##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, DC 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended September 29, 2007
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 COMMISSION FILE NUMBER 000-31687
 EVERGREEN SOLAR, INC.
 (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
 DELAWARE
    
    04-3242254(State or other jurisdiction of
    
    (I.R.S. EmployerIncorporation or organization)
    
    Identification No.)
 138 BARTLETT STREETMARLBORO, MASSACHUSETTS
    
    01752(Address of principal executive offices)
    
    (Zip Code)
 (508) 357-2221  (REGISTRANTS TELEPHONE NUMBER, INCLUDING AREA CODE)
(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED SINCE LAST REPORT)
 Yes þ No o
  þ o o
 Yes o No þ




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##### 



EVERGREEN SOLAR, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 29, 2007
 TABLE OF CONTENTS
 PART I. FINANCIAL INFORMATION
    
    
    4ITEM 1. FINANCIAL STATEMENTS
    
    
    4Condensed Consolidated Balance Sheets
    
    
    4Condensed Consolidated Statements of Operations
    
    
    5Condensed Consolidated Statements of Cash Flows
    
    
    6Notes to Condensed Consolidated Financial Statements
    
    
    7ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
    
    
    17ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
    
    
    27ITEM 4. CONTROLS AND PROCEDURES
    
    
    27PART II. OTHER INFORMATION
    
    
    27ITEM 1. LEGAL PROCEEDINGS
    
    
    27ITEM 1A. RISK FACTORS
    
    
    27ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
    
    
    39ITEM 3. DEFAULTS UPON SENIOR SECURITIES
    
    
    39ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
    
    
    39ITEM 5. OTHER INFORMATION
    
    
    39ITEM 6. EXHIBITS
    
    
    39SIGNATURES
    
    
    39EX-10.2 - SUPPLY AGREEMENT DATED 8-31-2007EX-31.1 - SECTION 302 CERTIFICATION OF CEOEX-31.2 - SECTION 302 CERTIFICATION OF CFOEX-32.1 - SECTION 906 CERTIFICATION OF CEOEX-32.2 - SECTION 906 CERTIFICATION OF CFO
  2




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##### Table of Contents



CONCERNS REGARDING FORWARD-LOOKING STATEMENTS
 This Quarterly Report on Form 10-Q, including Managements Discussion and Analysis of Financial
Condition and Results of Operations in Item 2 of Part I of this report, contains forward-looking
statements that involve risks, uncertainties and assumptions. If the risks or uncertainties ever
materialize or any of the assumptions prove incorrect, the results of the Company will differ from
those expressed or implied by such forward-looking statements and assumptions. All statements other
than statements of historical fact are statements that could be deemed forward-looking statements,
including but not limited to statements regarding the Companys future growth, revenue, earnings
and gross margin improvement; the opening of our planned Massachusetts manufacturing facility and
other potential capacity expansions at both the Company and EverQ GmbH (EverQ) and the expected
timing of such facilities becoming fully operational and meeting manufacturing capacity goals on
schedule and within budget; future warranty expenses; benefits and expenses resulting from EverQ;
our receipt of public grant awards; capital requirements to respond to competitive pressures and
acquire complementary businesses and necessary technologies; pursuit of future research contracts
that are not part of our current ongoing research activities; costs associated with research and
development, building or improving manufacturing facilities, general and administrative expenses
and business growth; shifts in our geographic product revenue mix; international expansion of
strategic partnerships, manufacturing operations and distribution networks; operating efficiency of
manufacturing facilities, including increases in manufacturing scale and technological
improvements; the occurrence of and the use of proceeds from sales of our securities; the
sufficiency of our cash, cash equivalents, marketable securities and borrowings available under our
revolving credit facility to satisfy our anticipated cash requirements; payment of cash dividends;
use of derivative financial instruments to manage foreign currency exchange risks; the potential
impact of our critical accounting policies and changes in financial accounting standards or
practices; our plans for the EverQ joint venture; our continued enhancements of thin wafer
production and the expected timing and results of such transition; the expected demand for solar
energy; our expectations regarding product performance and cost and technological competitiveness;
our expectations regarding future silicon supply from Renewable Energy Corporation and our other
suppliers, and our ability to enter into additional contracts to secure our silicon supply; the
anticipated benefits of our String Ribbon technology; the making of strategic investments and the
expectation of future benefit from them; the development of the quad technology platform and its
potential effects on crystal growth; our position in the solar power market; our ability to reduce
the costs of producing solar products; and our expectations regarding the amount of photovoltaic
solar panels that we will be able to produce, and 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, macroeconomic and
geopolitical trends and events, the execution and performance of contracts by customers, suppliers
and partners, and other risks and uncertainties described herein, including but not limited to the
items discussed in Risk Factors in Item 1A of Part II of this report and that are otherwise
described from time to time in our
 filings with the Securities and Exchange Commission (SEC),
copies of which may be accessed through the SECs web site at http://www.sec.gov. We caution
readers not to place undue reliance on any forward-looking statements contained in this Quarterly
Report, which speak only as of the date of this Quarterly 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.
 3




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 Evergreen Solar, Inc.
 
