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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549


FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarter ended March 31, 2003


OR

[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from      to


COMMISSION FILE NUMBER 000-31687

EVERGREEN SOLAR, INC.

(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)


|                                                                       |  |                                                  
|---------------------------------------------------------------------- |  | -------------------------------------------------
|DELAWARE(STATE OR OTHER JURISDICTION OF
INCORPORATION OR ORGANIZATION) |  | 04-3242254(I.R.S. EMPLOYER
IDENTIFICATION NUMBER)

259 Cedar Hill Street
Marlboro, Massachusetts 01752(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)

(508) 357-2221(REGISTRANTS TELEPHONE NUMBER, INCLUDING AREA CODE)

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  [X]  No  [  ]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes  [X]  No  [  ]

Indicate the number of shares outstanding of each of the issuers classes of
common stock, as of the latest practicable date: As of April 25, 2003 there
were 11,411,646 shares of common stock outstanding.







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TABLE OF CONTENTS



|                                 |                                                                                               |                                                 |  |  |  |  |  | 
|-------------------------------- | --------------------------------------------------------------------------------------------- | ----------------------------------------------- |  |  |  |  |  | 
|PART I. FINANCIAL INFORMATION   
|                                 | ITEM 1. FINANCIAL STATEMENTS                                                                 
|                                 |                                                                                               | Condensed Consolidated Balance Sheets          
|                                 |                                                                                               | Condensed Consolidated Statements of Operations
|                                 |                                                                                               | Condensed Consolidated Statements of Cash Flows
|                                 | ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|                                 | ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK                            
|                                 | ITEM 4. EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES                                     
|PART II. OTHER INFORMATION      
|                                 | ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS                                            
|                                 | ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K                                                     
|SIGNATURES                      
|Certifications                  
|Ex-99.1 Certification of the CEO
|Ex-99.2 Certification of the CFO



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##### Table of Contents



EVERGREEN SOLAR, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2003

TABLE OF CONTENTS

|                               |                                                                                               |                                                                                                                        |  |      |   | 
|------------------------------ | --------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------- |  | ---- | - | 
|                               |                                                                                               |                                                                                                                        |  | Page
|                               |                                                                                               |                                                                                                                        |  |     
|PART I  FINANCIAL INFORMATION |                                                                                               |                                                                                                                        |  |     
|                               | ITEM 1: FINANCIAL STATEMENTS                                                                  |                                                                                                                        |  |      |  
|                               |                                                                                               | Unaudited Condensed Consolidated Balance Sheets at December 31, 2002
and March 31, 2003                                |  |      | 3 | 
|                               |                                                                                               | Unaudited Condensed Consolidated Statements of Operations for the
Three Months Ended March 31, 2002 and March 31, 2003 |  |      | 4 | 
|                               |                                                                                               | Unaudited Condensed Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 2002 and March 31, 2003 |  |      | 5 | 
|                               |                                                                                               | Notes to Condensed Consolidated Financial Statements                                                                   |  |      | 6 | 
|                               | ITEM 2: MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |                                                                                                                        |  | 9    |  
|                               | ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK                             |                                                                                                                        |  | 23   |  
|                               | ITEM 4: EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES                                      |                                                                                                                        |  | 23   |  
|PART II  OTHER INFORMATION    |                                                                                               |                                                                                                                        |  |     
|                               | ITEM 2: CHANGES IN SECURITIES AND USE OF PROCEEDS                                             |                                                                                                                        |  | 24   |  
|                               | ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K                                                      |                                                                                                                        |  | 25   |  
|SIGNATURES                     |                                                                                               |                                                                                                                        |  |     
|EXHIBIT INDEX                  |                                                                                               |                                                                                                                        |  |     

2



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PART I. FINANCIAL INFORMATION




ITEM 1. FINANCIAL STATEMENTS




Evergreen Solar, Inc.
Condensed Consolidated Balance Sheets
(in thousands, except share data)
(unaudited)

