 Years |           | 4-5 Years |   | After 5 Years
|                                |                                    |   |             |           |                  |   |           |           |           |   |              
|Non-cancelable operating lease  |                                    | $ | 4,183,594   |           |                  | $ | 478,125   |           |           | $ | 1,483,594     |           |  | $ | 1,023,047 |           |  | $ | 1,198,828 |          
|                               
|                               
|                               
|                               
|Minimum future royalty payments |                                    |   | 75,000      |           |                  |   | 25,000    |           |           | $ | 50,000        |           |  |   |          |           |  |   |          |          
|                               
|                               
|                               
|                               
|Capital expenditure obligations |                                    |   | 500,000     |           |                  |   | 500,000   |           |           |   |              |           |  |   |          |           |  |   |          |          
|                               
|                               
|                               
|                               
|Other commercial commitments    |                                    |   | 1,000,000   |           |                  |   | 1,000,000 |           |           |   |              |           |  |   |          |           |  |   |          |          
|                                |                                    |   |             |           |                  |   |           |           |           |   |               |           |  |   |           |           |  |   |           |          
|                                | Total contractual cash
obligations |   | $           | 5,758,594 |                  |   | $         | 2,003,125 |           |   | $             | 1,533,594 |  |   | $         | 1,023,047 |  |   | $         | 1,198,828 | 

INCOME TAXES

As of December 31, 2001, we had federal and state net operating loss
carryforwards totaling approximately $26.9 million and $24.5 million,
respectively, available to reduce future taxable income and tax liabilities
which expire at various dates between 2002 and 2021. In addition, as of
December 31, 2001 we had federal and state research and development tax credit
carryforwards of approximately $679,000 and $282,000, respectively, available
to reduce future taxable income and tax liabilities which expire at various
dates between 2009 and 2021. Under provisions of the Internal Revenue Code,
substantial changes in our ownership may limit the amount of net operating loss
carryforwards and research and development credit carryforwards, which can be
used in future years. As required by Financial Accounting Statement No. 109,
we have evaluated the positive and negative evidence bearing on the
realizability of these assets and we have fully reserved the deferred tax
asset.

RECENT ACCOUNTING PRONOUNCEMENTS

In March 2001, FASB issued FASB Interpretation 44, Accounting for Certain
Transactions Involving Stock Compensation  an Interpretation of Accounting
Principles Board Opinion 25. FASB Interpretation 44 clarifies the application
of Accounting Principles Board Opinion 25 and among other issues clarifies the
definition of an employee for compensatory plan purposes, the accounting
consequence of various modifications to the terms of previously fixed stock
options or awards, and the accounting for an exchange of stock compensation
awards in a business combination. FASB Interpretation 44 was effective July 1,
2001, but certain conclusions in FASB Interpretation 44 cover specific events
that occurred after either December 15, 1998 or January 12, 2001. The
application of FASB Interpretation 44 has not had a material impact on our
financial position or results of operations to date.

In July 2001, the Financial Accounting Standards Board (''FASB) issued
Statement of Financial Accounting Standard (SFAS) No. 141, ''Business
Combinations, and SFAS No. 142, ''Goodwill and Other Intangible Assets.
SFAS 141 requires use of the purchase method of accounting for business
combinations initiated after June 30, 2001 and eliminated the
pooling-of-interests method. SFAS 142 requires the discontinuance of goodwill
amortization and includes provisions for the reclassification of certain
existing recognized intangible assets into goodwill, the reassessment of the
useful lives of existing recognized intangible assets, the reclassification of
certain intangible assets out of previously reported goodwill and the
identification of reporting units for purposes of assessing potential future
impairments of goodwill. We must adopt SFAS 142 by January 1, 2002. We do not
believe that the adoption of SFAS 141 and SFAS 142 in 2002 will have an impact
on our financial position or our results of operations.

In October 2001, the FASB issued SFAS 144, Accounting for the Impairment
or Disposal of Long-Lived Assets.The objectives of SFAS 144 are to address
significant issues relating to the implementation of SFAS 121, Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of,and to develop a single accounting model, based on the framework
established in SFAS 121, for long-lived assets to be disposed of by sale,
whether
18

previously held and used or newly acquired. SFAS 144 is effective for
financial statements issued for fiscal years beginning after December 15, 2001
and, generally, its provisions are to be applied prospectively. Management is
currently determining what effect, if any, SFAS 144 will have on its financial
position and results of operations.

19



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CERTAIN FACTORS WHICH MAY AFFECT FUTURE RESULTS

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 managements expectations regarding the timing, cost, and
success of the Companys manufacturing scale-up at its new facility in
Marlboro, Massachusetts and future manufacturing expansion and production, as
well as related financing requirements future financial performance; the
Companys technology and product development, cost and performance; the
Companys current and future strategic relationships and future market
opportunities; and the Companys 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 and in our
other filings with the Securities and Exchange Commission, 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.

RISKS RELATING TO OUR FINANCIAL RESULTS

You may have difficulty evaluating our business and prospects due to our
limited operating history.

We are at an early stage of development and there is limited historical
information available upon which you can base your evaluation of our business
and prospects. We were formed in 1994 to research and develop crystalline
silicon technology for use in manufacturing solar power products. Although we
began shipping product from our pilot manufacturing facility in 1997, the
primary objective of our pilot production line was the technical development
and further refinement of our String Ribbon technology and related
manufacturing processes. We shipped our first commercial products from our new
Marlboro manufacturing facility in June 2001. We have shipped only a limited
number of solar power panels as of December 31, 2001 and have recognized
limited revenues since our inception.

In addition, our earlier stage of development means that we have less
insight into how market and technology trends may affect our business. The
revenue and income potential of our business is unproven and the market we are
addressing is rapidly evolving. 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 $12.5 million for the year ended December 31, 2001. As a result
of ongoing operating losses, we had a cumulative net loss of $28.2 million as
of December 31, 2001. We expect to incur substantial losses for the foreseeable
future, and 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 incur significant capital expenditures and anticipate that our
expenses will increase substantially in the foreseeable future as we seek to:



| |  |  | expand our manufacturing operations;                                             
| | - |  | ---------------------------------------------------------------------------------
|
| |  |  | 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

20



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| |  |  | 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, many of which are discussed elsewhere in
this section.

We anticipate that our operating expenses will continue to increase
significantly. If sales in any quarter do not increase correspondingly, our net
losses for that period will increase. 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
may decrease rapidly and substantially.

RISKS RELATING TO OUR INDUSTRY, PRODUCTS AND OPERATIONS

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 microturbines;                                                                                                   
|
| |  |  | fluctuations in economic and market conditions which 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;
|
| |  |  | continued deregulation of the electric power industry and broader energy industry; and                                                                                                                         
|
| |  |  | availability of government subsidies and incentives.                                                                                                                                                           

We may fail to successfully develop our new solar power products under
development, which would 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 which are under development and not yet commercially
available. Many of these new products are derived from our innovative cell
fabrication and advanced panel design technologies, which are under
development. If we fail to successfully develop our new solar power products or
technologies, we will likely be unable to recover the losses we will have
incurred to develop these products and technologies and may be unable to
increase our sales and market share and to become profitable. Much of our new
product and manufacturing technologies are novel and represent a departure from
conventional solar power technologies, and it is difficult to predict
21

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 which compete favorably
against other solar power products on the basis of cost, quality and
performance;                                                                          
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | our failure to produce solar power products which compete favorably
against conventional energy sources and alternative distributed
generation technologies, such as fuel cells, on the basis of cost,
quality and performance;
|
| |  |  | whether customers accept the thin polymer-frame design of our solar
panels and the new 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 such as Kawasaki.                                                       

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 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 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 there are a variety of competing solar power
technologies under development by other companies that could result in lower
manufacturing costs 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.

The build-out of our new manufacturing facility may take longer and cost more
than we expect, which would likely result in lower revenues and earning than
anticipated.

If we fail to successfully complete the build-out of our Marlboro
manufacturing facility, our business and results of operations would likely be
materially impaired. The first of the Marlboro facilitys two manufacturing
lines became operational in 2001. We recently began engineering and authorized
capital expenditures for longer lead-time equipment for the second
manufacturing line, which we expect to become operational during 2003.
Completing the build-out of this facility to capacity will require a
significant investment of capital and substantial engineering expenditures, and
is subject to significant risks, including risks of cost overruns, lack of
available financing, delays, equipment problems and other start-up and
operating difficulties. Our manufacturing processes also use custom-built
equipment that may not be delivered and installed in our new facility in a
timely manner. In addition this equipment may take longer and cost more to
debug than planned and may never operate as designed. If we experience any of
these or similar difficulties, we may be unable to complete the build-out of
the facility, our manufacturing capacity could be substantially constrained and
our revenues and earnings would likely be materially impaired.

22



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We may not be able to manufacture our solar power products in sufficient
quantities or at acceptable costs to meet customer demand.

To date, we have focused primarily on research and development of our
solar power products and have limited experience manufacturing large volumes of
our solar power products on a commercial basis. Furthermore, we may not be able
to achieve our manufacturing cost targets, which could prevent us from ever
becoming profitable. If we cannot achieve our targeted production volumes or
capacity or if we experience capacity constraints, quality control problems or
other disruptions, we may not be able to manufacture our products in large
volumes or at acceptable costs and may be unable to satisfy the demand of our
customers, which would reduce our market share and revenues and may harm our
reputation. The expansion of our manufacturing operations to achieve targeted
production volumes will require the successful deployment of advanced equipment
and technology utilizing manufacturing processes and components which we are
currently developing.

The success of our business and our future prospects depend upon our
distribution and marketing relationship with Kawasaki.

In December 1999, we entered into a five-year distribution and marketing
agreement with Kawasaki, under which we appointed Kawasaki our exclusive
distributor in Japan through December 2001. During the fiscal year ended
December 31, 2001, sales to Kawasaki accounted for over 20% of our product
revenues. We expect that a substantial portion of our product revenues for the
foreseeable future will continue to be derived from sales of our products to
Kawasaki. Our arrangement with Kawasaki for Kawasaki to act as our exclusive
distributor in Japan expired in December 2001. If our relationship with
Kawasaki is not successful, our sales may not increase or may decrease and our
reputation may be harmed. Any change in our relationship with Kawasaki,
including the December 2001 expiration of our arrangement with Kawasaki for
them to act as our exclusive distributor in Japan or any decision by Kawasaki
to reduce its commitment to our solar power technologies or to focus on a
different energy technology, could harm our business by reducing our potential
revenues and diminishing our market share.

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.
Through December 31, 2001, we sold our solar power products to approximately 10
distributors, system integrators and other value-added resellers. If we are
unable to successfully maintain 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 grow our business abroad.

From our inception through December 31, 2001, approximately 37% of our
product sales have been made to resellers outside North America. 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
will increase in the future, including sales made in Japan to Kawasaki. We 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
exposes us to a number of risks that we have not yet encountered due to the
limited number of products we have sold internationally. If we are unable to
effectively manage these risks, it could impair our ability to grow our
business abroad. These risks include:

23



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| |  |  | difficult and expensive compliance with the commercial and legal
requirements of international markets, with which we have only limited
experience;                                                                                   
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | inability to obtain intellectual property protection;                                                                                                                                                                                 
|
| |  |  | 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; and
|
| |  |  | difficulty of enforcing revenue collection internationally.                                                                                                                                                                           

We expect that our international sales will be generally 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. To the extent that we denominate sales in foreign
currencies, we will be exposed to increased risks of currency fluctuations.

Our strategy includes establishing local manufacturing facilities in
international markets, although we have not yet done so. As we implement our
strategy, we may encounter legal and commercial restrictions and incur taxes
and other expenses to establish our manufacturing facilities in certain
countries. In addition, we may potentially forfeit, voluntarily or
involuntarily, foreign assets due to economic or political instability in the
countries where our local manufacturing facilities are located.

Our dependence on a small number of resellers may cause significant
fluctuations or declines in our product revenues.