 Condensed Consolidated Balance Sheets
 (in thousands, except share data)
 (unaudited)
 December 31,
    
    
    September 29,2006
    
    
    2007AssetsCurrent assets:Cash and cash equivalents
    
    $
    6,828
    
    
    $
    97,326Marketable securities
    
    
    42,593
    
    
    
    58,667Restricted cash
    
    
    
    
    
    
    41,000Accounts receivable, net of allowances for doubtful accounts
    
    
    20,249
    
    
    
    10,879Inventory
    
    
    4,767
    
    
    
    7,506Interest receivable
    
    
    675
    
    
    
    863Other current assets
    
    
    6,882
    
    
    
    11,275Total current assets
    
    
    81,994
    
    
    
    227,516Investment in and advances to EverQ
    
    
    70,460
    
    
    
    72,907Restricted cash
    
    
    414
    
    
    
    414Deferred financing costs
    
    
    2,434
    
    
    
    2,102Prepaid cost of inventory
    
    
    
    
    
    
    132,690Fixed assets, net
    
    
    50,516
    
    
    
    66,157Other assets
    
    
    1,433
    
    
    
    1,134Total assets
    
    $
    207,251
    
    
    $
    502,920Liabilities and stockholders equityCurrent liabilities:Accounts payable
    
    $
    18,465
    
    
    $
    25,840Accrued employee compensation
    
    
    2,791
    
    
    
    4,148Accrued interest
    
    
    
    
    
    
    984Accrued warranty
    
    
    705
    
    
    
    705Other accrued expenses
    
    
    2,443
    
    
    
    4,525Total current liabilities
    
    
    24,404
    
    
    
    36,202Subordinated convertible notes
    
    
    90,000
    
    
    
    90,000Total liabilities
    
    
    114,404
    
    
    
    126,202Commitments and contingencies (Note 5 and Note 11)Stockholders equity:Common stock, $0.01 par value, 150,000,000 shares authorized,
68,066,204 and 101,306,298 issued and outstanding at December 31, 2006
and September 29, 2007, respectively
    
    
    681
    
    
    
    1,013Additional paid-in capital
    
    
    211,053
    
    
    
    507,975Accumulated deficit
    
    
    (119,678
    )
    
    
    (137,068
    )Accumulated other comprehensive income
    
    
    791
    
    
    
    4,798Total stockholders equity
    
    
    92,847
    
    
    
    376,718Total liabilities and stockholders equity
    
    $
    207,251
    
    
    $
    502,920
  4




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Evergreen Solar, Inc.
 
 Condensed Consolidated Statements of Operations
 (in thousands, except per share data)
 (unaudited)
 Quarter Ended
    
    
    Year-to-date Period EndedSeptember 30,
    
    
    September 29,
    
    
    September 30,
    
    
    September 29,2006
    
    
    2007
    
    
    2006
    
    
    2007Product revenues
    
    $
    36,231
    
    
    $
    15,383
    
    
    $
    69,846
    
    
    $
    41,417Royalty and fee revenues
    
    
    
    
    
    
    2,807
    
    
    
    
    
    
    
    6,263Total revenues
    
    
    36,231
    
    
    
    18,190
    
    
    
    69,846
    
    
    
    47,680Cost of revenue
    
    
    30,525
    
    
    
    13,660
    
    
    
    64,654
    
    
    
    36,881Gross profit
    
    
    5,706
    
    
    
    4,530
    
    
    
    5,192
    
    
    
    10,799Operating expenses:Research and development
    
    
    4,511
    
    
    
    5,381
    
    
    
    12,321
    
    
    
    15,749Selling, general and administrative
    
    
    5,272
    
    
    
    5,079
    
    
    
    16,409
    
    
    
    15,355Facility start-up
    
    
    
    
    
    
    358
    
    
    
    
    
    
    
    358Total operating expenses
    
    
    9,783
    
    
    
    10,818
    
    
    
    28,730
    
    
    
    31,462Operating loss
    
    
    (4,077
    )
    
    
    (6,288
    )
    
    
    (23,538
    )
    
    
    (20,663
    )Other income (loss):Foreign exchange gains (losses), net
    
    
    148
    
    
    
    (133
    )
    
    
    2,107
    
    
    
    611Interest income
    
    
    917
    
    
    
    3,268
    
    
    
    3,519
    
    
    
    6,678Interest expense
    
    
    (1,763
    )
    
    
    (914
    )
    
    
    (4,874
    )
    
    
    (2,750
    )Other income (loss), net
    
    
    (698
    )
    
    
    2,221
    
    
    
    752
    
    
    
    4,539Loss before minority interest and equity loss
    
    
    (4,775
    )
    
    
    (4,067
    )
    
    
    (22,786
    )
    
    
    (16,124
    )Minority interest in EverQ
    
    
    (828
    )
    
    
    
    
    
    
    1,584
    
    
    
    Equity income (loss) from interest in EverQ
    
    
    
    
    
    
    404
    
    
    
    
    
    
    
    (1,266
    )Net loss
    
    $
    (5,603
    )
    
    $
    (3,663
    )
    
    $
    (21,202
    )
    
    $
    (17,390
    )Net loss per share (basic and diluted)
    
    $
    (0.08
    )
    
    $
    (0.04
    )
    
    $
    (0.33
    )
    
    $
    (0.21
    )Weighted average shares used in computing basic and diluted
net loss per share
    
    
    66,127
    
    
    
    98,343
    
    
    
    65,229
    
    
    
    82,692
  5




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##### Table of Contents



Evergreen Solar, Inc.
 