|                                                                                                                                                                    |                                                                                                                                    |                            |                           |       |              |        |           |       |        |        | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------- | -------------------------- | ------------------------- | ----- | ------------ | ------ | --------- | ----- | ------ | ------ | 
|                                                                                                                                                                    |                                                                                                                                    |                            |                           |       | December 31, |        | March 31,
|                                                                                                                                                                    |                                                                                                                                    |                            |                           |       | 2002         |        | 2003     
|                                                                                                                                                                    |                                                                                                                                    |                            |                           |       |              |        |          
|Assets                                                                                                                                                              |                                                                                                                                    |                            |                           |       |              |        |           |      
|Current assets:                                                                                                                                                     |                                                                                                                                    |                            |                           |       |              |        |           |      
|                                                                                                                                                                    | Cash and cash equivalents                                                                                                          |                            | $                         | 1,194 |              |        | $         | 3,281 |       
|                                                                                                                                                                    | Short-term investments                                                                                                             |                            |                           | 7,289 |              |        |           | 2,308 |       
|                                                                                                                                                                    | Accounts receivable, net of allowance for doubtful accounts of $140
and $230 at December 31, 2002 and March 31, 2003, respectively |                            |                           | 2,848 |              |        |           | 1,500 |       
|                                                                                                                                                                    | Interest receivable                                                                                                                |                            |                           | 57    |              |        |           | 38    |       
|                                                                                                                                                                    | Inventory                                                                                                                          |                            |                           | 2,194 |              |        |           | 2,917 |       
|                                                                                                                                                                    | Other current assets                                                                                                               |                            |                           | 1,012 |              |        |           | 1,068 |       
|                                                                                                                                                                    |                                                                                                                                    |                            |                           |       |              |        |           |       |       
|                                                                                                                                                                    |                                                                                                                                    |                            | Total current assets      |       |              | 14,594 |           |       |        | 11,112 | 
|Restricted cash                                                                                                                                                     |                                                                                                                                    |                            | 464                       |       |              |        | 414       |      
|Fixed assets, net                                                                                                                                                   |                                                                                                                                    |                            | 16,905                    |       |              |        | 16,929    |      
|                                                                                                                                                                    |                                                                                                                                    |                            |                           |       |              |        |           |       |       
|Total assets                                                                                                                                                        |                                                                                                                                    | $                          | 31,963                    |       |              | $      | 28,455    |      
|                                                                                                                                                                    |                                                                                                                                    |                            |                           |       |              |        |           |       |       
|Liabilities and stockholders equity                                                                                                                                |                                                                                                                                    |                            |                           |       |              |        |           |      
|Current liabilities:                                                                                                                                                |                                                                                                                                    |                            |                           |       |              |        |           |      
|                                                                                                                                                                    | Accounts payable                                                                                                                   |                            | $                         | 861   |              |        | $         | 599   |       
|                                                                                                                                                                    | Accrued employee compensation                                                                                                      |                            |                           | 569   |              |        |           | 457   |       
|                                                                                                                                                                    | Accrued warranty                                                                                                                   |                            |                           | 326   |              |        |           | 342   |       
|                                                                                                                                                                    | Other accrued expenses                                                                                                             |                            |                           | 294   |              |        |           | 305   |       
|                                                                                                                                                                    |                                                                                                                                    |                            |                           |       |              |        |           |       |       
|                                                                                                                                                                    |                                                                                                                                    |                            | Total current liabilities |       |              | 2,050  |           |       |        | 1,703  | 
|Stockholders equity:                                                                                                                                               |                                                                                                                                    |                            |                           |       |              |        |           |      
|Preferred stock, $.01 par value, 1,000,000 shares authorized, no shares issued or
outstanding at December 31, 2002 and March 31, 2003, respectively                 |                                                                                                                                    |                            |                          |       |              |        |          |      
|Common stock, $0.01 par value, 30,000,000 shares authorized,
11,410,826 and 11,411,646 issued and outstanding at December 31, 2002
and March 31, 2003, respectively |                                                                                                                                    |                            | 114                       |       |              |        | 114       |      
|Additional paid-in capital                                                                                                                                          |                                                                                                                                    |                            | 71,508                    |       |              |        | 71,509    |      
|Accumulated other comprehensive income                                                                                                                              |                                                                                                                                    |                            | 7                         |       |              |        | 1         |      
|Accumulated deficit                                                                                                                                                 |                                                                                                                                    |                            | (41,356                   | )     |              |        | (44,581   | )    
|Deferred compensation                                                                                                                                               |                                                                                                                                    |                            | (360                      | )     |              |        | (291      | )    
|                                                                                                                                                                    |                                                                                                                                    |                            |                           |       |              |        |           |       |       
|                                                                                                                                                                    |                                                                                                                                    | Total stockholders equity |                           |       | 29,913       |        |           |       | 26,752 |       
|                                                                                                                                                                    |                                                                                                                                    |                            |                           |       |              |        |           |       |       
|Total liabilities and stockholders equity                                                                                                                          |                                                                                                                                    | $                          | 31,963                    |       |              | $      | 28,455    |      
|                                                                                                                                                                    |                                                                                                                                    |                            |                           |       |              |        |           |       |       