From our inception through December 31, 2001, our three largest resellers
accounted for approximately 75% of our product sales and our 10 largest
resellers accounted for approximately 95% of our product sales. We anticipate
that sales of our solar power products to a limited number of key resellers,
including Kawasaki, 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 significant fluctuations or declines in our product
revenues:



| |  |  | 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.                                 

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 and we may experience order cancellation 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 most 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 and/or increase their costs, particularly if we are unable to obtain
substitute sources of these materials and components on a timely basis or on
terms acceptable to us. In addition, our manufacturing processes utilize
custom-built equipment that is currently produced by a limited number of
suppliers. A suppliers failure to supply this equipment in a timely manner,
with
24

adequate quality and on terms acceptable to us could delay our capacity
expansion to our new manufacturing facility and otherwise, disrupt our
production schedule or increase our costs of production.

Our use of forecasts to manage our inventory could result in insufficient
quantities to meet reseller demand or excess inventory.

We generally do not obtain purchase orders prior to the production of our
solar power products. Instead, we rely on forecasts to determine the timing of
our production schedules and the volume of product to be manufactured. The
level and timing of orders placed by our resellers may vary for many reasons.
As a result, at any particular time, we may not have enough inventory to meet
demand or we may have excess inventory, each of which could negatively impact
our operating results. In addition, as we manufacture more solar power products
without related purchase orders, we increase our risk of loss of revenues due
to the obsolescence of products held in inventory for which we have already
incurred production costs.

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 Mark A. Farber, our
Chief Executive Officer, President and a director, or Dr. Jack I. Hanoka, our
Chief Technical Officer, or any of our other executive officers and key
employees, our business could be materially and adversely impacted. We had 145
employees as of December 31, 2001, and 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. In addition, the growing demands of our business have
created the need for additions to our management team. 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 training to our personnel than we currently anticipate.
Moreover, any officer or employee can terminate his or her relationship with us
at any time.

Our management team may not be able to successfully implement our business
strategies because it has limited experience managing a rapidly growing company
and key management positions have not been filled.

The existing members of our management team have had only limited
experience managing a rapidly growing company on either a public or private
basis. We are undergoing 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 effectively managing the budgeting, forecasting and other
process control issues presented by our rapid growth. 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.

We are likely to require additional financing and may not be able to raise
additional financing or financing on favorable terms.

We currently anticipate that our current cash, cash equivalents and
short-term investments, will be sufficient to meet our anticipated needs for
funding ongoing research and development, expanding our sales and marketing
activities, and funding our operations and general corporate purposes through
the next 12 months. We anticipate that we will need to raise additional
financing before then to fund the expansion of our Marlboro manufacturing
facility to the full 7 MW of capacity and fund operating losses. In addition,
we may need additional financing to execute our business model sooner if we
need to respond to business contingencies These contingencies may include the
need to:



| |  |  | further enhance our manufacturing and operating infrastructure;
| | - |  | ---------------------------------------------------------------
|
| |  |  | respond to competitive pressures; and                          

25



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##### 





| |  |  | 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. In addition,
if we raise additional funds through the issuance of equity or convertible debt
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.

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. A number of the largest companies in the world, including BP
Solar, which is a division of BP Amoco, Siemens Solar Group, Kyocera
Corporation, Shell Solar, a division of Royal Dutch/Shell Group of Companies
and Sharp Corporation, as well as a number of other large and small companies,
including AstroPower, Inc., have developed or are developing solar power
products that compete with ours. 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. 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 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.

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 intellectual property 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:



| |  |  | 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;                                                                                                                                                        
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | our license, but not our right, to practice the String Ribbon
technology terminates upon expiration of the underlying patents which
begin to expire in 2003 and our historical operating experience with
String Ribbon and our related patented and proprietary manufacturing
processes may not adequately protect our competitive advantage after
these patents have expired;
|
| |  |  | third parties may design around our patented technologies or seek to
challenge or invalidate our patented technologies;                                                                                                                                                                                                                                                       
|
| |  |  | we may incur significant costs and diversion of management resources
in prosecuting or defending patent infringement suits;                                                                                                                                                                                                                                                   

26



---



##### 





| |  |  | we may not be successful in prosecuting or defending patent
infringement suits and, as a result, may need to seek to obtain a
license of the third partys intellectual property rights; however, a
license may not be available to us or may not be available to us on
commercially reasonable terms; and   
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | 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 disclosed to the public.

Existing regulations and changes resulting from electric utility deregulation
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
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.

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. Any new government
regulations or utility policies pertaining to our solar power products may
result in significant additional expenses to us, 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 sales 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, which could cause our sales 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 our key markets is off-grid solar power applications to developed
and developing countries. In some developing countries, government agencies and
the private sector have provided from time to time 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
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
27

complement and enhance our own resources. The percentage of our total
revenues derived from government-related contracts was approximately 38% for
the fiscal year ended December 31, 2001. We currently have one active research
contract with total estimated revenues of approximately $2.0 million, $1.35
million of which has been authorized by the sponsoring agency and $629,200 of
which has been recorded as revenue as of December 31, 2001. The remaining $1.4
million of revenue will be recognized over the remaining life of the contract,
which expires on October 31, 2003. 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 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 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. 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, or to meet requirements of federal regulations, or to
give 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 inadvertent
noncompliance may result in adverse publicity and potentially significant
monetary damages and fines.

We are required to comply with all 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. In addition, under some 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 warranty claims could reduce our profitability.

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. We expect that it may be necessary to further
increase our warranty to remain consistent with competitor offerings. Our
current standard product warranty includes a one or two-year warranty period
for defects in material and workmanship and a 20-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.

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 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
28

obtained separate product liability insurance. If our insurance protection
is inadequate, the successful assertion of product liability claims against us
could result in potentially significant monetary damages.

RISKS ASSOCIATED WITH THE MARKET FOR OUR COMMON STOCK

Our officers and directors control 19% of our common stock and may be able to
significantly influence corporate actions.

As of March 11, 2002, our executive officers, directors and entities
affiliated with them controlled approximately 19% of our common 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 price of our common stock may be volatile.

The stock 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. 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. 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.

The large number of shares eligible for public sale could cause our stock price
to decline.

The market price of our common stock could decline a result of sales by
our existing stockholders of a large number of shares of our common stock in
the market or the perception that these sales could occur. These sales also
might make it more difficult for us to sell equity securities in the future at
a time and price that we deem appropriate.

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, our by-laws and 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, which 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.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK:

INTEREST RATE RISK

We do not use derivative financial instruments. We generally place our
marketable security investments in high credit quality instruments. We do not
expect any material loss from our marketable security investments and therefore
believe that our potential interest rate exposure is not material.

FOREIGN CURRENCY EXCHANGE RATE RISK

All of our sales are denominated in United States dollars. Accordingly, we have
not been materially exposed to fluctuations in currency exchange rates. As we
expand our manufacturing operations and distribution network internationally,
our exposure to fluctuations in currency exchange rates may increase.

29



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##### 



ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA:

The Companys Financial Statements and related Notes and Report of Independent
Accountants 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:

Not applicable.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT:

The information required under this item may be found under the sections
captioned Election of Directors, Occupations of Directors and Executive
Officers, and Section 16(a) Beneficial Ownership Reporting Compliance in our
Proxy Statement (the 2001 Proxy Statement), which will be filed with the
Securities and Exchange Commission not later than 120 days after the close of
our fiscal year ended December 31, 2001, and is incorporated herein by
reference.

ITEM 11. EXECUTIVE COMPENSATION:

The information required under this item may be found under the section
captioned Compensation and Other Information Concerning Directors and
Officers in the 2001 Proxy Statement, and is incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT:

The information required under this item may be found under the section
captioned Securities Ownership of Certain Beneficial Owners and Management in
the 2001 Proxy Statement, 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 2001 Proxy Statement,
and is incorporated herein by reference.

30



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##### 



PART IV

ITEM 14. 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 34 of this Annual Report on
Form 10-K.

2. Financial Statement Schedules. Schedule II  Valuation and Qualifying
Accounts appears on page 47 of this Annual Report on Form 10-K.

3. Exhibits. The following exhibits:

|          |  |                                                                                                                                          
|--------- |  | -----------------------------------------------------------------------------------------------------------------------------------------
|Exhibit   |  |                                                                                                                                          
|Number    |  | Description                                                                                                                              
|3.1 (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)                                                                     
|         
|         
|         
|         
|10.1 (1)* |  | 1994 Stock Option Plan. (Exhibit 10.1)                                                                                                   
|         
|         
|         
|         
|10.2 (1)* |  | 2000 Stock Option and Incentive Plan. (Exhibit 10.2)                                                                                     
|         
|         
|         
|         
|10.3 (1)* |  | 2000 Employee Stock Purchase Plan. (Exhibit 10.3)                                                                                        
|         
|         
|         
|         
|10.4 (1)  |  | Lease between Registrant and 211 Second Avenue Realty L.P. dated as of September 15, 1995, as
amended. (Exhibit 10.4)                    
|         
|         
|         
|         
|10.5 (1)  |  | Lease Agreement between Registrant W9/TIB Real Estate Limited Partnership dated as of January 31,
2000, as amended (Exhibit 10.5)        
|         
|         
|         
|         
|10.6 (1)+ |  | Distribution and Marketing Agreement between Registrant and Kawasaki Heavy Industries, Ltd.
dated as of December 24, 1999. (Exhibit 10.6)
|         
|         
|         
|         
|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)                    
|         
|         
|         
|         
|21.1      |  | Subsidiaries of the Registrant. (filed herewith)                                                                                         
|         
|         
|         
|         
|23.1      |  | Consent of PricewaterhouseCoopers LLP, independent accountants. (filed herewith)                                                         
|         
|         
|         
|         
|24.1      |  | Power of Attorney. (included on Page II-2)                                                                                               



---

|+ |  | Confidential treatment granted as to certain portions.                        
|- |  | ------------------------------------------------------------------------------
| 
| 
| 
| 
|* |  | Indicates a management contract or compensatory plan, contract or
arrangement.



|(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.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

(b)  Reports on Form 8-K:

No reports on Form 8-K were filed during the fiscal quarter ended December
31, 2001.

(c)  Exhibits:

The Company hereby files as part of this Annual Report on Form 10-K the
exhibits listed in Item 14(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 Website 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.

31



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##### 



INDEX TO FINANCIAL STATEMENTS

|                                                                                                               |  |      |    | 
|-------------------------------------------------------------------------------------------------------------- |  | ---- | -- | 
|                                                                                                               |  | Page
|Report of Independent Accountants                                                                              |  |      | 33 | 
|                                                                                                              
|                                                                                                              
|                                                                                                              
|                                                                                                              
|Consolidated Balance Sheets as of December 31, 2000 and 2001                                                   |  |      | 34 | 
|                                                                                                              
|                                                                                                              
|                                                                                                              
|                                                                                                              
|Consolidated Statements of Operations for the years ended December 31, 1999, 2000 and 2001                     |  |      | 35 | 
|                                                                                                              
|                                                                                                              
|                                                                                                              
|                                                                                                              
|Consolidated Statements of Stockholders Equity (Deficit) for the years ended December 31, 1999,
2000 and 2001 |  |      | 36 | 
|                                                                                                              
|                                                                                                              
|                                                                                                              
|                                                                                                              
|Consolidated Statements of Cash Flows for the years ended December 31, 1999, 2000 and 2001                     |  |      | 37 | 
|                                                                                                              
|                                                                                                              
|                                                                                                              
|                                                                                                              
|Notes to Financial Statements                                                                                  |  |      | 38 | 
|                                                                                                              
|                                                                                                              
|                                                                                                              
|                                                                                                              
|Schedule II  Valuation and Qualifying Accounts                                                                |  |      | 47 | 

32



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##### 



REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of Evergreen Solar, Inc.:

In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of stockholders equity (deficit), and
of cash flows present fairly, in all material respects, the financial position
of Evergreen Solar, Inc. and its subsidiary at December 31, 2001 and 2000, and
the results of their operations and their cash flows for each of the three
years in the period ended December 31, 2001, 2000 and 1999 in conformity with
accounting principles generally accepted in the United States of America. In
addition, in our opinion, the financial statement schedule listed in the index
appearing under Item 14(a) on page 30 presents fairly, in all material
respects, the information set forth therein when read in conjunction with the
consolidated financial statements. These financial statements and financial
statement schedule 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 audit of these statements in accordance with
auditing standards generally accepted in the United States of America, which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, 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.