 Condensed Consolidated Statements of Cash Flows
 (in thousands)
 (unaudited)
 Year-to-Date Period EndedSeptember 30,
    
    
    September 29,2006
    
    
    2007Cash flows from operating activities:Net loss
    
    $
    (21,202
    )
    
    $
    (17,390
    )Adjustments to reconcile net loss to net cash used in operating activities:Depreciation expense
    
    
    5,415
    
    
    
    5,341Amortization of deferred grant credits
    
    
    (467
    )
    
    
    Loss on disposal of fixed assets
    
    
    776
    
    
    
    Minority interest in EverQ
    
    
    (1,584
    )
    
    
    Equity loss from EverQ
    
    
    
    
    
    
    1,266Amortization of deferred debt financing costs
    
    
    332
    
    
    
    333Bad debt expense
    
    
    85
    
    
    
    Accretion of bond discount
    
    
    (815
    )
    
    
    (525
    )Compensation expense associated with employee equity awards
    
    
    4,068
    
    
    
    4,877Changes in operating assets and liabilities:Accounts receivable
    
    
    (18,789
    )
    
    
    9,371Interest payable
    
    
    1,139
    
    
    
    984Inventory
    
    
    (8,562
    )
    
    
    (2,739
    )Prepaid cost of inventory
    
    
    
    
    
    
    (12,776
    )Interest receivable
    
    
    (158
    )
    
    
    (191
    )Other current assets
    
    
    1,106
    
    
    
    (4,393
    )Grants receivable
    
    
    6,946
    
    
    
    Accounts payable
    
    
    (1,029
    )
    
    
    7,375Accrued warranty
    
    
    419
    
    
    
    Accrued expenses
    
    
    11,115
    
    
    
    3,706Net cash used in operating activities
    
    
    (21,205
    )
    
    
    (4,761
    )Cash flows from investing activities:Purchases of fixed assets, deposits on fixed assets under construction and other
    
    
    (66,265
    )
    
    
    (20,679
    )Decrease (increase) in restricted cash
    
    
    891
    
    
    
    (41,000
    )Purchases of marketable securities
    
    
    (55,782
    )
    
    
    (67,000
    )Proceeds from sale and maturity of marketable securities
    
    
    85,486
    
    
    
    51,475Net cash used in investing activities
    
    
    (35,670
    )
    
    
    (77,204
    )Cash flows from financing activities:Increase in long-term debt
    
    
    11,923
    
    
    
    Increase in short-term debt
    
    
    33,670
    
    
    
    Proceeds from exercise of warrants
    
    
    13,446
    
    
    
    667Proceeds from the issuance of common stock, net of offering costs
    
    
    
    
    
    
    170,743Proceeds from exercise of stock options, and
shares purchased under Employee Stock Purchase Plan
    
    
    2,351
    
    
    
    1,053Net cash provided by financing activities
    
    
    61,390
    
    
    
    172,463Effect of exchange rate changes on cash and cash equivalents
    
    
    (1,003
    )
    
    
    Net increase in cash and cash equivalents
    
    
    3,512
    
    
    
    90,498Cash and cash equivalents at beginning of period
    
    
    30,742
    
    
    
    6,828Cash and cash equivalents at end of period
    
    $
    34,254
    
    
    $
    97,326Supplemental cash flow information:Non-cash cost of prepaid inventory
    
    $
    
    
    
    $
    119,914
  6




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Evergreen Solar, Inc.
 
 Notes to Condensed Consolidated Financial Statements
 (unaudited)
 1. Basis of Presentation
      7




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##### Table of Contents



2. Net Loss per Common Share
  3. Inventory
  December 31,
    
    
    September 29,2006
    
    
    2007Raw materials
    
    $
    3,714
    
    
    $
    6,365Work-in-process
    
    
    804
    
    
    
    672Finished goods
    
    
    249
    
    
    
    469$
    4,767
    
    
    $
    7,506
  4. Fixed Assets
  Useful
    
    
    December 31,
    
    
    September 29,Life
    
    
    2006
    
    
    2007Laboratory and manufacturing equipment
    
    3-7 years
    
    $
    36,544
    
    
    $
    56,239Computer and office equipment
    
    3-7 years
    
    
    910
    
    
    
    1,320Leasehold improvements
    
    Lesser of 15 to 20years or lease term
    
    
    8,360
    
    
    
    12,616Assets under construction
    
    
    
    
    
    
    18,002
    
    
    
    14,62363,816
    
    
    
    84,798Less: Accumulated depreciation
    
    
    
    
    
    
    (13,300
    )
    
    
    (18,641
    )$
    50,516
    
    
    $
    66,157
 8




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##### Table of Contents



5. Guarantor Arrangements
  Product Warranty
  Indemnification Agreements
  EverQ Debt Guarantee
   9




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##### Table of Contents



Credit
  Letters of Credit
  6. Stock Based Compensation
  Quarter Ended
    
    
    Year-to-Date Period EndedSeptember 30, 2006
    
    
    September 29, 2007
    
    
    September 30, 2006
    
    
    September 29, 2007Cost of product revenues
    
    $
    117
    
    
    $
    214
    
    
    $
    355
    
    
    $
    558Research and development expenses
    
    
    330
    
    
    
    411
    
    
    
    1,115
    
    
    
    1,184Selling, general and administrative expenses
    
    
    608
    
    
    
    1,086
    
    
    
    2,598
    
    
    
    3,135Total
    
    $
    1,055
    
    
    $
    1,711
    
    
    $
    4,068
    
    
    $
    4,877
  Year-to-Date Period EndedSeptember 30, 2006
    
    September 29, 2007Expected option term (years)
    
    
    6.25
    
    
    
    6.25Expected volatility factor
    
    
    130
    %
    
    
    155
    %Risk-free interest rate
    
    
    4.9%-5.1
    %
    
    
    5.1
    %Expected annual dividend yield
    
    
    0
    %
    
    
    0
    %
 10




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##### Table of Contents



Stock Incentive Plan
   Weighted-AverageShares
    
    
    Exercise PriceOutstanding at January 1, 2007
    
    
    5,309
    
    
    $
    4.20Granted
    
    
    16
    
    
    