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

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Evergreen Solar, Inc.
Condensed Consolidated Statements of Operations
(in thousands, except per share data)
(unaudited)

|                                                                                      |                                                                         |   |                    |       |      |   |        |       |  
|------------------------------------------------------------------------------------- | ----------------------------------------------------------------------- | - | ------------------ | ----- | ---- | - | ------ | ----- | -
|                                                                                      |                                                                         |   | Three months ended
|                                                                                      |                                                                         |   | March 31,         
|                                                                                      |                                                                         |   | 2002               |       | 2003
|                                                                                      |                                                                         |   |                    |       |     
|Revenues:                                                                             |                                                                         |   |                    |       |      |   |        |      
|                                                                                      | Product revenues                                                        |   | $                  | 913   |      |   | $      | 1,067 |  
|                                                                                      | Research revenues                                                       |   |                    | 236   |      |   |        | 381   |  
|                                                                                      |                                                                         |   |                    |       |      |   |        |       |  
|Total revenues                                                                        |                                                                         |   | 1,149              |       |      |   | 1,448  |      
|Operating expenses:                                                                   |                                                                         |   |                    |       |      |   |        |      
|                                                                                      | Cost of product revenues                                                |   |                    | 2,904 |      |   |        | 2,666 |  
|                                                                                      | Research and development expenses, including costs of research revenues |   |                    | 854   |      |   |        | 713   |  
|                                                                                      | Selling, general and administrative expenses                            |   |                    | 1,054 |      |   |        | 1,317 |  
|                                                                                      |                                                                         |   |                    |       |      |   |        |       |  
|Total operating expenses                                                              |                                                                         |   | 4,812              |       |      |   | 4,696  |      
|                                                                                      |                                                                         |   |                    |       |      |   |        |       |  
|Operating loss                                                                        |                                                                         |   | (3,663             | )     |      |   | (3,248 | )    
|Net interest income                                                                   |                                                                         |   | 242                |       |      |   | 23     |      
|                                                                                      |                                                                         |   |                    |       |      |   |        |       |  
|Net loss                                                                              |                                                                         |   | (3,421             | )     |      |   | (3,225 | )    
|Other comprehensive income:                                                           |                                                                         |   |                    |       |      |   |        |      
|                                                                                      | Unrealized
loss on investments                                          |   |                    | (94   | )    |   |        | (6    | )
|                                                                                      |                                                                         |   |                    |       |      |   |        |       |  
|Comprehensive loss                                                                    |                                                                         | $ | (3,515             | )     |      | $ | (3,231 | )    
|                                                                                      |                                                                         |   |                    |       |      |   |        |       |  
|Net loss per common share (basic and diluted)                                         |                                                                         | $ | (0.30              | )     |      | $ | (0.28  | )    
|Weighted average shares used in computing basic and diluted
net loss per common share |                                                                         |   | 11,398             |       |      |   | 11,411 |      

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

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Evergreen Solar, Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)