PricewaterhouseCoopers LLP

Boston, Massachusetts
January 22, 2002

33



---



##### 



EVERGREEN SOLAR, INC.
CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2000 AND 2001
(IN THOUSANDS, EXCEPT SHARE DATA)

|                                                                                                                                                     |  |              |         |              |  |   |         |  
|---------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------ | ------- | ------------ |  | - | ------- | -
|                                                                                                                                                     |  | December 31, |         | December 31,
|                                                                                                                                                     |  | 2000         |         | 2001        
|                                                                                                                                                     |  |              |         |              |  |   |         |  
|Assets                                                                                                                                               |  |              |         |              |  |   |         |  
|                                                                                                                                                    
|                                                                                                                                                    
|                                                                                                                                                    
|                                                                                                                                                    
|Current assets:                                                                                                                                      |  |              |         |              |  |   |         |  
|                                                                                                                                                    
|                                                                                                                                                    
|                                                                                                                                                    
|                                                                                                                                                    
|Cash and cash equivalents                                                                                                                            |  | $            | 13,171  |              |  | $ | 2,554   |  
|                                                                                                                                                    
|                                                                                                                                                    
|                                                                                                                                                    
|                                                                                                                                                    
|Short-term investments                                                                                                                               |  |              | 32,823  |              |  |   | 23,709  |  
|                                                                                                                                                    
|                                                                                                                                                    
|                                                                                                                                                    
|                                                                                                                                                    
|Accounts receivable, net of allowance for doubtful accounts of $13
at December 31,
2000 and 2001                                                     |  |              | 850     |              |  |   | 488     |  
|                                                                                                                                                    
|                                                                                                                                                    
|                                                                                                                                                    
|                                                                                                                                                    
|Unbilled grant receivable                                                                                                                            |  |              | 99      |              |  |   |        |  
|                                                                                                                                                    
|                                                                                                                                                    
|                                                                                                                                                    
|                                                                                                                                                    
|Interest receivable                                                                                                                                  |  |              | 200     |              |  |   | 389     |  
|                                                                                                                                                    
|                                                                                                                                                    
|                                                                                                                                                    
|                                                                                                                                                    
|Inventory                                                                                                                                            |  |              | 408     |              |  |   | 999     |  
|                                                                                                                                                    
|                                                                                                                                                    
|                                                                                                                                                    
|                                                                                                                                                    
|Other current assets                                                                                                                                 |  |              | 145     |              |  |   | 258     |  
|                                                                                                                                                     |  |              |         |              |  |   |         |  
|Total current assets                                                                                                                                 |  |              | 47,696  |              |  |   | 28,397  |  
|                                                                                                                                                    
|                                                                                                                                                    
|                                                                                                                                                    
|                                                                                                                                                    
|Restricted cash                                                                                                                                      |  |              | 464     |              |  |   | 464     |  
|                                                                                                                                                    
|                                                                                                                                                    
|                                                                                                                                                    
|                                                                                                                                                    
|Fixed assets, net                                                                                                                                    |  |              | 7,623   |              |  |   | 16,000  |  
|                                                                                                                                                     |  |              |         |              |  |   |         |  
|Total assets                                                                                                                                         |  | $            | 55,783  |              |  | $ | 44,861  |  
|                                                                                                                                                     |  |              |         |              |  |   |         |  
|Liabilities
and stockholders equity                                                                                                                 |  |              |         |              |  |   |         |  
|                                                                                                                                                    
|                                                                                                                                                    
|                                                                                                                                                    
|                                                                                                                                                    
|Current liabilities:                                                                                                                                 |  |              |         |              |  |   |         |  
|                                                                                                                                                    
|                                                                                                                                                    
|                                                                                                                                                    
|                                                                                                                                                    
|Accounts payable                                                                                                                                     |  | $            | 661     |              |  | $ | 858     |  
|                                                                                                                                                    
|                                                                                                                                                    
|                                                                                                                                                    
|                                                                                                                                                    
|Accrued employee compensation                                                                                                                        |  |              | 462     |              |  |   | 514     |  
|                                                                                                                                                    
|                                                                                                                                                    
|                                                                                                                                                    
|                                                                                                                                                    
|Accrued initial public offering financing costs                                                                                                      |  |              | 225     |              |  |   |        |  
|                                                                                                                                                    
|                                                                                                                                                    
|                                                                                                                                                    
|                                                                                                                                                    
|Other accrued expenses                                                                                                                               |  |              | 244     |              |  |   | 296     |  
|                                                                                                                                                    
|                                                                                                                                                    
|                                                                                                                                                    
|                                                                                                                                                    
|Accrued warranty                                                                                                                                     |  |              | 48      |              |  |   | 138     |  
|                                                                                                                                                     |  |              |         |              |  |   |         |  
|Total current liabilities                                                                                                                            |  |              | 1,640   |              |  |   | 1,806   |  
|                                                                                                                                                    
|                                                                                                                                                    
|                                                                                                                                                    
|                                                                                                                                                    
|Stockholders equity:                                                                                                                                |  |              |         |              |  |   |         |  
|                                                                                                                                                    
|                                                                                                                                                    
|                                                                                                                                                    
|                                                                                                                                                    
|Preferred stock; $.01 par value, 1,000,000 shares authorized,
no shares issued or outstanding at December 31, 2000 and 2001, respectively            |  |              |        |              |  |   |        |  
|                                                                                                                                                    
|                                                                                                                                                    
|                                                                                                                                                    
|                                                                                                                                                    
|Common stock, $.01 par value, 30,000,000 shares authorized,
11,170,327 and 11,397,947 issued and outstanding at December 2000 and 2001, respectively |  |              | 111     |              |  |   | 114     |  
|                                                                                                                                                    
|                                                                                                                                                    
|                                                                                                                                                    
|                                                                                                                                                    
|Additional paid-in capital                                                                                                                           |  |              | 70,671  |              |  |   | 71,498  |  
|                                                                                                                                                    
|                                                                                                                                                    
|                                                                                                                                                    
|                                                                                                                                                    
|Other comprehensive income                                                                                                                           |  |              |        |              |  |   | 249     |  
|                                                                                                                                                    
|                                                                                                                                                    
|                                                                                                                                                    
|                                                                                                                                                    
|Accumulated deficit:                                                                                                                                 |  |              |         |              |  |   |         |  
|                                                                                                                                                    
|                                                                                                                                                    
|                                                                                                                                                    
|                                                                                                                                                    
|Cumulative net loss since inception                                                                                                                  |  |              | (15,680 | )            |  |   | (28,157 | )
|                                                                                                                                                    
|                                                                                                                                                    
|                                                                                                                                                    
|                                                                                                                                                    
|Deferred compensation                                                                                                                                |  |              | (959    | )            |  |   | (649    | )
|                                                                                                                                                     |  |              |         |              |  |   |         |  
|Total stockholders equity                                                                                                                           |  |              | 54,143  |              |  |   | 43,055  |  
|                                                                                                                                                    
|                                                                                                                                                    
|                                                                                                                                                    
|                                                                                                                                                    
|Total liabilities and stockholders equity                                                                                                           |  | $            | 55,783  |              |  | $ | 44,861  |  
|                                                                                                                                                     |  |              |         |              |  |   |         |  

The accompanying notes are an integral part of these consolidated financial statements.

34



---



##### 



EVERGREEN SOLAR, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)

|                                                                                                                                                                                                      |  |                         |        |      |  |      |        |   |  |   |         |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------- | ------ | ---- |  | ---- | ------ | - |  | - | ------- | -
|                                                                                                                                                                                                      |  | Year Ended December 31,
|                                                                                                                                                                                                      |  |                        
|                                                                                                                                                                                                      |  | 1999                    |        | 2000 |  | 2001
|                                                                                                                                                                                                      |  |                         |        |      |  |      |        |   |  |   |         |  
|Revenues:                                                                                                                                                                                             |  |                         |        |      |  |      |        |   |  |   |         |  
|                                                                                                                                                                                                     
|                                                                                                                                                                                                     
|                                                                                                                                                                                                     
|                                                                                                                                                                                                     
|Product revenues                                                                                                                                                                                      |  | $                       | 189    |      |  | $    | 419    |   |  | $ | 1,546   |  
|                                                                                                                                                                                                     
|                                                                                                                                                                                                     
|                                                                                                                                                                                                     
|                                                                                                                                                                                                     
|Research revenues                                                                                                                                                                                     |  |                         | 2,113  |      |  |      | 1,753  |   |  |   | 932     |  
|                                                                                                                                                                                                      |  |                         |        |      |  |      |        |   |  |   |         |  
|                                                                                                                                                                                                     
|                                                                                                                                                                                                     
|                                                                                                                                                                                                     
|                                                                                                                                                                                                     
|Total revenues                                                                                                                                                                                        |  |                         | 2,302  |      |  |      | 2,172  |   |  |   | 2,478   |  
|                                                                                                                                                                                                     
|                                                                                                                                                                                                     
|                                                                                                                                                                                                     
|                                                                                                                                                                                                     
|Operating expenses:                                                                                                                                                                                   |  |                         |        |      |  |      |        |   |  |   |         |  
|                                                                                                                                                                                                     
|                                                                                                                                                                                                     
|                                                                                                                                                                                                     
|                                                                                                                                                                                                     
|Cost of product revenues (excluding stock-based compensation of $0, $38, and $72 for
the years ended December 31, 1999, 2000, and 2001, respectively)                                                 |  |                         | 991    |      |  |      | 2,757  |   |  |   | 9,577   |  
|                                                                                                                                                                                                     
|                                                                                                                                                                                                     
|                                                                                                                                                                                                     
|                                                                                                                                                                                                     
|Research and development expenses, including cost of research revenues
(excluding stock-based compensation of $3, $116, and $147 for the years ended
December 31, 1999, 2000, and 2001, respectively) |  |                         | 3,085  |      |  |      | 3,266  |   |  |   | 2,916   |  
|                                                                                                                                                                                                     
|                                                                                                                                                                                                     
|                                                                                                                                                                                                     
|                                                                                                                                                                                                     
|Selling, general and administrative expenses (excluding stock-based compensation
of $15, $140, and $71 for the years ended December 31, 1999, 2000, and 2001, respectively)                           |  |                         | 1,303  |      |  |      | 2,365  |   |  |   | 4,017   |  
|                                                                                                                                                                                                     
|                                                                                                                                                                                                     
|                                                                                                                                                                                                     
|                                                                                                                                                                                                     
|Stock-based compensation expense                                                                                                                                                                      |  |                         | 18     |      |  |      | 294    |   |  |   | 290     |  
|                                                                                                                                                                                                      |  |                         |        |      |  |      |        |   |  |   |         |  
|Total operating expenses                                                                                                                                                                              |  |                         | 5,397  |      |  |      | 8,682  |   |  |   | 16,800  |  
|                                                                                                                                                                                                     
|                                                                                                                                                                                                     
|                                                                                                                                                                                                     
|                                                                                                                                                                                                     
|Operating income (loss)                                                                                                                                                                               |  |                         | (3,095 | )    |  |      | (6,510 | ) |  |   | (14,322 | )
|                                                                                                                                                                                                     
|                                                                                                                                                                                                     
|                                                                                                                                                                                                     
|                                                                                                                                                                                                     
|Interest income                                                                                                                                                                                       |  |                         | 163    |      |  |      | 1,305  |   |  |   | 1,845   |  
|                                                                                                                                                                                                      |  |                         |        |      |  |      |        |   |  |   |         |  
|Net income (loss)                                                                                                                                                                                     |  |                         | (2,932 | )    |  |      | (5,205 | ) |  |   | (12,477 | )
|                                                                                                                                                                                                     
|                                                                                                                                                                                                     
|                                                                                                                                                                                                     
|                                                                                                                                                                                                     
|Accretion of redeemable convertible preferred stock                                                                                                                                                   |  |                         | (1,231 | )    |  |      | (2,283 | ) |  |   |        |  
|                                                                                                                                                                                                      |  |                         |        |      |  |      |        |   |  |   |         |  
|Net income (loss) attributable to common stockholders                                                                                                                                                 |  | $                       | (4,163 | )    |  | $    | (7,488 | ) |  | $ | (12,477 | )
|                                                                                                                                                                                                      |  |                         |        |      |  |      |        |   |  |   |         |  
|Other comprehensive income (loss):                                                                                                                                                                    |  |                         |        |      |  |      |        |   |  |   |         |  
|                                                                                                                                                                                                     
|                                                                                                                                                                                                     
|                                                                                                                                                                                                     
|                                                                                                                                                                                                     
|Unrealized gain on investments                                                                                                                                                                        |  |                         |       |      |  |      |       |   |  |   | 249     |  
|                                                                                                                                                                                                      |  |                         |        |      |  |      |        |   |  |   |         |  
|Comprehensive income (loss) attributable to common stockholders                                                                                                                                       |  | $                       | (4,163 | )    |  | $    | (7,488 | ) |  | $ | (12,228 | )
|                                                                                                                                                                                                      |  |                         |        |      |  |      |        |   |  |   |         |  
|Net income (loss) per common share (basic and diluted)                                                                                                                                                |  | $                       | (5.18  | )    |  | $    | (2.96  | ) |  | $ | (1.10   | )
|                                                                                                                                                                                                     
|                                                                                                                                                                                                     
|                                                                                                                                                                                                     
|                                                                                                                                                                                                     
|Weighted average shares used in computing basic and diluted
net income (loss) per common share                                                                                                        |  |                         | 803    |      |  |      | 2,530  |   |  |   | 11,304  |  