    10.63Exercised
    
    
    (231
    )
    
    
    2.71Forfeited
    
    
    (93
    )
    
    
    5.93Outstanding at September 29, 2007
    
    
    5,001
    
    
    $
    4.26
  Options Outstanding
    
    Options ExercisableWeightedAverage
    
    Weighted
    
    
    
    
    
    WeightedRange of
    
    
    
    
    
    Remaining
    
    Average
    
    
    
    
    
    AverageExercise
    
    Number
    
    Contractual
    
    Exercise
    
    Number
    
    ExercisePrices
    
    Outstanding
    
    Life (Years)
    
    Price
    
    Exercisable
    
    Price$
    0.76
    
    
    
    
    
    
    $
    1.60
    
    
    
    278,233
    
    
    
    4.49
    
    
    $
    1.33
    
    
    
    278,233
    
    
    $
    1.331.61
    
    
    
    
    
    
    
    1.61
    
    
    
    1,638,000
    
    
    
    6.20
    
    
    
    1.61
    
    
    
    1,138,000
    
    
    
    1.611.68
    
    
    
    
    
    
    
    1.95
    
    
    
    7,456
    
    
    
    5.84
    
    
    
    1.75
    
    
    
    7,456
    
    
    
    1.752.00
    
    
    
    
    
    
    
    2.00
    
    
    
    914,176
    
    
    
    6.13
    
    
    
    2.00
    
    
    
    632,487
    
    
    
    2.002.08
    
    
    
    
    
    
    
    3.06
    
    
    
    513,756
    
    
    
    5.22
    
    
    
    2.49
    
    
    
    411,506
    
    
    
    2.473.10
    
    
    
    
    
    
    
    6.53
    
    
    
    504,947
    
    
    
    6.69
    
    
    
    5.04
    
    
    
    313,005
    
    
    
    5.066.63
    
    
    
    
    
    
    
    8.88
    
    
    
    507,019
    
    
    
    7.35
    
    
    
    7.56
    
    
    
    265,394
    
    
    
    7.579.33
    
    
    
    
    
    
    
    14.00
    
    
    
    286,195
    
    
    
    6.08
    
    
    
    11.99
    
    
    
    252,070
    
    
    
    12.1215.09
    
    
    
    
    
    
    
    15.09
    
    
    
    335,000
    
    
    
    8.41
    
    
    
    15.09
    
    
    
    83,750
    
    
    
    15.0919.00
    
    
    
    
    
    
    
    19.00
    
    
    
    16,000
    
    
    
    3.09
    
    
    
    19.00
    
    
    
    16,000
    
    
    
    19.005,000,782
    
    
    
    6.29
    
    
    $
    4.26
    
    
    
    3,397,901
    
    
    $
    3.74
  11




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##### Table of Contents



Weighted-AverageGrant-dateShares
    
    
    Fair ValueOutstanding at January 1, 2007
    
    
    1,129
    
    
    $
    14.25Granted
    
    
    1,817
    
    
    
    8.81Vested
    
    
    (66
    )
    
    
    8.90Forfeited
    
    
    (123
    )
    
    
    14.68Outstanding at September 29, 2007
    
    
    2,757
    
    
    $
    10.77
    7. Stockholders Equity
   12




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##### Table of Contents



8. Geographical and Customer Concentration of Revenue Information
  Year-to-Date Period EndedSeptember 30,
    
    September 29,2006
    
    2007By geography:United States
    
    
    33
    %
    
    
    83
    %Korea
    
    
    
    
    
    
    13
    %Germany
    
    
    65
    %
    
    
    2
    %Other
    
    
    2
    %
    
    
    2
    %100
    %
    
    
    100
    %By customer:PowerLight Corporation
    
    
    11
    %
    
    
    22
    %SunEdison
    
    
    
    
    
    
    18
    %groSolar
    
    
    
    
    
    
    14
    %Woojin Electric Machinery Co. Ltd.
    
    
    
    
    
    
    13
    %AEE Solar
    
    
    6
    %
    
    
    10
    %Ralos Vertriebes
    
    
    12
    %
    
    
    1
    %Donauer Solartechnik
    
    
    9
    %
    
    
    Krannich Solartechnik
    
    
    4
    %
    
    
    All other
    
    
    58
    %
    
    
    22
    %100
    %
    
    
    100
    %
 13




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##### Table of Contents



9. EverQ
   Year-to-Date PeriodQuarter Ended
    
    EndedSeptember 29, 2007
    
    September 29, 2007Revenue
    
    $
    47,525
    
    
    $
    106,426Cost of goods sold
    
    
    41,412
    
    
    
    92,555Other expenses
    
    
    4,900
    
    
    
    17,667Net income (loss)
    
    
    1,213
    
    
    
    (3,796
    )
 As ofSeptember 29, 2007Current assets
    
    $
    131,839Non-current assets
    
    
    331,720Current liabilities
    
    
    87,899Non-current liabilities
    
    
    284,911
  Date
of Loan
    
    Principal
    
    Principal (USD)
    
    Interest Rate
    
    Date DueJanuary 25, 2007
    
    
    30,000,000
    
    
    $
    42,657,000
    
    
    
    5.43
    %
    
    December 31, 2009
  10. Comprehensive Loss
  Quarter Ended
    
    
    Year-to-Date Period EndedSeptember 30,
    
    
    September 29,
    
    
    September 30,
    
    
    September 29,2006
    
    
    2007
    
    
    2006
    
    
    2007Net loss
    
    $
    (5,603
    )
    
    $
    (3,663
    )
    