|                                                                            |                                                          |                                                             |                      |        |                    |      |        |        |     |       |  
|--------------------------------------------------------------------------- | -------------------------------------------------------- | ----------------------------------------------------------- | -------------------- | ------ | ------------------ | ---- | ------ | ------ | --- | ----- | -
|                                                                            |                                                          |                                                             |                      |        | Three months ended
|                                                                            |                                                          |                                                             |                      |        | March 31,         
|                                                                            |                                                          |                                                             |                      |        | 2002               |      | 2003  
|                                                                            |                                                          |                                                             |                      |        |                    |      |       
|Cash flows from operating activities:                                       |                                                          |                                                             |                      |        |                    |      |        |       
|                                                                            | Net loss                                                 |                                                             | $                    | (3,421 | )                  |      | $      | (3,225 | )  
|Adjustments to reconcile net loss to net cash used in operating activities: |                                                          |                                                             |                      |        |                    |      |        |       
|                                                                            |                                                          | Depreciation expense                                        |                      |        | 504                |      |        |        | 514 |      
|                                                                            |                                                          | Bad debt expense                                            |                      |        | 27                 |      |        |        | 90  |      
|                                                                            |                                                          | Amortization of bond premiums                               |                      |        | 94                 |      |        |        | 26  |      
|                                                                            |                                                          | Write-off of fixed assets                                   |                      |        | 43                 |      |        |        |    |      
|                                                                            |                                                          | Compensation expense associated with employee stock options |                      |        | 71                 |      |        |        | 69  |      
|                                                                            |                                                          | Changes in operating assets and liabilites:                 |                      |        |                    |      |        |        |     |      
|                                                                            |                                                          |                                                             | Inventory            |        |                    | (653 | )      |        |     | (723  | )
|                                                                            |                                                          |                                                             | Other current assets |        |                    | (69  | )      |        |     | 208   |  
|                                                                            |                                                          |                                                             | Interest receivable  |        |                    | (41  | )      |        |     | 19    |  
|                                                                            |                                                          |                                                             | Accounts receivable  |        |                    | (266 | )      |        |     | 1,258 |  
|                                                                            |                                                          |                                                             | Accounts payable     |        |                    | 48   |        |        |     | (262  | )
|                                                                            |                                                          |                                                             | Accrued expenses     |        |                    | (31  | )      |        |     | (85   | )
|                                                                            |                                                          |                                                             |                      |        |                    |      |        |        |     |      
|Net cash used in operating activities                                       |                                                          |                                                             | (3,694               | )      |                    |      | (2,111 | )     
|Cash flows from investing activities:                                       |                                                          |                                                             |                      |        |                    |      |        |       
|                                                                            | Purchases of fixed assets                                |                                                             |                      | (232   | )                  |      |        | (538   | )  
|                                                                            | Purchases of investments                                 |                                                             |                      |       |                    |      |        |       |    
|                                                                            | Proceeds from sale and maturity of investments           |                                                             |                      | 2,032  |                    |      |        | 4,949  |    
|                                                                            |                                                          |                                                             |                      |        |                    |      |        |        |     |      
|Net cash provided by investing activites                                    |                                                          |                                                             | 1,800                |        |                    |      | 4,411  |       
|Cash flows from financing activities:                                       |                                                          |                                                             |                      |        |                    |      |        |       
|                                                                            | Restricted cash                                          |                                                             |                      |       |                    |      |        | 50     |    
|                                                                            | Financing costs                                          |                                                             |                      |       |                    |      |        | (264   | )  
|                                                                            | Proceeds from the exercise of stock options and warrants |                                                             |                      | 2      |                    |      |        | 1      |    
|                                                                            |                                                          |                                                             |                      |        |                    |      |        |        |     |      
|Net cash flow provided (used) by financing activities                       |                                                          |                                                             | 2                    |        |                    |      | (213   | )     
|                                                                            |                                                          |                                                             |                      |        |                    |      |        |        |     |      
|Net increase (decrease) in cash and cash equivalents                        |                                                          |                                                             | (1,892               | )      |                    |      | 2,087  |       
|Cash and cash equivalents at beginning of period                            |                                                          |                                                             | 2,554                |        |                    |      | 1,194  |       
|                                                                            |                                                          |                                                             |                      |        |                    |      |        |        |     |      
|Cash and cash equivalents at end of period                                  |                                                          | $                                                           | 662                  |        |                    | $    | 3,281  |       
|                                                                            |                                                          |                                                             |                      |        |                    |      |        |        |     |      
|Supplemental cash flow information:                                         |                                                          |                                                             |                      |        |                    |      |        |       
|                                                                            | Taxes paid                                               |                                                             |                      | 14     |                    |      |        | 1      |    

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

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1. Basis of Presentation

The accompanying condensed consolidated interim financial statements of
Evergreen Solar, Inc. (Evergreen Solar or the Company) are unaudited and
have been prepared on a basis substantially consistent with the Companys
audited financial statements for the year ended December 31, 2002. The
condensed consolidated interim financial statements have been prepared in
accordance with accounting principles generally accepted in the United States
of America for interim financial information. Consequently, these statements
do not include all disclosures normally required by generally accepted
accounting principles for annual financial statements. These condensed
consolidated interim financial statements should be read in conjunction with
the Companys audited financial statements for the year ended December 31,
2002, which are contained in the Companys Annual Report on Form 10-K for the
fiscal year ended December 31, 2002, which was filed with the Securities and
Exchange Commission on March 27, 2003. The unaudited condensed consolidated
interim financial statements, in the opinion of management, reflect all
adjustments (consisting only of normal recurring accruals) necessary for a fair
presentation of the financial position at March 31, 2003, the results of
operations for the three month period ended March 31, 2003 and 2002, and the
cash flows for the three month period ended March 31, 2003 and 2002. The
balance sheet at December 31, 2002 has been derived from audited financial
statements as of that date. The results of operations for the interim periods
are not necessarily indicative of the results of operations to be expected for
any other interim period or for the full fiscal year ending December 31, 2003.