The accompanying notes are an integral part of these consolidated financial statements.

35



---



##### 



EVERGREEN SOLAR, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIT)
(IN THOUSANDS)

| |                                                           |  |              |        |            |  |          |     |              |  |           |        |               |  |               |      |                  |  |                     |         |            |  |              |        |   |  |   |     |  |  |   |         |  
| | --------------------------------------------------------- |  | ------------ | ------ | ---------- |  | -------- | --- | ------------ |  | --------- | ------ | ------------- |  | ------------- | ---- | ---------------- |  | ------------------- | ------- | ---------- |  | ------------ | ------ | - |  | - | --- |  |  | - | ------- | -
| |                                                           |  |              |        |            |  |          |     |              |  |           |        |               |  |               |      |                  |  | Accumulated Deficit |         |            |  |              |        |   |  |  
| |                                                           |  |              |        |            |  |          |     |              |  |           |        |               |  |               |      |                  |  |                     |         |            |  |              |        |   |  |  
| |                                                           |  |              |        |            |  |          |     |              |  |           |        |               |  |               |      |                  |  |                     |         |            |  | Accretion of |        |   |  |   |     |  |  |  
| |                                                           |  |              |        |            |  |          |     |              |  |           |        |               |  |               |      |                  |  | Cumulative          |         | Redeemable |  |              |        |   |  |   |     | 
| |                                                           |  | Common Stock |        | Additional |  |          |     |              |  | Net Loss  |        | Convertible   |  | Other         |      | Total           
| |                                                           |  |              |        | Paid-In    |  | Deferred |     | Since        |  | Preferred |        | Comprehensive |  | Shareholders
| |                                                           |  | Shares       |        | Amount     |  | Capital  |     | Compensation |  | Inception |        | Stock         |  | Income        |      | Equity (Deficit)
| |                                                           |  |              |        |            |  |          |     |              |  |           |        |               |  |               |      |                 
| | Balance at December 31, 1998                              |  |              | 803    |            |  | $        | 8   |              |  | $         | 82     |               |  | $             |     |                  |  | $                   | (7,543  | )          |  | $            | (1,904 | ) |  | $ |    |  |  | $ | (9,357  | )
|
|
|
|
| | Deferred compensation                                     |  |              |        |            |  |          |     |              |  |           | 318    |               |  |               | (318 | )                |  |                     |         |            |  |              |        |   |  |   |     |  |  |   |        |  
|
|
|
|
| | Compensation expense associated with stock options        |  |              |        |            |  |          |     |              |  |           |        |               |  |               | 18   |                  |  |                     |         |            |  |              |        |   |  |   |     |  |  |   | 18      |  
|
|
|
|
| | Accretion of redeemable convertible preferred stock       |  |              |        |            |  |          |     |              |  |           |        |               |  |               |      |                  |  |                     |         |            |  |              | (1,231 | ) |  |   |     |  |  |   | (1,231  | )
|
|
|
|
| | Net loss                                                  |  |              |        |            |  |          |     |              |  |           |        |               |  |               |      |                  |  |                     | (2,932  | )          |  |              |        |   |  |   |     |  |  |   | (2,932  | )
| |                                                           |  |              |        |            |  |          |     |              |  |           |        |               |  |               |      |                  |  |                     |         |            |  |              |        |   |  |   |     |  |  |   |         |  
| | Balance at December 31, 1999                              |  |              | 803    |            |  |          | 8   |              |  |           | 400    |               |  |               | (300 | )                |  |                     | (10,475 | )          |  |              | (3,135 | ) |  |   |    |  |  |   | (13,502 | )
|
|
|
|
| | Issuance of common stock pursuant to IPO                  |  |              | 3,000  |            |  |          | 30  |              |  |           | 37,737 |               |  |               |      |                  |  |                     |         |            |  |              |        |   |  |   |     |  |  |   | 37,767  |  
|
|
|
|
| | Issuance of common stock pursuant to exercise of options  |  |              | 119    |            |  |          | 1   |              |  |           | 102    |               |  |               |      |                  |  |                     |         |            |  |              |        |   |  |   |     |  |  |   | 103     |  
|
|
|
|
| | Issuance and revaluation of stock options to consultants  |  |              |        |            |  |          |     |              |  |           | 176    |               |  |               |      |                  |  |                     |         |            |  |              |        |   |  |   |     |  |  |   | 176     |  
|
|
|
|
| | Deferred compensation                                     |  |              |        |            |  |          |     |              |  |           | 953    |               |  |               | (953 | )                |  |                     |         |            |  |              |        |   |  |   |     |  |  |   |        |  
|
|
|
|
| | Compensation expense associated with stock options        |  |              |        |            |  |          |     |              |  |           |        |               |  |               | 294  |                  |  |                     |         |            |  |              |        |   |  |   |     |  |  |   | 294     |  
|
|
|
|
| | Conversion of preferred to common                         |  |              | 7,248  |            |  |          | 72  |              |  |           | 31,303 |               |  |               |      |                  |  |                     |         |            |  |              | 5,418  |   |  |   |     |  |  |   | 36,793  |  
|
|
|
|
| | Accretion of redeemable convertible preferred stock       |  |              |        |            |  |          |     |              |  |           |        |               |  |               |      |                  |  |                     |         |            |  |              | (2,283 | ) |  |   |     |  |  |   | (2,283  | )
|
|
|
|
| | Net loss                                                  |  |              |        |            |  |          |     |              |  |           |        |               |  |               |      |                  |  |                     | (5,205  | )          |  |              |        |   |  |   |     |  |  |   | (5,205  | )
| |                                                           |  |              |        |            |  |          |     |              |  |           |        |               |  |               |      |                  |  |                     |         |            |  |              |        |   |  |   |     |  |  |   |         |  
| | Balance at December 31, 2000                              |  |              | 11,170 |            |  |          | 111 |              |  |           | 70,671 |               |  |               | (959 | )                |  |                     | (15,680 | )          |  |              |       |   |  |   |    |  |  |   | 54,143  |  
|
|
|
|
| | Issuance of common stock pursuant to exercise of options  |  |              | 19     |            |  |          | 1   |              |  |           | 11     |               |  |               |      |                  |  |                     |         |            |  |              |        |   |  |   |     |  |  |   | 12      |  
|
|
|
|
| | Issuance of common stock pursuant to exercise of warrants |  |              | 209    |            |  |          | 2   |              |  |           | 798    |               |  |               |      |                  |  |                     |         |            |  |              |        |   |  |   |     |  |  |   | 800     |  
|
|
|
|
| | Compensation expense associated with stock options        |  |              |        |            |  |          |     |              |  |           | 37     |               |  |               | 290  |                  |  |                     |         |            |  |              |        |   |  |   |     |  |  |   | 327     |  
|
|
|
|
| | Terminated options                                        |  |              |        |            |  |          |     |              |  |           | (20    | )             |  |               | 20   |                  |  |                     |         |            |  |              |        |   |  |   |     |  |  |   | 1       |  
|
|
|
|
| | Other comprehensive income                                |  |              |        |            |  |          |     |              |  |           |        |               |  |               |      |                  |  |                     |         |            |  |              |        |   |  |   | 249 |  |  |   | 249     |  
|
|
|
|
| | Net loss                                                  |  |              |        |            |  |          |     |              |  |           |        |               |  |               |      |                  |  |                     | (12,477 | )          |  |              |        |   |  |   |     |  |  |   | (12,477 | )
| |                                                           |  |              |        |            |  |          |     |              |  |           |        |               |  |               |      |                  |  |                     |         |            |  |              |        |   |  |   |     |  |  |   |         |  
| | Balance at December 31, 2001                              |  |              | 11,398 |            |  | $        | 114 |              |  | $         | 71,498 |               |  | $             | (649 | )                |  | $                   | (28,157 | )          |  | $            |       |   |  | $ | 249 |  |  | $ | 43,055  |  
| |                                                           |  |              |        |            |  |          |     |              |  |           |        |               |  |               |      |                  |  |                     |         |            |  |              |        |   |  |   |     |  |  |   |         |  

The accompanying notes are an integral part of these consolidated financial statements.