    $
    (21,202
    )
    
    $
    (17,390
    )Other comprehensive income (loss):Unrealized gain on marketable securities
    
    
    119
    
    
    
    23
    
    
    
    55
    
    
    
    27Cumulative translation adjustments
    
    
    (373
    )
    
    
    3,458
    
    
    
    1,208
    
    
    
    3,980Total comprehensive loss
    
    $
    (5,857
    )
    
    $
    (182
    )
    
    $
    (19,939
    )
    
    $
    (13,383
    )
 11. Long-Term Debt
  14




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Conversion Option
  The Notes are convertible at any time into shares of the Companys common stock at an initial
conversion rate of 135.3180 shares per $1,000 principal amount of Notes, which is equal to a
conversion price of approximately $7.39 per share. This conversion rate can be adjusted upon
certain events with a make whole premium feature. On or after July 1, 2010, the Company may
redeem the Notes for cash at the following prices expressed as a percentage of the principal
amount: Redemption Period
    
    Price (% )Beginning on July 1, 2010 and ending on June 30, 2011
    
    
    101.250Beginning on July 1, 2011 and ending on June 30, 2012
    
    
    100.625On July 1, 2012
    
    
    100.000
 Put Option
  Call Option
  12.   Related Party Transactions
   13. Income Taxes
  15




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##### Table of Contents



14. Recent Accounting Pronouncements
  15. Subsequent Events
  16




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##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 The following discussion should be read in conjunction with the condensed consolidated financial
statements and the related notes that appear elsewhere in this Quarterly Report on Form 10-Q and
the consolidated financial statements and related notes thereto in our most recent Annual Report on
Fform 10-K.
 EXECUTIVE OVERVIEW
 tm
      17




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##### Table of Contents



CRITICAL ACCOUNTING POLICIES AND ESTIMATES
  Accounting for EverQ
     18




---



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Revenue Recognition and Allowance for Doubtful Accounts
    Warranty
  Stock-based Compensation
   Cash and cash equivalents
  Inventory
  19




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##### Table of Contents



Impairment of Long-lived Assets
  RESULTS OF OPERATIONS
 Revenues.
  Cost of revenues.
 Research and development expenses.
 Selling, general and administrative expenses.
 Facility start-up.
 Other income, net.
  20




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##### Table of Contents



Equity loss from interest in EverQ.
 Minority interest.
 Comparison of Quarters Ended September 29, 2007 and September 30, 2006
  Revenues .
  21




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##### Table of Contents



Quarter EndedSeptember 30,
    
    September 29,2006
    
    2007By geography:United States
    
    
    30
    %
    
    
    86
    %Korea
    
    
    
    
    
    
    11
    %Germany
    
    
    66
    %
    
    
    Other
    
    
    4
    %
    
    
    3
    %100
    %
    
    
    100
    %By customer:PowerLight Corporation
    
    
    21
    %
    
    
    25
    %groSolar
    
    
    
    
    
    
    17
    %SunEdison
    
    
    
    
    
    
    14
    %Woojin Electric Machinery Co. Ltd.
    
    
    
    
    
    
    11
    %AEE Solar
    
    
    5
    %
    
    
    10
    %S.A.G. Solarstrom
    
    
    10
    %
    
    
    Donauer Solartechnik
    
    
    7
    %
    
    
    All other
    
    
    57
    %
    
    
    23
    %100
    %
    
    
    100
    %
 Cost of product revenues and gross margins .
  Research and development expenses.
 Selling, general and administrative expenses.
 22




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##### Table of Contents



Facility start-up.
 Other income (loss), net .
 Equity income from interest in EverQ.
 Comparison of Year-to-Date Periods Ended September 29, 2007 and September 30, 2006
 Revenues .
  23




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##### Table of Contents



Year-to-Date Period EndedSeptember 30,
    
    September 29,2006
    
    2007By geography:United States
    
    
    33
    %
    
    
    83
    %Korea
    
    
    
    
    
    
    13
    %Germany
    
    
    65
    %
    
    
    2
    %Other
    
    
    2
    %
    
    
    2
    %100
    %
    
    
    100
    %By customer:PowerLight Corporation
    
    
    11
    %
    
    
    22
    %SunEdison
    
    
    
    
    
    
    18
    %groSolar
    
    
    
    
    
    
    14
    %Woojin Electric Machinery Co. Ltd.
    
    
    
    
    
    
    13
    %AEE Solar
    
    
    6
    %
    
    
    10
    %Ralos Vertriebes
    
    
    12
    %
    
    
    1
    %Donauer Solartechnik
    
    
    9
    %
    
    
    Krannich Solartechnik
    
    
    4
    %
    
    
    All other
    
    
    58
    %
    
    
    22
    %100
    %
    
    
    100
    %
 Cost of product revenues and gross margins .
  Research and development expenses.
 Selling, general and administrative expenses.
 24




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##### Table of Contents



Facility start-up.
 Other income, net .
 Equity loss from interest in EverQ.
 Liquidity and Capital Resources
     25




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Off-Balance Sheet Arrangements
  Contractual Obligations
  Total
    
    
    Less thanYears
    
    
    1 Year
    
    
    1-3 Years
    
    
    4-5 Years
    
    
    After 5 YearsNon-cancelable operating leases
    
    $
    4,722
    
    
    $
    1,410
    
    
    $
    2,872
    
    
    $
    440
    
    
    $
    Maturity of Convertible Debt
    
    
    90,000
    
    
    
    
    
    
    
    
    
    
    
    90,000
    
    
    
    Interest expense associated with
Convertible Debt
    
    
    19,688
    
    
    