The Company has historically financed operations and met capital expenditures
requirements primarily through sales of capital stock and, to a lesser extent,
research and product revenues. The first of the Marlboro facilitys two
manufacturing lines became operational in 2001. During the first part of 2002,
the Company began engineering and authorized capital expenditures for equipment
for a second manufacturing line. The Company has also entered into agreements
to purchase some of the longer-lead time equipment that is planned for the
second manufacturing line. The Company will fund its current capital
commitments with the proceeds from its initial public offering, which closed in
November 2000. In addition to the current capital commitments, substantial
further capital expenditures will be required over the next twelve months to
increase the total capacity at the Companys manufacturing facility to its
target level of 10 to 14 megawatts for both lines. However, the Companys
current cash, cash equivalents and short-term investments will not be
sufficient to fund this capacity expansion or its operations through fiscal
year 2003 and, as a result, the Company will need to raise significant
additional financing in order to successfully build out its manufacturing
capacity and fund its operations. As more fully described in Part I of this
report under the heading Financing Transaction, on March 21, 2003, the
Company entered into a definitive purchase agreement with certain investors to
raise $29,475,000 through the issuance of up to approximately 43,200,000 shares
of series A convertible preferred stock and the sale of a warrant to purchase
2,400,000 shares of our common stock. Consummation of the transactions
contemplated by the purchase agreement is subject to the Company obtaining
stockholder approval and other closing conditions. If the Company is able to
complete this financing in a timely matter, the Company expects the
second manufacturing line to become operational in late 2003 and in 2004. If
the Company is not able to complete a financing in a timely manner, the Company
will need to implement fundamental changes to its business and operations which
will likely include substantially reducing, suspending, or terminating its
capacity expansion and substantially reducing its daily operating expenditures
from current levels, in which case the Company believes its cash, cash
equivalents and short-term investments will then be sufficient to fund its
operations through the end of fiscal year 2003.

In addition, the Company may need additional financing to execute its business
plan sooner if the company needs to respond to business contingencies such as
the need to enhance its operating infrastructure, respond to competitive
pressures and acquire complementary businesses or necessary technologies. The
Company does not know whether it will be able to raise additional financing or
favorable financing terms. If adequate funds are not available or are not
available on acceptable terms, the Companys ability to fund its operations,
develop and expand its manufacturing operations and distribution network, or
otherwise respond to competitive pressures would be significantly limited.

2. Net Income (Loss) per Common Share

The Company computes net loss per common share in accordance with SFAS No. 128,
Earnings Per Share (SFAS 128), and SEC Staff Accounting Bulletin No. 98
(SAB 98). Under the provisions of SFAS 128 and SAB 98, basic net loss per
common share is computed by dividing net loss attributable to common
stockholders by the weighted average number of common shares outstanding during
the period. The calculation of diluted net loss per common share for the three
month period ended March 31, 2002 and 2003 does not include 1,528,401 and
1,160,225 potential shares of common stock equivalents outstanding at March 31,
2002 and 2003, respectively, as their inclusion would be antidilutive.

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3. Inventory

A summary of inventories is as follows:

|                |  |              |           |           |  |   |           | 
|--------------- |  | ------------ | --------- | --------- |  | - | --------- | 
|                |  | December 31, |           | March 31,
|                |  | 2002         |           | 2003     
|                |  |              |           |          
|Raw materials   |  | $            | 1,236,000 |           |  | $ | 1,268,000 | 
|Work-in-process |  |              | 148,000   |           |  |   | 175,000   | 
|Finished goods  |  |              | 810,000   |           |  |   | 1,474,000 | 
|                |  |              |           |           |  |   |           | 
|                |  | $            | 2,194,000 |           |  | $ | 2,917,000 | 
|                |  |              |           |           |  |   |           | 

4. Guarantor Arrangements

In November 2002, the FASB issued FASB Interpretation No. 45 (FIN 45)
Guarantors Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others an interpretation of FASB
Statements No. 5, 57, and 107 and rescission of FASB Interpretation No. 34.
FIN 45 requires that a guarantor recognize, at the inception of a guarantee, a
liability for the fair value of the obligation undertaken by issuing the
guarantee. The accounting requirements for the initial recognition of
guarantees are applicable on a prospective basis for guarantees issued or
modified after December 31, 2002. The disclosure requirements are effective for
all guarantees outstanding, regardless of when they were issued or modified,
during the first quarter of fiscal 2003. The adoption of FIN 45 did not have a
material effect on the Companys consolidated financial statements. The
following is a summary of the Companys agreements that we have determined are
within the scope of FIN 45.

Product warranty

The Company provides for the estimated cost of product warranties at the time
revenue is recognized. Given the Companys limited operating history, the
Company uses historical industry solar panel failure rates as the basis for the
accrued warranty costs during the period. While the Company engages in product
quality programs and processes, including monitoring and evaluating the quality
of component suppliers, its warranty obligation is affected by product failure
rates and material usage and service delivery costs incurred in correcting a
product failure. If the Companys actual product failure rates, material usage
or service delivery costs differ from these estimates, accrued warranty costs
would be adjusted in the period that such events or costs become known. Since
the Company has a limited operating history and its manufacturing process
differs from industry standards, their experience may be different from the
industry data used as a basis for its estimate. While the Companys
methodology takes into account these uncertainties, adjustments in future
periods may be required as its products mature. The following table summarizes
the activity regarding the Companys warranty accrual during the first quarter
of 2003:

|                                                 |  |   |         | 
|------------------------------------------------ |  | - | ------- | 
|Balance at December 31, 2002                     |  | $ | 326,000 | 
|Accruals for warranties issued during the period |  |   | 16,000  | 
|Settlements made during the period               |  |   |        | 
|                                                 |  |   |         | 
|Balance at the end of the period                 |  | $ | 342,000 | 
|                                                 |  |   |         | 