36



---



##### 



EVERGREEN SOLAR, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

|                                                                                     |  |                         |         |      |  |      |         |   |  |   |         |  
|------------------------------------------------------------------------------------ |  | ----------------------- | ------- | ---- |  | ---- | ------- | - |  | - | ------- | -
|                                                                                     |  | Year Ended December 31,
|                                                                                     |  |                        
|                                                                                     |  | 1999                    |         | 2000 |  | 2001
|Cash flows for operating activities:                                                 |  |                         |         |      |  |      |         |   |  |   |         |  
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                    
|Net loss                                                                             |  | $                       | (2,932  | )    |  | $    | (5,205  | ) |  | $ | (12,477 | )
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                    
|Adjustments to reconcile net income (loss) to net
cash used in operating activities: |  |                         |         |      |  |      |         |   |  |   |         |  
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                    
|Depreciation expense                                                                 |  |                         | 246     |      |  |      | 286     |   |  |   | 1,003   |  
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                    
|Compensation expense associated with employee stock options                          |  |                         | 18      |      |  |      | 294     |   |  |   | 290     |  
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                    
|Issuance and revaluation of stock options to consultants                             |  |                         |        |      |  |      | 176     |   |  |   | 37      |  
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                    
|Changes in operating assets and liabilities:                                         |  |                         |         |      |  |      |         |   |  |   |         |  
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                    
|Inventory and other current                                                          |  |                         | (212    | )    |  |      | (294    | ) |  |   | (704    | )
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                    
|Interest receivable                                                                  |  |                         |        |      |  |      |        |   |  |   | (189    | )
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                    
|Accounts receivable                                                                  |  |                         | (26     | )    |  |      | (554    | ) |  |   | 461     |  
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                    
|Accounts payable and accrued expenses                                                |  |                         | 291     |      |  |      | 1,113   |   |  |   | 166     |  
|                                                                                     |  |                         |         |      |  |      |         |   |  |   |         |  
|Net cash used in operating activities                                                |  |                         | (2,615  | )    |  |      | (4,184  | ) |  |   | (11,413 | )
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                    
|Cash flow for investing activities:                                                  |  |                         |         |      |  |      |         |   |  |   |         |  
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                    
|Purchases of fixed assets                                                            |  |                         | (383    | )    |  |      | (7,100  | ) |  |   | (9,380  | )
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                    
|Purchases of investments                                                             |  |                         | (16,809 | )    |  |      | (38,423 | ) |  |   | (87,041 | )
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                    
|Proceeds from sale and maturity of investments                                       |  |                         | 8,463   |      |  |      | 18,389  |   |  |   | 96,405  |  
|                                                                                     |  |                         |         |      |  |      |         |   |  |   |         |  
|Net cash used in investing activities                                                |  |                         | (8,729  | )    |  |      | (27,134 | ) |  |   | (16     | )
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                    
|Cash flow from financing activities:                                                 |  |                         |         |      |  |      |         |   |  |   |         |  
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                    
|Restricted cash                                                                      |  |                         |        |      |  |      | (464    | ) |  |   |        |  
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                    
|Proceeds from issuance of Redeemable Convertible Preferred Stock                     |  |                         | 12,648  |      |  |      | 5,617   |   |  |   |        |  
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                    
|Proceeds from the issuance of common stock for IPO                                   |  |                         |        |      |  |      | 37,767  |   |  |   |        |  
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                    
|Proceeds from the exercise of stock options and warrants                             |  |                         |        |      |  |      | 103     |   |  |   | 812     |  
|                                                                                     |  |                         |         |      |  |      |         |   |  |   |         |  
|Net cash flow provided by financing activities                                       |  |                         | 12,648  |      |  |      | 43,023  |   |  |   | 812     |  
|                                                                                     |  |                         |         |      |  |      |         |   |  |   |         |  
|Net (decrease) increase in cash and cash equivalents                                 |  |                         | 1,304   |      |  |      | 11,705  |   |  |   | (10,617 | )
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                    
|Cash and cash equivalents at beginning of period                                     |  |                         | 162     |      |  |      | 1,466   |   |  |   | 13,171  |  
|                                                                                     |  |                         |         |      |  |      |         |   |  |   |         |  
|Cash and cash equivalents at end of period                                           |  | $                       | 1,466   |      |  | $    | 13,171  |   |  | $ | 2,554   |  
|                                                                                     |  |                         |         |      |  |      |         |   |  |   |         |  
|Supplemental cash flow information:                                                  |  |                         |         |      |  |      |         |   |  |   |         |  
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                    
|Taxes paid                                                                           |  |                         | 5       |      |  |      | 6       |   |  |   | 50      |  
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                    
|Non-cash transactions:                                                               |  |                         |         |      |  |      |         |   |  |   |         |  
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                    
|Deferred compensation                                                                |  |                         | 318     |      |  |      | 953     |   |  |   |        |  
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                    
|Termination of stock options                                                         |  |                         |        |      |  |      |        |   |  |   | 20      |  

The accompanying notes are an integral part of these consolidated financial statements.

37



---



##### 



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. In November 2000, the
Company completed an initial public offering of 3,000,000 common shares at
$14.00 per share. After deducting underwriting commissions and other offering
expenses totaling $4.3 million, the Company received $37.7 million from this
offering. In the opinion of management, the Company may need to raise
additional financing to permit the required investment in equipment,
materials and resources necessary to further develop and commercialize the
Companys products. However, no assurances can be provided that such
financing will be available when needed or on terms acceptable to the
Company, if at all.
|
| | 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. In addition, in April 2001, the Company relocated
into new headquarters and manufacturing space. 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.
Certain previously reported amounts may have been reclassified to conform to
the current method of presentation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| | BASIS OF PRESENTATION                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| | The consolidated financial statements include the accounts of the Companys
wholly owned subsidiary, Evergreen Securities, Inc. All material intercompany
accounts and transactions have been eliminated.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| | ACCOUNTING ESTIMATES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|
| | The preparation of consolidated financial statements requires the Company to
make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosure of contingent
assets and liabilities. On an on-going basis, the Company evaluates its
estimates, including those related to bad debts, inventories, investments,
and warranty obligations. The Company bases its 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.
|
| | REVERSE STOCK SPLIT                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| | In September 2000, the Companys board of directors declared a reverse stock
split of 1 share for every 2.165 shares of common stock then outstanding. The
reverse stock split became effective at the date the Companys registration
statement for its initial public offering was declared effective.
Accordingly, the accompanying financial statements and footnotes have been
restated to reflect the stock split.                                                                                                                                                                                                                                                                                                                                                                                                  
|
| | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

38



---



##### 





| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Companys investments are classified as available-for-sale. At December
31, 2000 and 2001 the Company held US government agency bonds, treasury
notes, municipal bonds, corporate bonds and commercial paper. The
investments generally mature within one year from the date of purchase and
are carried at amortized cost, on a specific identification basis, which
approximates fair value. There were realized and unrealized gains or losses
recognized 2001.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|
| | Cash and investments are financial instruments, which potentially subject the
Company to concentrations of credit risk.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| | INVENTORY                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|
| | Inventory is stated at the lower of cost (determined on a first-in, first-out
basis) or market.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| | 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.                                                                                                                                                                                                                                                                                                                                                                                      
|
| | IMPAIRMENT OF LONG-LIVED ASSETS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| | The Company evaluates the recoverability of its long-lived assets, primarily
fixed assets, in accordance with Statement of Financial Accounting Standards
No. 121 Accounting for the Impairment of Long-Lived Assets to be Disposed
of. SFAS 121 requires recognition of impairment of long-lived assets in the
event the net book value of such assets exceeds the estimated future
undiscounted cash flows attributable to such assets. No impairments were
required to be recognized during the years ended December 31, 1999, 2000 and
2001.                                                                                                                                                                                                                                                                                                                                                                                                       
|
| | REVENUE RECOGNITION                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|
| | The Companys revenue recognition policy complies with SAB 101. Research
revenues are recognized as the services are performed on the percentage of
completion method based on the ratio that total cost incurred to date bears
to total estimated cost at completion. The Company recognizes revenue when
persuasive evidence of an arrangement exists, delivery has occurred, the
sales price is fixed or determinable and collectibility is probable. At the
time revenue is recognized, the Company provides for the estimated cost of
product warranties and reduces revenue for estimated product returns.
Unbilled grant receivable relates to work that has recently been performed
for which no invoice has been made as of period end. 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                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| | All research and development costs are 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.                                                                                                                                                                                                                                                                                                                            

39



---



##### 





| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | COMPREHENSIVE INCOME                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|
| | The Company adopted SFAS No. 130, Reporting Comprehensive Income, effective
January 1, 1998. Comprehensive income consists of unrealized gains on
available-for-sale securities, which totaled $0 and $249,000
in 2000 and 2001, respectively, and is reflected in the Companys
Consolidated Statement of Operations and the Consolidated Statement of
Shareholders Equity.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| | STOCK-BASED COMPENSATION                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|
| | The Company applies the accounting provisions of Accounting Principles Board
(APB) Opinion 25 and related interpretations and has elected the
disclosure-only alternative permitted under Statement of Financial Accounting
Standards Board (SFAS) No. 123, Accounting for Stock-Based Compensation.
The Company has disclosed herein pro forma net income (loss) in the footnotes
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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|
| | NET INCOME (LOSS) PER COMMON SHARE                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| | The Company computes net income (loss) per common share by dividing net
income (loss) attributable to common stockholders by the weighted average
number of common shares outstanding. The calculation of diluted net income
(loss) per common share for the years ended December 31, 1999, 2000 and 2001
does not include 7,346,308, 8,574,695 and 1,525,246 potential shares of
common stock equivalents outstanding at December 31, 1999, 2000 and 2001,
respectively, as their inclusion would be antidilutive. Common stock
equivalents include outstanding common stock options, common stock warrants
and redeemable 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 12.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|
| | RECENT PRONOUNCEMENTS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| | In March 2001, FASB issued FASB Interpretation 44, Accounting for Certain
Transactions Involving Stock Compensation  an Interpretation of Accounting
Principles Board Opinion 25. FASB Interpretation 44 clarifies the
application of Accounting Principles Board Opinion 25 and among other issues
clarifies the definition of an employee for compensatory plan purposes, the
accounting consequence of various modifications to the terms of previously
fixed stock options or awards, and the accounting for an exchange of stock
compensation awards in a business combination. FASB Interpretation 44 was
effective July 1, 2001, but certain conclusions in FASB Interpretation 44
cover specific events that occurred after either December 15, 1998 or January
12, 2001. The application of FASB Interpretation 44 has not had a material
impact on our financial position or results of operations to date.                                                                                                                                               
|
| | In July 2001, the Financial Accounting Standards Board (''FASB) issued
Statement of Financial Accounting Standard (SFAS) No. 141, ''Business
Combinations, and SFAS No. 142, ''Goodwill and Other Intangible Assets.
SFAS 141 requires use of the purchase method of accounting for business
combinations initiated after June 30, 2001 and eliminated the
pooling-of-interests method. SFAS 142 requires the discontinuance of
goodwill amortization and includes provisions for the reclassification of
certain existing recognized intangible assets into goodwill, the reassessment
of the useful lives of existing recognized intangible assets, the
reclassification of certain intangible assets out of previously reported
goodwill and the identification of reporting units for purposes of assessing
potential future impairments of goodwill. We must adopt SFAS 142 by July 1,
2002. We do not believe that the adoption of SFAS 141 and SFAS 142 in 2002
will have a significant impact on our financial position or our results from
operations.

40



---



##### 





| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In October 2001, the FASB issued SFAS 144, Accounting for the Impairment or
Disposal of Long-Lived Assets.The objectives of SFAS 144 are to address
significant issues relating to the implementation of SFAS 121, Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of,and to develop a single accounting model, based on the framework
established in SFAS 121, for long-lived assets to be disposed of by sale,
whether previously held and used or newly acquired. SFAS 144 is effective
for financial statements issued for fiscal
years beginning after December 15, 2001 and, generally, its provisions are to
be applied prospectively. Management is currently determining what effect,
if any, SFAS 144 will have on its financial position and results of
operations.

3.       INVENTORY



| |                                                                                                                                                      
| | -----------------------------------------------------------------------------------------------------------------------------------------------------
| | Inventory consists of finished goods of $178,000 and $183,000 and raw
materials of $230,000 and $816,000 at December 31, 2000 and 2001,
respectively.

4.       FIXED ASSETS



| |                                                                                      
| | -------------------------------------------------------------------------------------
| | Fixed assets consisted of the following at December 31, 2000 and 2001 (in
thousands):

|                                       |  |                                   |  |              |       |      |        |   |        |   |        |  
|-------------------------------------- |  | --------------------------------- |  | ------------ | ----- | ---- | ------ | - | ------ | - | ------ | -
|                                       |  | Useful                            |  | December 31,
|                                       |  | Life                              |  | 2000         |       | 2001
|Laboratory and manufacturing
equipment |  | 3-7 years                         |  | $            | 4,441 |      |        | $ | 10,121 |  
|                                      
|                                      
|                                      
|                                      
|Computer and office equipment          |  | 3-7 years                         |  |              | 168   |      |        |   | 238    |  
|                                      
|                                      
|                                      
|                                      
|Leasehold improvements                 |  | Lesser of 3-5 years or lease term |  |              | 117   |      |        |   | 5,799  |  
|                                      
|                                      
|                                      
|                                      
|Assets under construction              |  |                                   |  |              |       |      | 4,080  |   |        |   | 2,028  |  
|                                       |  |                                   |  |              |       |      |        |   |        |   |        |  
|                                       |  |                                   |  |              |       |      | 8,806  |   |        |   | 18,186 |  
|                                      
|                                      
|                                      
|                                      
|Less accumulated depreciation          |  |                                   |  |              |       |      | (1,183 | ) |        |   | (2,186 | )
|                                       |  |                                   |  |              |       |      |        |   |        |   |        |  
|                                       |  |                                   |  |              |       | $    | 7,623  |   |        | $ | 16,000 |  
|                                       |  |                                   |  |              |       |      |        |   |        |   |        |  



| |                                                                                                                                                                                                                                                            
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Depreciation expense for the years ended December 31, 1999, 2000 and 2001 was
$246,000, $286,000 and $1,003,000, respectively. As of December 31, 2001, the
Company had outstanding commitments for capital expenditures of approximately
$500,000 million.