    3,938
    
    
    
    11,813
    
    
    
    3,937
    
    
    
    Capital expenditure obligations
    
    
    81,844
    
    
    
    81,844
    
    
    
    
    
    
    
    
    
    
    
    Raw materials purchase commitments
    
    
    278,626
    
    
    
    9,822
    
    
    
    98,522
    
    
    
    89,812
    
    
    
    80,470Total contractual cash obligations
    
    $
    474,880
    
    
    $
    97,014
    
    
    $
    113,207
    
    
    $
    184,189
    
    
    $
    80,470
  26




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##### Table of Contents



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
 INTEREST RATE RISK
  FOREIGN CURRENCY EXCHANGE RATE RISK
  
 ITEM 4. CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
  Internal Control over Financial Reporting
  
 PART II. OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  
 ITEM 1A. RISK FACTORS
 The factors discussed below are cautionary statements that identify important factors that could
cause actual results to differ materially from those anticipated by the forward-looking statements
contained in this report. For more information regarding the forward-looking statements contained
in this report, see Concerns Regarding Forward-Looking Statements at the beginning of this
report. You should carefully consider the risks and uncertainties described below, together with
all of the other information included in this report, in considering our business and prospects.
The risks and uncertainties described below are not the only ones that we face. Additional risks
and uncertainties not presently known to us or that we currently deem to be immaterial also may
materially impair our business operations. The occurrence of any of the following risks could
adversely affect our business, financial condition or results of operations.
 27




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##### Table of Contents



Risks Relating to Our Industry, Products, Financial Results and Operations
 Evaluating our business and future prospects may be difficult due to the rapidly changing market
landscape .
   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
  
    
    expand our manufacturing operations, whether domestically or internationally,
including EverQ;
    
    develop our distribution network;
    
    continue to research and develop our products and manufacturing technologies;
    
    implement internal systems and infrastructure in conjunction with our growth; and
    
    hire additional personnel.
  We will need to raise significant additional capital in order to fund our operations and to
continue to grow our business, which subjects us to the risk that we may be unable to maintain or
grow our business as planned and that our stockholders may be subject to substantial additional
dilution
   28




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##### Table of Contents



EverQ provides the majority of the solar products that we distribute and is an important component
of our growth strategy. EverQ is subject to numerous risks, many of which are outside of our
control, and we cannot assure you that EverQ will achieve its objectives or otherwise be
successful. If EverQ is not successful, our business would be materially and adversely harmed and
our stock price would decline
  
    
    government grants that have been approved may be subject to forfeiture or repayment in
whole or in part if EverQ fails to continue to meet the conditions for such grants or if
such grants for any reason become unavailable from German or European Union sources;
    
    the establishment of new facilities may result in cost overruns, delays, equipment
problems and construction, start-up and other operating difficulties, any of which could
adversely affect the ability of EverQ to achieve or grow revenue on the timeframe it
expects; as we only own one-third of EverQ, Q-Cells and REC will have the ability to
influence the strategic direction of EverQ and other material decisions of EverQ; as a
result, we may be unable to take certain actions that we believe would be in our best
interests, which, given the expected materiality of EverQ to our combined operations, could
significantly harm our business; further, we may be liable to third parties for the
material decisions and actions of Q-Cells and REC in EverQ, which actions may harm EverQ
and our business;
    
    the joint venture agreement is governed by German law and may be subject to multiple,
conflicting and changing laws, regulations and tax schemes relating to EverQ;
    
    regardless of whether we own a portion of EverQ or have any control over its operations
EverQ will continue to have certain rights to our proprietary technologies that we are
licensing to it and thereby compete with us;
    
    limitations on dividends or restrictions against repatriation of earnings may limit our
ability to capitalize on earnings from EverQ;
 Our future success depends on our ability to increase our manufacturing capacity through the
development of additional manufacturing facilities. We may be unable to achieve our capacity
expansion goals, which would limit our growth potential, impair our operating results and financial
condition and cause our stock price to decline.
   
    
    we will need to continue to raise significant additional capital through the issuance of
equity or convertible or debt securities in order to finance the costs of development of
any additional facility, which we may be unable to do so on reasonable terms or at all, and
which could be dilutive to our existing stockholders;
    
    the build-out of any additional facility will be subject to the risks inherent in the
development of a new manufacturing facility, including risks of delays and cost overruns as
a result of a number of factors, many of which may be out of our control, such as delays in
government approvals or problems with supplier relationships;
    
    we may be required to depend on third parties or strategic partnerships that we
establish in the development and operation of additional production capacity, which may
subject us to risks that such third parties do not fulfill their obligations to us under
our arrangements with them; and
 29




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##### Table of Contents




    
    if a new facility is established internationally, we may encounter legal restrictions
and liability, encounter commercial restrictions and incur taxes and other expenses to do
so and otherwise be subject to the risks inherent in conducting business in a foreign
jurisdiction as described elsewhere in this section.
   The solar power industry is currently experiencing an industry-wide shortage of polysilicon. The
prices that we pay for polysilicon have increased recently and we expect prices to remain at or
above current levels for the foreseeable future, which may constrain our revenue growth and
decrease our gross margins and profitability.
   Our dependence on a limited number of third party suppliers for raw materials, key components for
our solar power products and custom-built equipment for our operations could prevent us from
delivering our products to our customers within required timeframes, which could result in order
cancellations and loss of market share.
  30