Indemnification agreements

The Company enters into standard indemnification agreements in its ordinary
course of business. Pursuant to these agreements, the Company indemnifies,
holds harmless, and agrees to reimburse the indemnified party for losses
suffered or incurred by the indemnified party, generally our business partners,
customers, directors and officers. The term of these indemnification agreements
is generally perpetual any time after execution of the agreement. The maximum
potential amount of future payments the Company could be required to make under
these indemnification agreements is unlimited. However, the Company has never
incurred costs to defend lawsuits or settle claims related to these
indemnification agreements. Furthermore, the Company has a Director and Officer
insurance policy that limits its exposure with indemnification agreements
specifically with its directors and officers, which enables the Company to
recover a portion of any future amounts paid. As a result of the Companys
insurance policy coverage, the Company believes the estimated fair value of
these indemnification agreements is minimal. The Company believes the
estimated fair value of agreements with parties other than its directors and
officers is minimal as well.

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The Company has agreed to indemnify, defend and hold harmless each of the
purchasers participating in the Companys pending Series A private placement
financing transaction, their affiliates and their respective officers,
directors, agents, employees, subsidiaries, partners, members and controlling
persons to the fullest extent permitted by law from and against any and all
losses, claims or written threats thereof, damages, expenses (including
reasonable fees, disbursements and other charges of counsel) resulting from or
arising out of the Companys breach of any representation or warranty, covenant
or agreement in the purchase agreement. The Company believes the estimated
fair value of this indemnification agreement is minimal.

5. Deferred Compensation and Equity Related Charges

Prior to December 31, 2000, the Company recorded total cumulative deferred
compensation of approximately $1.3 million representing the difference between
the fair market value of the Companys 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 $71,000 and $69,000 for the three months ended March
31, 2002 and 2003, respectively.

6. 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.

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 No. 123,
net loss would have been as follows (in thousands, except per share data):

|                                                                                                                    |  |                |        |                |  |              |       |          |  |   |        |   |  |   |       |  
|------------------------------------------------------------------------------------------------------------------- |  | -------------- | ------ | -------------- |  | ------------ | ----- | -------- |  | - | ------ | - |  | - | ----- | -
|                                                                                                                    |  | Period Ended   |        | Period Ended  
|                                                                                                                    |  | March 31, 2002 |        | March 31, 2003
|                                                                                                                    |  |                |        |               
|                                                                                                                    |  | Net Loss       |        | Net Loss       |  | Net Loss     |       | Net Loss
|                                                                                                                    |  | Attributable   |        | Per            |  | Attributable |       | Per     
|                                                                                                                    |  | To Common      |        | Common         |  | To Common    |       | Common  
|                                                                                                                    |  | Stockholders   |        | Share          |  | Stockholders |       | Share   
|                                                                                                                    |  |                |        |                |  |              |       |         
|Net loss, as reported                                                                                               |  | $              | (3,421 | )              |  | $            | (0.30 | )        |  | $ | (3,225 | ) |  | $ | (0.28 | )
|Add: Stock-based employee compensation expense included in reported results                                         |  |                | 71     |                |  |              | 0.01  |          |  |   | 69     |   |  |   | 0.01  |  
|Deduct: Total stock-based employee compensation expense determined under
the fair-value-based method for all awards |  |                | (294   | )              |  |              | (0.03 | )        |  |   | (287   | ) |  |   | (0.03 | )
|                                                                                                                    |  |                |        |                |  |              |       |          |  |   |        |   |  |   |       |  
|Pro forma net loss                                                                                                  |  | $              | (3,644 | )              |  | $            | (0.32 | )        |  | $ | (3,443 | ) |  | $ | (0.30 | )
|                                                                                                                    |  |                |        |                |  |              |       |          |  |   |        |   |  |   |       |  