5.       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, 1999, 2000 and 2001 (in thousands):

|                                                              |  |      |       |      |  |      |        |   |  |   |        |  
|------------------------------------------------------------- |  | ---- | ----- | ---- |  | ---- | ------ | - |  | - | ------ | -
|                                                              |  | 1999 |       | 2000 |  | 2001
|Income tax expense (benefit) at
US federal statutory tax rate |  | $    | (997  | )    |  | $    | (1,770 | ) |  | $ | (4,242 | )
|                                                             
|                                                             
|                                                             
|                                                             
|State income taxes, net of federal
tax effect                 |  |      | (313  | )    |  |      | (162   | ) |  |   | (786   | )
|                                                             
|                                                             
|                                                             
|                                                             
|Permanent items                                               |  |      | 2     |      |  |      | 77     |   |  |   | 101    |  
|                                                             
|                                                             
|                                                             
|                                                             
|Other                                                         |  |      | (160  | )    |  |      | (147   | ) |  |   | (78    | )
|                                                             
|                                                             
|                                                             
|                                                             
|Change in deferred tax asset valuation allowance              |  |      | 1,468 |      |  |      | 2,002  |   |  |   | 5,005  |  
|                                                              |  |      |       |      |  |      |        |   |  |   |        |  
|Provision for income taxes                                    |  | $    |      |      |  | $    |       |   |  | $ |       |  
|                                                              |  |      |       |      |  |      |        |   |  |   |        |  



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | As of December 31, 2001, we had federal and state net operating loss
carryforwards totaling approximately $26.9 million and $24.5 million,
respectively, available to reduce future taxable income and tax liabilities
which expire at various dates between 2002 and 2021. In addition, as of
December 31, 2001 we had federal and state research and development tax
credit carryforwards of approximately $679,000 and $282,000, respectively,
available to reduce future taxable income and tax liabilities which expire at
various dates between 2009 and 2021. Under provisions of the Internal Revenue
Code, substantial changes in our ownership may limit the amount of net
operating loss carryforwards and research and development credit
carryforwards, which can be used in future years. As required by Financial
Accounting Statement No. 109, we have evaluated the positive and negative
evidence bearing on the realizability of these assets and we have fully
reserved the deferred tax asset.

41



---



##### 





| |                                                                                                                                                                                                                                                                                                        
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Management of the Company has evaluated the positive and negative evidence
bearing upon the realizability of its deferred tax assets. Management has
considered the Companys history of losses and, in accordance with the
applicable accounting standards, has fully reserved the deferred tax asset.
|
| | Deferred tax assets consist of the following at December 31, 2000 and 2001
(in thousands):                                                                                                                                                                                                             

|                                              |  |      |        |      |  |   |         |  
|--------------------------------------------- |  | ---- | ------ | ---- |  | - | ------- | -
|                                              |  | 2000 |        | 2001
|Net operating loss carryforwards              |  | $    | 5,932  |      |  | $ | 10,700  |  
|                                             
|                                             
|                                             
|                                             
|Research and development credit carryforwards |  |      | 846    |      |  |   | 961     |  
|                                             
|                                             
|                                             
|                                             
|Other                                         |  |      | 269    |      |  |   | 391     |  
|                                              |  |      |        |      |  |   |         |  
|Deferred tax assets                           |  |      | 7,047  |      |  |   | 12,052  |  
|                                             
|                                             
|                                             
|                                             
|Deferred tax valuation allowance              |  |      | (7,047 | )    |  |   | (12,052 | )
|                                              |  |      |        |      |  |   |         |  
|                                              |  | $    |       |      |  | $ |        |  
|                                              |  |      |        |      |  |   |         |  

6.       STOCKHOLDERS EQUITY



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Company has two classes of capital stock: common and preferred. At
December 31, 2000 and 2001, there were 2,363,646 and 3,340,212, respectively,
of shares of common stock reserved for grant under both the Companys 1994
Stock Option Plan and the Companys 2000 Stock Option and Incentive Plan. In
August 2000, 120,000 shares were authorized for issuance under the Companys
2000 Employee Stock Purchase Plan.                                                                                                                                                                                                                                                                                                                                                                                                                                           
|
| | In November 2000, the Company completed an initial public offering of
3,000,000 common shares at $14.00 per share. After deducting underwriting
commissions and other offering expenses totaling $4.3 million, the Company
received net proceeds of $37.7 million from this offering. Upon the closing
of the initial public offering, the Company increased the authorized common
stock to 30,000,000.                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|
| | From December 1999 to February 2000, the Company closed its Series D
Redeemable Convertible Preferred Stock financing of 10,000,000 authorized
shares, resulting in the issuance of 7,343,323 shares at $2.50 per share for
$18,358,308 cash proceeds. As part of the December financing described above,
Kawasaki Heavy Industries, Ltd. (also see Note 10) purchased 2,000,000
shares of Series D Redeemable Convertible Preferred Stock at $2.50 per share.
In 1998, 3,442,547 shares of Series C Redeemable Convertible Preferred Stock
were issued at $2.00 per share. In 1996, 2,781,666 shares of Series B
Redeemable Convertible Preferred Stock were issued at $1.50 per share. Upon
the closing of the initial public offering the preferred stockholders
authorized the conversion of all shares of preferred stock into common stock
in a 2.165 to 1 ratio.

7.       STOCK OPTION PLANS



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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 IPO. 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 vest immediately upon their issuance.

42



---



##### 





| |                                                     
| | ----------------------------------------------------
| | The following is a summary of stock option activity:

|                                 |            |  |           |          |                |   |           |      | 
|-------------------------------- | ---------- |  | --------- | -------- | -------------- | - | --------- | ---- | 
|                                 |            |  |           |          |                |   | Weighted-
|                                 |            |  |           |          |                |   | Average  
|                                 |            |  | Shares    |          | Exercise Price
|Outstanding at December 31, 1998 |            |  | 172,945   |          |                | $ | 0.65      |     
|                                
|                                
|                                
|                                
|                                 | Granted    |  |           | 265,100  |                |   |           | 0.87 | 
|                                
|                                
|                                
|                                
|                                 | Terminated |  |           | (6,002   | )              |   |           | 0.80 | 
|                                 |            |  |           |          |                |   |           |     
|Outstanding at December 31, 1999 |            |  | 432,043   |          |                |   | 0.78      |     
|                                
|                                
|                                
|                                
|                                 | Granted    |  |           | 427,151  |                |   |           | 7.52 | 
|                                
|                                
|                                
|                                
|                                 | Exercised  |  |           | (119,550 | )              |   |           | 0.86 | 
|                                 |            |  |           |          |                |   |           |     
|Outstanding at December 31, 2000 |            |  | 739,644   |          |                |   | 4.66      |     
|                                
|                                
|                                
|                                
|                                 | Granted    |  |           | 400,100  |                |   |           | 5.14 | 
|                                
|                                
|                                
|                                
|                                 | Exercised  |  |           | (19,391  | )              |   |           | 0.95 | 
|                                
|                                
|                                
|                                
|                                 | Terminated |  |           | (5,041   | )              |   |           | 3.23 | 
|                                 |            |  |           |          |                |   |           |     
|Outstanding at December 31, 2001 |            |  | 1,115,312 |          |                | $ | 4.94      |     
|                                 |            |  |           |          |                |   |           |     



| |                                                                      
| | ---------------------------------------------------------------------
| | Summarized information about stock options outstanding is as follows:

|                  |  |          |              |             |  |              |           |           |  |                     |      |                     |  |   |       |         |  |          |         |  |  |   |       | 
|----------------- |  | -------- | ------------ | ----------- |  | ------------ | --------- | --------- |  | ------------------- | ---- | ------------------- |  | - | ----- | ------- |  | -------- | ------- |  |  | - | ----- | 
|                  |  |          |              |             |  |              |           |           |  | Options Outstanding |      | Options Exercisable
|                  |  |          |              |             |  |              |           |           |  |                     |      |                    
|                  |  |          |              |             |  |              |           |           |  | Weighted            |      |                     |  |   |       |         |  |          |         |  |  |  
|                  |  |          |              |             |  |              |           |           |  | Average             |      | Weighted            |  |   |       |         |  | Weighted
|                  |  | Range of |              |             |  |              |           | Remaining |  | Average             |      |                     |  |   |       | Average
|                  |  | Exercise |              | Number      |  | Contractual  |           | Exercise  |  | Number              |      | Exercise           
|                  |  | Prices   |              | Outstanding |  | Life (Years) |           | Price     |  | Exercisable         |      | Price              
|
|                  |  |          |              |             |  |              |           |           |  |                     |      |                    
|                  |  | $        | 0.22-$0.65   |             |  |              | 18,467    |           |  |                     | 4.69 |                     |  | $ | 0.56  |         |  |          | 18,467  |  |  | $ | 0.56  | 
|                 
|                 
|                 
|                 
|                  |  |          | 0.87-  0.87  |             |  |              | 278,664   |           |  |                     | 7.42 |                     |  |   | 0.87  |         |  |          | 136,040 |  |  |   | 0.87  | 
|                 
|                 
|                 
|                 
|                  |  |          | 2.17-  2.17  |             |  |              | 140,412   |           |  |                     | 8.03 |                     |  |   | 2.17  |         |  |          | 36,486  |  |  |   | 2.17  | 
|                 
|                 
|                 
|                 
|                  |  |          | 2.32-  2.32  |             |  |              | 5,000     |           |  |                     | 9.84 |                     |  |   | 2.32  |         |  |          | 5,000   |  |  |   | 2.32  | 
|                 
|                 
|                 
|                 
|                  |  |          | 2.59-  2.59  |             |  |              | 186,600   |           |  |                     | 9.93 |                     |  |   | 2.59  |         |  |          |        |  |  |   |      | 
|                 
|                 
|                 
|                 
|                  |  |          | 2.71-  5.00  |             |  |              | 144,903   |           |  |                     | 9.25 |                     |  |   | 4.75  |         |  |          | 43,500  |  |  |   | 4.47  | 
|                 
|                 
|                 
|                 
|                  |  |          | 6.38-  9.60  |             |  |              | 126,247   |           |  |                     | 8.93 |                     |  |   | 7.20  |         |  |          | 40,876  |  |  |   | 7.03  | 
|                 
|                 
|                 
|                 
|                  |  |          | 10.00- 12.65 |             |  |              | 72,000    |           |  |                     | 9.10 |                     |  |   | 10.83 |         |  |          | 22,000  |  |  |   | 11.01 | 
|                 
|                 
|                 
|                 
|                  |  |          | 14.00- 14.00 |             |  |              | 127,019   |           |  |                     | 8.84 |                     |  |   | 14.00 |         |  |          | 31,753  |  |  |   | 14.00 | 
|                 
|                 
|                 
|                 
|                  |  |          | 19.00- 19.00 |             |  |              | 16,000    |           |  |                     | 8.84 |                     |  |   | 19.00 |         |  |          | 8,500   |  |  |   | 19.00 | 
|                  |  |          |              |             |  |              |           |           |  |                     |      |                     |  |   |       |         |  |          |         |  |  |   |       | 
|December 31, 2001 |  | $        | 0.22-$19.00  |             |  |              | 1,096,845 |           |  |                     | 8.58 |                     |  | $ | 4.94  |         |  |          | 324,155 |  |  | $ | 4.52  | 
|                  |  |          |              |             |  |              |           |           |  |                     |      |                     |  |   |       |         |  |          |         |  |  |   |       | 