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##### Table of Contents



We continue to invest significantly in research and development, and these efforts may not result
in improved products or manufacturing processes.
  Our solar power products may not gain market acceptance, which would prevent us from achieving
increased revenues and market share
  
    
    our failure to produce solar power products that compete favorably against other solar
power products on the basis of cost, quality and performance;
    
    our failure to produce solar power products that compete favorably against conventional
energy sources and alternative distributed generation technologies, such as wind and
biomass, on the basis of cost, quality and performance;
    
    whether or not customers will accept our new panel designs under development and the
techniques we are developing to mount them; and
    
    our failure to develop and maintain successful relationships with distributors, systems
integrators and other resellers, as well as strategic partners.
  Technological changes in the solar power industry could render our solar power products
uncompetitive or obsolete, which could reduce our market share and cause our revenues to decline
  31




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##### Table of Contents



Our ability to increase market share and revenues depends on our ability to successfully maintain
our existing distribution relationships and expand our distribution channels
  We face risks associated with the marketing, distribution and sale of our solar power products
internationally, and if we are unable to effectively manage these risks, it could impair our
ability to expand our business abroad
  
    
    difficult and expensive compliance with the commercial and legal requirements of
international markets, with which we have only limited experience;
    
    inability to obtain, maintain or enforce intellectual property rights;
    
    encountering trade barriers such as export requirements, tariffs, taxes and other
restrictions and expenses, which could affect the competitive pricing of our solar power
products and reduce our market share in some countries;
    
    fluctuations in currency exchange rates relative to the U.S. dollar;
    
    difficulty in recruiting and retaining individuals skilled in international business
operations;
    
    increased costs associated with maintaining international marketing efforts; and
    
    inability to develop, manufacture, market and sell our products and services in Germany
and other international markets due to, for example, third-party intellectual property
rights.
  Our dependence on a small number of resellers 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.
 32




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##### Table of Contents



Problems with product quality or product performance may cause us to incur warranty expenses and
may damage our market reputation and prevent us from achieving increased sales and market share
  Our success in the future may depend on our ability to establish and maintain strategic alliances,
and any failure on our part to establish and maintain such relationships could adversely affect our
market penetration and revenue growth
   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
   Extended business interruption at our manufacturing facilities could result in reduced sales
  The reduction or elimination of government subsidies and economic incentives for on-grid
applications could cause our revenues to decline
  33




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##### Table of Contents



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 revenues would
not significantly increase and we would be unable to achieve or sustain profitability
  
    
    cost-effectiveness of solar power technologies as compared with conventional and
non-solar alternative energy technologies;
    
    performance and reliability of solar power products as compared with conventional and
non-solar alternative energy products;
    
    success of alternative distributed generation technologies such as fuel cells, wind
power and micro turbines;
    
    fluctuations in economic and market conditions that impact the viability of conventional
and non-solar alternative energy sources, such as increases or decreases in the prices of
oil and other fossil fuels;
    
    capital expenditures by customers that tend to decrease when the United States or global
economy slows;
    
    continued deregulation of the electric power industry and broader energy industry; and
    
    availability of government subsidies and incentives.
 We face intense competition from other companies producing solar power and other energy generation
products. If we fail to compete effectively, we may be unable to increase our market share and
revenues
  If we are unable to protect our intellectual property adequately, we could lose our competitive
advantage in the solar power market
  
    
    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;
 34




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##### Table of Contents




    
    given the costs of obtaining patent protection, we may choose not to protect certain
innovations that later turn out to be important;
    
    third parties may design around our patented technologies or seek to challenge or
invalidate our intellectual property rights and there is no assurance that our intellectual
property rights will deter infringement or misappropriation of our intellectual property;
    
    we may incur significant costs and diversion of management resources in prosecuting or
defending intellectual property infringement suits;
    
    we may not be successful in prosecuting or defending intellectual property infringement
suits and, as a result, may need to seek to obtain a license of the third partys
intellectual property rights, which may not be available to us, whether on reasonable terms
or at all; 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 may be disclosed to competitors, strategic partners and the public.
 If we are subject to litigation and infringement claims, they could be costly and disrupt our
business
  
    
    assert claims of infringement or misappropriation of or otherwise enforce our
intellectual property rights;
    
    protect our trade secrets or know-how; or
    
    determine the enforceability, scope and validity of our intellectual property rights or
those of others.
   We may be unable to adequately protect or enforce our proprietary information, which may result in
its unauthorized use, reduced revenues or otherwise reduce our ability to compete
   35




---



##### Table of Contents




    
    independently develop substantially equivalent proprietary information, products and
techniques;
    
    otherwise gain access to our proprietary information; or
    
    design around our patents or other intellectual property.
  Existing regulations and changes to such regulations may present technical, regulatory and economic
barriers to the purchase and use of solar power products, which may significantly reduce demand for
our products
   Compliance with environmental regulations can be expensive, and noncompliance with these
regulations may result in adverse publicity and potentially significant monetary damages and fines
  Product liability claims against us could result in adverse publicity and potentially significant
monetary damages .
  36




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##### Table of Contents



Risks Related to Our Common Stock
 Substantial leverage and debt service obligations may adversely affect our cash flows .
  
    
    make it difficult for us to make payments on the notes;
    
    make us more vulnerable to industry downturns and competitive pressures; and
    
    limit our flexibility in planning for, or reacting to changes in, our business.
 .
 The price of our common stock has been volatile, and you may not be able to resell your shares at
or above your purchase price.
  