7. Segment Information

The Company operates as one operating segment. The following table summarizes the Companys concentration of
total revenue:

|              |                                                             |  |                    |    |      |  |     |    |  
|------------- | ----------------------------------------------------------- |  | ------------------ | -- | ---- |  | --- | -- | -
|              |                                                             |  | Three months ended
|              |                                                             |  | March 31,         
|              |                                                             |  |                   
|              |                                                             |  | 2002               |    | 2003
|              |                                                             |  |                    |    |     
|By geography: |                                                             |  |                    |    |      |  |     |   
|              | U.S. distributors                                           |  |                    | 16 | %    |  |     | 33 | %
|              | U.S. Government (research revenue)                          |  |                    | 21 | %    |  |     | 26 | %
|              | Germany                                                     |  |                    | 54 | %    |  |     | 41 | %
|              | Japan                                                       |  |                    | 8  | %    |  |     | 0  | %
|              | All other                                                   |  |                    | 1  | %    |  |     | 0  | %
|              |                                                             |  |                    |    |      |  |     |    |  
|              |                                                             |  | 100                | %  |      |  | 100 | % 
|By customer:  |                                                             |  |                    |    |      |  |     |   
|              | European distributor                                        |  |                    | 54 | %    |  |     | 34 | %
|              | National Institute of Industry Standards (research revenue) |  |                    | 21 | %    |  |     | 10 | %
|              | National Renewable Energy Laboratory (research revenue)     |  |                    | 0  | %    |  |     | 16 | %
|              | All other                                                   |  |                    | 25 | %    |  |     | 40 | %
|              |                                                             |  |                    |    |      |  |     |    |  
|              |                                                             |  | 100                | %  |      |  | 100 | % 

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8. Financing Transaction

On March 21, 2003 the Company entered into a Stock and Warrant Purchase
Agreement with Perseus 2000, LLC, Nth Power Technologies Fund II, LP, Nth Power
Technologies Fund II-A, LP, RockPort Capital Partners, LP, RP Co-Investment
Fund I, LP, Micro-Generation Technology Fund, LLC, UVCC Fund II, UVCC II
Parallel Fund, LP, Caisse de dépôt et placement du Québec, CDP Capital 
Technology Ventures U.S. Fund 2002 LP, Beacon Power Corporation, Massachusetts
Technology Park Corporation, Zero Stage Capital VII, LP, Zero Stage Capital
(Cayman) VII, LP, Zero Stage Capital SBIC VII, LP, IMPAX Environmental Markets
plc, Merrill Lynch New Energy Technology Fund, MLIIF New Energy Fund, PNE
Invest Limited, Odyssey Fund, SAM Private Equity Energy Fund LP, SAM
Sustainability Private Equity LP and SAM Smart Energy pursuant to which the
Company has agreed to issue, and the purchasers have agreed to purchase from
the Company, $29,375,000 of Series A convertible preferred stock at a per share
purchase price to be calculated as of the closing date. The per share purchase
price to be paid for the shares of Series A convertible preferred stock will be
85% of the 60-trading day average closing price of the Companys common stock
for the period ending two trading days prior to the closing date of the private
placement. However, in no event will the per share price exceed $1.12 (which is
85% of the 60-trading day average of the closing bid prices of the Companys
common stock for the period ending on March 17, 2003), or be less than $0.68.
Additionally, the Company agreed to issue, and Beacon Power Corporation agreed
to purchase for a purchase price of $100,000, a warrant to purchase 2,400,000
shares of common stock at an exercise price equal to the per share price of the
Series A convertible preferred stock paid by the purchasers, plus $2.25. The
shares of Series A convertible preferred stock will be initially convertible
into shares of common stock on a 1-to-1 basis (subject to adjustment to account
for the payment of dividends, to take into account certain changes to the
Companys capital structure and to account for future dilutive issuances).
Depending upon the final per share price paid by the purchasers for such
shares, the Series A convertible preferred stock will, when issued, represent
between 70% and 79% of the currently issued and outstanding shares of the
Companys capital stock. The closing of the transactions contemplated by the
purchase agreement is subject to certain conditions, including, among other
things, stockholder approval. Stockholders will vote on the proposals relating
to the transactions contemplated by the purchase agreement at our annual
meeting of stockholders to be held on May 15, 2003. If approved by
stockholders, it is anticipated that the closing of the private placement would
occur as soon as practicable thereafter.




ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

We caution readers that statements in this Quarterly Report on Form 10-Q that
are not strictly historical statements, including, but not limited to:
statements reflecting our expectations regarding the timing, cost, and success
of our manufacturing scale-up at our facility in Marlboro, Massachusetts and
future manufacturing expansion and production, as well as related financing
requirements; future financial performance; our technology and product
development, cost and performance; our current and future strategic
relationships and future market opportunities; our ability to complete the
proposed Series A private placement financing; and our other business and
technology strategies and objectives, constitute forward-looking statements
which are made pursuant to the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. These statements may be identified with such
words as we expect, we believe, we anticipate or similar indications of
future expectations. These statements are neither promises nor guarantees and
involve risks and uncertainties, which could cause our actual results to differ
materially from such forward-looking statements. Such risks and uncertainties
may include, among other things, those risks and uncertainties described in
this Quarterly Report 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 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.