| |                                                                                                                                                                                                                                                                                                                                                                               
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | At December 31, 1999, 2000 and 2001, options exercisable were 106,996,
169,947, and 342,622, respectively. Estimated weighted average fair value of
options granted in fiscal years 1999, 2000 and 2001 were $1.47, $9.97 and
$4.05, respectively, on the date of grant.                                                                                                      
|
| | The Company applies APB Opinion No. 25 and related interpretations in
accounting for its stock option plan. 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 income (loss) would have been as follows (in thousands):

|            |  |                                       |        |            |  |              |       |            |  |              |        |            |  |            |       |   |  |   |         |   |  |   |       |  
|----------- |  | ------------------------------------- | ------ | ---------- |  | ------------ | ----- | ---------- |  | ------------ | ------ | ---------- |  | ---------- | ----- | - |  | - | ------- | - |  | - | ----- | -
|            |  | 1999                                  |        |            |  |              |       | 2000       |  |              |        |            |  | 2001       |       |   |  |  
|            |  | Net Income                            |        |            |  |              |       | Net Income |  |              |        |            |  | Net Income |       |   |  |  
|            |  | (Loss)                                |        | Net Income |  | (Loss)       |       | Net Income |  | (Loss)       |        | Net Income
|            |  | Attributable                          |        | (Loss) Per |  | Attributable |       | (Loss) Per |  | Attributable |        | (Loss) Per
|            |  | To Common                             |        | Common     |  | To Common    |       | Common     |  | To Common    |        | Common    
|            |  | Stockholders                          |        | Share      |  | Stockholders |       | Share      |  | Stockholders |        | Share     
|            |  |                                       |        |            |  |              |       |            |  |              |        |           
|            |  | (In thousands, except per share data)
|As reported |  | $                                     | (4,163 | )          |  | $            | (5.18 | )          |  | $            | (7,488 | )          |  | $          | (2.96 | ) |  | $ | (12,477 | ) |  | $ | (1.10 | )
|           
|           
|           
|           
|Pro forma   |  | $                                     | (4,181 | )          |  | $            | (5.21 | )          |  | $            | (7,675 | )          |  | $          | (3.03 | ) |  | $ | (13,470 | ) |  | $ | (1.19 | )

43



---



##### 





| |                                                                                                                                                                                                         
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The fair value of employee options at the date of grant were estimated using
the minimum value option pricing model with the following assumptions for the
years ended December 31, 1999, 2000 and 2001.

|                        |  |      |     |             |  |      |           |   |  |  |     |  
|----------------------- |  | ---- | --- | ----------- |  | ---- | --------- | - |  |  | --- | -
|                        |  | 1999 |     | 2000        |  | 2001
|Expected options term   |  |      | 7   |             |  |      | 7         |   |  |  | 7   |  
|                       
|                       
|                       
|                       
|Risk-free interest rate |  |      | 5.4 | %           |  |      | 5.0 - 6.4 | % |  |  | 4.0 | %
|                       
|                       
|                       
|                       
|Expected dividend yield |  | None |     | None        |  | None
|                       
|                       
|                       
|                       
|Volatility              |  | None |     | None - 125% |  |      | 90        | %



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Because the determination of the fair value of all options granted after the
Company became a public entity includes an expected volatility factor,
additional option grants are expected to be made and most options will vest
over several years, the above effects of applying SFAS 123 in this pro forma
disclosure are not likely to be representative of the effects on reported net
income for future years. SFAS 123 does not apply to awards granted prior to
fiscal year 1996.                                                                                                                                                                                                                                         
|
| | In 2000 and 2001, the Company recorded $953,000 and $0, respectively, of
deferred compensation 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. Total employee stock option-related
compensation expense was $294,000 and $290,000 for the years ended December
31, 2000 and 2001, respectively. In 2000 and 2001, the Company reduced
deferred compensation into stockholders equity by $0 and $20,000,
respectively due to the termination of stock options.

8.       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 percent 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 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, 2000 and 2001 there
were no shares issued under the ESPP.

8.       WARRANTS



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | On April 30, 1998 and May 29, 1998, pursuant to the Series C Redeemable
Convertible Preferred Stock financing, the Company granted the purchasers of
Series C Redeemable Convertible Preferred Stock warrants to purchase an
aggregate of 636,027 shares of common stock at a ratio of one warrant for
every $10.83 invested. The warrants are exercisable at $4.33 per share. As of
December 31, 2001, there were 409,934 warrants outstanding. The warrants
expire on December 22, 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|
| | Effective April 30, 2001, a shareholder exercised in full a warrant to
purchase up to 16,904 shares of the Companys Common Stock at an exercise
price equal to $4.33 per share. Pursuant to the warrants cashless exercise
feature, the Company issued to the shareholder 9,728 shares of the Companys
Common Stock. Effective May 3, 2001, a second shareholder exercised in full
a warrant to purchase up to 9,237 shares of the Companys Common Stock at an
exercise price equal to $4.33 per share. Pursuant to the warrants cashless
exercise feature, the Company issued to the second shareholder 5,843 shares
of the Companys Common Stock. Effective May 23, 2001, a third shareholder
exercised in full a warrant to purchase up to 184,757 shares of the Companys
Common Stock at an exercise price equal to $4.33 per share. The Company made
such issuances in reliance upon an exemption from the registration provisions
of the Securities Act of 1933 set forth in Section 4(2) thereof as a
transaction by an issuer not involving a public offering. Effective July 30,
2001, a fourth shareholder exercised in full a warrant to purchase up to
15,195 shares of the Companys Common Stock at an exercise price equal to
$4.33 per share. Pursuant to the warrants cashless exercise feature, the
Company issued to the fourth shareholder 8,476 shares of the Companys Common
Stock. The Company made such issuances in reliance upon an exemption from
the registration provisions of the Securities Act of 1933 set forth in
Section 4(2) thereof as a transaction by an issuer not involving a public
offering.

44



---



##### 



9.       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 up
to 15% of their compensation up to the statutory limit. In addition, the
Company can make a matching contribution at its discretion. The Company has
not made any contribution to the plan.

10.      COMMITMENTS



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | DISTRIBUTION AND MARKETING RELATIONSHIP                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|
| | In December 1999, the Company formed a strategic distribution and marketing
relationship with Kawasaki Heavy Industries, Ltd. (Kawasaki) whereby
Kawasaki has agreed to exclusively distribute the Companys solar power
products in Japan and integrate the Companys solar panels into solar systems
that Kawasaki will design, market and install. In addition, the Company
agreed to exclusively sell solar power products in Japan through Kawasaki
until December 31, 2001. During the year ended December 31, 2001, the Company
sold, and received full payment for, $338,000 of products through Kawasaki.                                                                                                                                                                                                                                                               
|
| | LEASE                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| | 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. Rent is payable on the first day of each month and is
collateralized by a $464,000 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, 2000 and 2001 balance sheet. The following is a
schedule, by year, of future minimum rental payments required under the
ten-year lease that have remaining noncancelable lease terms in excess of one
year as of December 31, 2001:

|           |       |   |           |           | 
|---------- | ----- | - | --------- | --------- | 
|2002       |       | $ | 478,125   |          
|          
|          
|          
|          
|2003       |       |   | 488,672   |          
|          
|          
|          
|          
|2004       |       |   | 492,188   |          
|          
|          
|          
|          
|2005       |       |   | 502,734   |          
|          
|          
|          
|          
|2006       |       |   | 506,250   |          
|          
|          
|          
|          
|Thereafter |       |   | 1,715,625 |          
|           |       |   |           |          
|           | Total |   | $         | 4,183,594 | 



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Rent expense was $166,387, $563,738, and $795,116 for the years ended
December 31, 1999, 2000, and 2001.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|
| | 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 will earn royalties on sales of products through 2004. The
Company incurred $6,000, $15,000 and $25,000 in royalty expense for the years
ended December 31, 1999, 2000 and 2001, respectively. The Company can, at any
time, cease utilization of the technology with no further royalty payments.

45



---



##### 



11.      SEGMENT INFORMATION



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | For the years ended December 31, 1999, 2000 and 2001, revenues generated from
within the United States represented $2.3 million, $1.8 million and $2.0
million and revenues generated from outside the United States represented
$0.1 million, $0.4 million and $0.5 million, respectively.                                                                                                                                                                                                 
|
| | For the years ended December 31, 1999, and 2000, revenues from The
Commonwealth of Massachusetts, National Institute of Standards and
Technology, and National Renewable Energy Laboratory accounted for 19%, 21%
and 53%; and 15%, 22%, and 41% of total revenues, respectively. For the year
ended December 31, 2001, revenues from the National Institute of Standards
and Technology and National Renewable Energy Laboratory accounted for 24% and
15% of total revenues, respectively.

12.      UNAUDITED QUARTERLY RESULTS



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The following tables set forth unaudited selected financial information for
the periods indicated. This information has been derived from unaudited
consolidated 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 accountants 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
|                                                                                               |  | 2000   |        | 2000   |  | 2000   |        | 2000   |  | 2001   |        | 2001   |  | 2001   |        | 2001  
|Revenues:                                                                                      |  |        |        |        |  |        |        |        |  |        |        |        |  |        |        |        |  |   |        |   |  |   |        |   |  |   |        |   |  |   |        |  
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                              
|Product revenues                                                                               |  | $      | 23     |        |  | $      | 74     |        |  | $      | 109    |        |  | $      | 213    |        |  | $ | 146    |   |  | $ | 212    |   |  | $ | 424    |   |  | $ | 764    |  
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                              
|Research revenues                                                                              |  |        | 519    |        |  |        | 489    |        |  |        | 420    |        |  |        | 325    |        |  |   | 331    |   |  |   | 348    |   |  |   | 153    |   |  |   | 100    |  
|                                                                                               |  |        |        |        |  |        |        |        |  |        |        |        |  |        |        |        |  |   |        |   |  |   |        |   |  |   |        |   |  |   |        |  
|Total revenues                                                                                 |  |        | 542    |        |  |        | 563    |        |  |        | 529    |        |  |        | 538    |        |  |   | 477    |   |  |   | 560    |   |  |   | 577    |   |  |   | 864    |  
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                              
|Operating expenses:                                                                            |  |        |        |        |  |        |        |        |  |        |        |        |  |        |        |        |  |   |        |   |  |   |        |   |  |   |        |   |  |   |        |  
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                              
|Cost of product revenues                                                                       |  |        | 300    |        |  |        | 670    |        |  |        | 683    |        |  |        | 1,104  |        |  |   | 1,440  |   |  |   | 1,888  |   |  |   | 2,834  |   |  |   | 3,413  |  
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                              
|Research and development expenses                                                              |  |        | 866    |        |  |        | 816    |        |  |        | 766    |        |  |        | 818    |        |  |   | 883    |   |  |   | 866    |   |  |   | 560    |   |  |   | 607    |  
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                              
|Selling, general and administrative expenses                                                   |  |        | 262    |        |  |        | 471    |        |  |        | 520    |        |  |        | 1,112  |        |  |   | 1,108  |   |  |   | 1,039  |   |  |   | 1,005  |   |  |   | 866    |  
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                              
|Stock-based compensation expense                                                               |  |        | 37     |        |  |        | 73     |        |  |        | 110    |        |  |        | 74     |        |  |   | 74     |   |  |   | 75     |   |  |   | 74     |   |  |   | 66     |  
|                                                                                               |  |        |        |        |  |        |        |        |  |        |        |        |  |        |        |        |  |   |        |   |  |   |        |   |  |   |        |   |  |   |        |  
|Total operating expenses                                                                       |  |        | 1,465  |        |  |        | 2,030  |        |  |        | 2,079  |        |  |        | 3,108  |        |  |   | 3,505  |   |  |   | 3,868  |   |  |   | 4,473  |   |  |   | 4,952  |  
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                              
|Operating income (loss)                                                                        |  |        | (923   | )      |  |        | (1,467 | )      |  |        | (1,550 | )      |  |        | (2,570 | )      |  |   | (3,028 | ) |  |   | (3,308 | ) |  |   | (3,896 | ) |  |   | (4,088 | )
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                              
|Interest income                                                                                |  |        | 259    |        |  |        | 256    |        |  |        | 231    |        |  |        | 559    |        |  |   | 639    |   |  |   | 479    |   |  |   | 416    |   |  |   | 310    |  
|                                                                                               |  |        |        |        |  |        |        |        |  |        |        |        |  |        |        |        |  |   |        |   |  |   |        |   |  |   |        |   |  |   |        |  
|Net income (loss)                                                                              |  |        | (664   | )      |  |        | (1,211 | )      |  |        | (1,319 | )      |  |        | (2,011 | )      |  |   | (2,389 | ) |  |   | (2,829 | ) |  |   | (3,480 | ) |  |   | (3,778 | )
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                              
|Accretion of redeemable convertible preferred stock                                            |  |        | 620    |        |  |        | 636    |        |  |        | 797    |        |  |        | 230    |        |  |   |       |   |  |   |       |   |  |   |       |   |  |   |       |  
|                                                                                               |  |        |        |        |  |        |        |        |  |        |        |        |  |        |        |        |  |   |        |   |  |   |        |   |  |   |        |   |  |   |        |  
|Net income (loss) attributable to common stockholders                                          |  |        | (1,284 | )      |  |        | (1,847 | )      |  |        | (2,116 | )      |  |        | (2,241 | )      |  |   | (2,389 | ) |  |   | (2,829 | ) |  |   | (3,480 | ) |  |   | (3,778 | )
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                              
|Other comprehensive income (loss):                                                             |  |        |        |        |  |        |        |        |  |        |        |        |  |        |        |        |  |   |        |   |  |   |        |   |  |   |        |   |  |   |        |  
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                              
|Unrealized gain on investments                                                                 |  |        |       |        |  |        |       |        |  |        |       |        |  |        |       |        |  |   | 122    |   |  |   | (29    | ) |  |   | 159    |   |  |   | (3     | )
|                                                                                               |  |        |        |        |  |        |        |        |  |        |        |        |  |        |        |        |  |   |        |   |  |   |        |   |  |   |        |   |  |   |        |  
|Comprehensive income (loss) attributable to common stockholders                                |  | $      | (1,284 | )      |  | $      | (1,847 | )      |  | $      | (2,116 | )      |  | $      | (2,241 | )      |  | $ | (2,267 | ) |  | $ | (2,858 | ) |  | $ | (3,321 | ) |  | $ | (3,781 | )
|                                                                                               |  |        |        |        |  |        |        |        |  |        |        |        |  |        |        |        |  |   |        |   |  |   |        |   |  |   |        |   |  |   |        |  
|Net income (loss) per common share (basic and diluted)                                         |  | $      | (1.60  | )      |  | $      | (2.29  | )      |  | $      | (2.45  | )      |  | $      | (0.29  | )      |  | $ | (0.21  | ) |  | $ | (0.25  | ) |  | $ | (0.31  | ) |  | $ | (0.33  | )
|                                                                                              
|                                                                                              
|                                                                                              
|                                                                                              
|Weighted average shares used in computing basic and diluted
net income (loss) per common share |  |        | 805    |        |  |        | 807    |        |  |        | 864    |        |  |        | 7,603  |        |  |   | 11,173 |   |  |   | 11,261 |   |  |   | 11,385 |   |  |   | 11,394 |  