    
    the size and timing of customer orders for or shipments of our products;
    
    the rate and cost at which we are able to expand our manufacturing capacity to meet
product demand, including the rate and cost at which we are able to implement advances
in our StringRibbon technology;
    
    our ability to design, construct, open and commence operations of our new
Massachusetts facility as scheduled and within budget or any future expansions;
    
    our ability to establish and expand key customer and distributor relationships;
    
    our ability and the terms upon which we are able to raise capital sufficient to
finance the expansion of our manufacturing capacity and our sales and marketing
efforts;
    
    our ability to establish strategic relationships with third parties to accelerate
our growth plans;
    
    the amount and timing of expenses associated with our research and development
programs and our ability to develop enhancements to our manufacturing processes and our
products;
    
    delays associated with the supply of specialized materials necessary for the
manufacture of our solar power products;
    
    our ability to execute our cost reduction programs;
    
    one time charges resulting from replacing existing equipment or technology with new
or improved equipment or technology as part of our strategy to expand our manufacturing
capacity and to decrease our per unit manufacturing cost;
    
    developments in the competitive environment, including the introduction of new
products or technological advancements by our competitors; and
    
    the timing of adding the personnel necessary to execute our growth plan.
  37




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##### Table of Contents



Because we do not intend to pay dividends, stockholders will benefit from an investment in our
common stock only if it appreciates in value
  We 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.
  We can issue shares of preferred stock that may adversely affect the rights of a stockholder of our
common stock .
  
    
    adversely affect the voting power of the stockholders of our common stock;
    
    discourage bids for our common stock at a premium;
    
    limit or eliminate any payments that the stockholders of our common stock could expect
to receive upon our liquidation; or
    
    result in dilution to existing stockholders or otherwise adversely affect the market
price of our common stock.
  38




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##### Table of Contents



ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  
 ITEM 3. DEFAULTS UPON SENIOR SECURITIES
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  
 ITEM 5. OTHER INFORMATION
  
 ITEM 6. EXHIBITS
 Number
    
    Description3.1 (1)
    
    Third Amended and Restated Certificate of Incorporation (Exhibit 3.2)3.2 (1)
    
    Second Amended and Restated By-laws (Exhibit 3.4)3.3 (2)
    
    Certificate of Amendment of Third Amended and Restated Certificate of Incorporation filed on
May 15, 2003 (Exhibit 4.3)3.4 (2)
    
    Certificate of the Powers, Designations, Preferences and Rights of the Series A Convertible
Preferred Stock of the Registrant (Exhibit 4.4)3.5 (3)
    
    Certificate of Amendment of Third Amended and Restated Certificate of Incorporation filed on
August 20, 2004 (Exhibit 4.5)3.6 (4)
    
    Certificate of Amendment of Third Amendment and Restated Certificate of Incorporation filed
on January 8, 2007 (Exhibit 3.1)3.7(5)
    
    Certificate of Designations of Rights, Preferences and Privileges of Series B Preferred
Stock of the Registrant (Exhibit 3.4)4.1 (6)
    
    Indenture between the Registrant and U.S. Bank National Association, as Trustee, dated
June 29, 2005 (Exhibit 4.4)4.2 (6)
    
    Form of 4.375% Convertible Subordinated Notes due 2012 (Exhibit 4.4)10.1 (7)*
    
    Change of Control Severance Agreement, dated as of July 30, 2007, between the Registrant and
Rodolfo Archibald. (Exhibit 10.1)10.2 +
    
    Supply Agreement between the Registrant and Wacker Chemie AG, effective as of August31, 2007.31.1
    
    Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a)
of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 200231.2
    
    Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a)
of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 200232.1
    
    Certification of the Chief Executive Officer pursuant to Rule 13a-14(d) and Rule 15d-14(d)
of the Securities Exchange Act of 1934, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 200232.2
    
    Certification of the Chief Financial Officer pursuant to Rule 13a-14(d) and Rule 15d-14(d)
of the Securities Exchange Act of 1934, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
 
 +
    
    Confidential treatment requested as to certain portions.*
    
    Indicates a management contract or compensatory plan, contract or arrangement. 39




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##### Table of Contents



(1)
    
    Incorporated herein by reference to the exhibits to the Companys Registration Statement on
Form S-1/A, filed on October 3, 2000. The number given in parenthesis indicates the
corresponding exhibit number in such Form S-1/A.(2)
    
    Incorporated herein by reference to the exhibits to the Companys Registration Statement on
Form S-8 dated June 9, 2003. The number given in parenthesis indicates the corresponding
exhibit number in such Form S-8.(3)
    
    Incorporated herein by reference to the exhibits to the Companys Registration Statement on
Form S-3 filed on October 21, 2004. The number given in parenthesis indicates the
corresponding exhibit number in such Form S-3.(4)
    
    Incorporated herein by reference to the exhibits to the Companys Current Report on Form 8-K
dated January 2, 2007 and filed on January 8, 2007. The number given in parenthesis indicates
the corresponding exhibit number in such Form 8-K.(5)
    
    Incorporated herein by reference to the exhibits to the Companys Registration Statement on
Form S-3 dated May 16, 2007. The number given in parenthesis indicates the corresponding
exhibit number in such Form S-3.(6)
    
    Incorporated herein by reference to the exhibits to the Companys Current Report on Form 8-K
dated June 23, 2005 and filed on June 29, 2005. The number given in parenthesis indicates the
corresponding exhibit number in such Form 8-K.(7)
    
    Incorporated herein by reference to the exhibits to the Companys Current Report on Form 8-K
dated July 30, 2007 and filed on August 2, 2007. The number given in parenthesis indicates
the corresponding exhibit number in such Form 8-K. 40




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##### Table of Contents



SIGNATURES
  EVERGREEN SOLAR, INC.Date: November 8, 2007/s/ Michael El-HillowMichael El-HillowChief Financial Officer and Secretary
(Principal Financial Officer)