46



---



##### 



SCHEDULE II  VALUATION AND QUALIFYING ACCOUNTS

|                                      |                                             |           |            |            |            |            |  |               |  |  |            |   |  |  |  |            | 
|------------------------------------- | ------------------------------------------- | --------- | ---------- | ---------- | ---------- | ---------- |  | ------------- |  |  | ---------- | - |  |  |  | ---------- | 
|                                      |                                             |           | Balance at |            |            |            |  |               |  |  |            |   |  |  | 
|                                      |                                             |           | beginning  |            | Charged to |            |  |               |  |  | Balance at
|Description                           |                                             | of period |            | operations |            | Deductions |  | end of period
|Year Ended December 31, 1999          |                                             |           |            |            |            |            |  |               |  |  |            |   |  |  |  |           
|                                     
|                                     
|                                     
|                                     
|Reserves and allowances deducted from |                                             |           |            |            |            |            |  |               |  |  |            |   |  |  |  |           
|                                     
|                                     
|                                     
|                                     
|                                      | assets accounts:                            |           |            |            |            |            |  |               |  |  |            |   |  |  |  |            | 
|                                     
|                                     
|                                     
|                                     
|                                      | Valuation allowance for deferred tax assets |           |            | 3,577,000  |            |            |  | 1,486,000     |  |  |            |  |  |  |  | 5,063,000  | 
|                                     
|                                     
|                                     
|                                     
|                                      | Allowance for doubtful accounts             |           |            |           |            |            |  | 10,000        |  |  |            |  |  |  |  | 10,000     | 
|                                     
|                                     
|                                     
|                                     
|                                      | Accrued warranty reserve                    |           |            | 10,000     |            |            |  | 12,000        |  |  |            |  |  |  |  | 22,000     | 
|                                     
|                                     
|                                     
|                                     
|Year Ended December 31, 2000          |                                             |           |            |            |            |            |  |               |  |  |            |   |  |  |  |           
|                                     
|                                     
|                                     
|                                     
|Reserves and allowances deducted from |                                             |           |            |            |            |            |  |               |  |  |            |   |  |  |  |           
|                                     
|                                     
|                                     
|                                     
|                                      | assets accounts:                            |           |            |            |            |            |  |               |  |  |            |   |  |  |  |            | 
|                                     
|                                     
|                                     
|                                     
|                                      | Valuation allowance for deferred tax assets |           |            | 5,045,000  |            |            |  | 2,002,000     |  |  |            |  |  |  |  | 7,047,000  | 
|                                     
|                                     
|                                     
|                                     
|                                      | Allowance for doubtful accounts             |           |            | 10,000     |            |            |  | 3,000         |  |  |            |  |  |  |  | 13,000     | 
|                                     
|                                     
|                                     
|                                     
|                                      | Accrued warranty reserve                    |           |            | 22,000     |            |            |  | 26,000        |  |  |            |  |  |  |  | 48,000     | 
|                                     
|                                     
|                                     
|                                     
|Year Ended December 31, 2001          |                                             |           |            |            |            |            |  |               |  |  |            |   |  |  |  |           
|                                     
|                                     
|                                     
|                                     
|Reserves and allowances deducted from |                                             |           |            |            |            |            |  |               |  |  |            |   |  |  |  |           
|                                     
|                                     
|                                     
|                                     
|                                      | assets accounts:                            |           |            |            |            |            |  |               |  |  |            |   |  |  |  |            | 
|                                     
|                                     
|                                     
|                                     
|                                      | Valuation allowance for deferred tax assets |           |            | 7,047,000  |            |            |  | 5,005,000     |  |  |            |  |  |  |  | 12,052,000 | 
|                                     
|                                     
|                                     
|                                     
|                                      | Allowance for doubtful accounts             |           |            | 13,000     |            |            |  |              |  |  |            |  |  |  |  | 13,000     | 
|                                     
|                                     
|                                     
|                                     
|                                      | Accrued warranty reserve                    |           |            | 48,000     |            |            |  | 90,000        |  |  |            |  |  |  |  | 138,000    | 

47



---



##### 



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 28th day of March, 2002, thereunto
duly authorized.



| | EVERGREEN SOLAR, INC.
| | ---------------------



| | By:      /s/ Mark A. Farber
| | ---------------------------

| | 
| | 

| | Mark A. Farber
        Chief Executive Officer,
        President and Director
| | ------------------------------------------------------------------------------

POWER OF ATTORNEY AND SIGNATURES

We, the undersigned officers and directors of Evergreen Solar, Inc., hereby
severally constitute and appoint Mark A. Farber and Richard G. Chleboski, and
each of them singly, our true and lawful attorneys, with full power to both of
them and each of them singly, to sign for us and in our names in the capacities
indicated below, any amendments to this Annual Report on Form 10-K, and
generally to do all things in our names and on our behalf in such capacities to
enable Evergreen Solar, Inc. to comply with the provisions of the Securities
Exchange Act of 1934, as amended, and all the requirements of the Securities
and Exchange Commission.

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/ Mark A. Farber

Mark A. Farber             |  | Chief Executive Officer,
President and Director
(Principal Executive Officer)            |  | March 28, 2002
|                                              
|                                              
|                                              
|                                              
|                                              
|                                              
|                                              
|                                              
|                                              
|                                              
|                                              
|                                              
|/s/ Richard G. Chleboski

Richard G. Chleboski |  | Chief Financial Officer,
Treasurer, Secretary and
Director (Principal Financial
Officer) |  | March 28, 2002
|                                              
|                                              
|                                              
|                                              
|                                              
|                                              
|                                              
|                                              
|                                              
|                                              
|                                              
|                                              
|/s/ Robert W. Shaw, Jr.

Robert W. Shaw, Jr.   |  | Chairman of the Board of Directors                                                       |  | March 28, 2002
|                                              
|                                              
|                                              
|                                              
|                                              
|                                              
|                                              
|                                              
|                                              
|                                              
|                                              
|                                              
|/s/ William P. Sommers

William P. Sommers     |  | Director                                                                                 |  | March 28, 2002
|                                              
|                                              
|                                              
|                                              
|                                              
|                                              
|                                              
|                                              
|                                              
|                                              
|                                              
|                                              
|/s/ Brown F. Williams

Brown F. Williams       |  | Director                                                                                 |  | March 28, 2002
|                                              
|                                              
|                                              
|                                              
|                                              
|                                              
|                                              
|                                              
|                                              
|                                              
|                                              
|                                              
|/s/ Mason Willrich

Mason Willrich             |  | Director                                                                                 |  | March 28, 2002
|                                              
|                                              
|                                              
|                                              
|                                              
|                                              
|                                              
|                                              
|                                              
|                                              
|                                              
|                                              

48



---



##### 



EXHIBIT INDEX

|          |  |                                                                                                                                          
|--------- |  | -----------------------------------------------------------------------------------------------------------------------------------------
|Exhibit   |  |                                                                                                                                          
|Number    |  | Description                                                                                                                              
|         
|         
|         
|         
|         
|         
|         
|         
|         
|         
|         
|         
|3.1 (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)                                                                     
|         
|         
|         
|         
|10.1 (1)* |  | 1994 Stock Option Plan. (Exhibit 10.1)                                                                                                   
|         
|         
|         
|         
|10.2 (1)* |  | 2000 Stock Option and Incentive Plan. (Exhibit 10.2)                                                                                     
|         
|         
|         
|         
|10.3 (1)* |  | 2000 Employee Stock Purchase Plan. (Exhibit 10.3)                                                                                        
|         
|         
|         
|         
|10.4 (1)  |  | Lease between Registrant and 211 Second Avenue Realty L.P. dated as of September 15, 1995, as
amended. (Exhibit 10.4)                    
|         
|         
|         
|         
|10.5 (1)  |  | Lease Agreement between Registrant W9/TIB Real Estate Limited Partnership dated as of January 31,
2000, as amended (Exhibit 10.5)        
|         
|         
|         
|         
|10.6 (1)+ |  | Distribution and Marketing Agreement between Registrant and Kawasaki Heavy Industries, Ltd.
dated as of December 24, 1999. (Exhibit 10.6)
|         
|         
|         
|         
|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)                    
|         
|         
|         
|         
|21.1      |  | Subsidiaries of the Registrant. (filed herewith)                                                                                         
|         
|         
|         
|         
|23.1      |  | Consent of Pricewaterhouse Coopers LLP, independent accountants. (filed herewith)                                                        
|         
|         
|         
|         
|24.1      |  | Power of Attorney. (included on Page II-2)                                                                                               



---

|+ |  | Confidential treatment granted as to certain portions.                        
|- |  | ------------------------------------------------------------------------------
| 
| 
| 
| 
|* |  | Indicates a management contract or compensatory plan, contract or
arrangement.

|    |  |                                                                                                                                                                                                                             
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(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 in such
Form S-1.

49