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, the
majority of our products have been used by on-grid customers as a clean,
renewable source of alternative or supplemental electricity.

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Financing Transaction

On March 21, 2003 the we entered into a Stock and Warrant Purchase Agreement
with Perseus 2000, LLC, Nth Power Technologies Fund II, LP, Nth Power
Technologies Fund II-A, LP, RockPort Capital Partners, LP, RP Co-Investment
Fund I, LP, Micro-Generation Technology Fund, LLC, UVCC Fund II, UVCC II
Parallel Fund, LP, Caisse de dépôt et placement du Québec, CDP Capital 
Technology Ventures U.S. Fund 2002 LP, Beacon Power Corporation, Massachusetts
Technology Park Corporation, Zero Stage Capital VII, LP, Zero Stage Capital
(Cayman) VII, LP, Zero Stage Capital SBIC VII, LP, IMPAX Environmental Markets
plc, Merrill Lynch New Energy Technology Fund, MLIIF New Energy Fund, PNE
Invest Limited, Odyssey Fund, SAM Private Equity Energy Fund LP, SAM
Sustainability Private Equity LP and SAM Smart Energy pursuant to which we
have agreed to issue, and the purchasers have agreed to purchase from us,
$29,375,000 of Series A convertible preferred stock at a per share purchase
price to be calculated as of the closing date. The per share purchase price to
be paid for the shares of Series A convertible preferred stock will be 85% of
the 60-trading day average closing price of our common stock for the period
ending two trading days prior to the closing date of the private placement.
However, in no event will the per share price exceed $1.12 (which is 85% of the
60-trading day average of the closing bid prices of our common stock for the
period ending on March 17, 2003), or be less than $0.68. Additionally, we
agreed to issue, and Beacon Power Corporation agreed to purchase for a purchase
price of $100,000, a warrant to purchase 2,400,000 shares of common stock at an
exercise price equal to the per share price of the Series A convertible
preferred stock paid by the purchasers, plus $2.25. The shares of Series A
convertible preferred stock will be initially convertible into shares of common
stock on a 1-to-1 basis (subject to adjustment to account for the payment of
dividends, to take into account certain changes to our capital structure and to
account for future dilutive issuances). Depending upon the final per share
price paid by the purchasers for such shares, the Series A convertible
preferred stock will, when issued, represent between 70% and 79% of the
currently issued and outstanding shares of our capital stock. The closing of
the transactions contemplated by the purchase agreement is subject to certain
conditions, including, among other things, stockholder approval. Stockholders
will vote on the proposals relating to the transactions contemplated by the
purchase agreement at our annual meeting of stockholders to be held on May 15,
2003. If approved by stockholders, it is anticipated that the closing of the
private placement would occur as soon as practicable thereafter.

Interest of Certain Persons in the Matter to Be Acted Upon

Micro-Generation Technology Fund, LLC, UVCC Fund II, and UVCC II Parallel Fund,
LP, each of which is an investment entity affiliated with Dr. Robert W. Shaw,
Jr., the chairman of our board of directors, have agreed to invest $3.5 million
in the aggregate in the private placement in return for shares of Series A
convertible preferred stock on terms identical to those afforded to each other
purchaser, except that Arete Corporation, as one of the five purchasers who
signed the initial term sheet with respect to the private placement, will have
the right to designate a member of our board of directors and will be eligible
to receive a break-up fee under certain circumstances if the private placement
does not close. Dr. Shaw is the President of Arete Corporation, which is the
manager of Micro-Generation Technology Fund, LLC. Dr. Shaw is a general partner
of Arete Venture Investors II, LP, which is the general partner of UVCC Fund
II. Dr. Shaw is also a general partner of Arete Ventures III, LP, which is the
general partner of UVCC II Parallel Fund, LP As of March 1, 2003, these
entities and others affiliated with Dr. Shaw owned an aggregate of 840,453
shares of our common stock and Dr. Shaw, together with his wife, owned an
aggregate of 112,699 additional shares of our common stock in their individual
capacities. If the private placement is approved by our stockholders, and if
the private placement is consummated, Arete Corporation intends to designate
Dr. Shaw as its designee to our board of directors.

Dr. Shaw is a limited partner of Nth Power Management II, LP, the general
partner of Nth Power Technologies Fund II, LP, and in such capacity provides
advice as requested to this entity. Dr. Shaw does not serve on this entitys
investment committee nor does he have any decision making authority with
respect thereto. Dr. Shaw has also agreed to become a member of, and perform
comparable services for, Nth Power Management II-A, LLC, the general partner of
Nth Power Technologies Fund II-A, LP, and will have a similar advisory role
with that entity. As of March 1, 2003, Nth Power Technologies Fund I, LP, an
investment entity affiliated with Nth Power, LLC owned 1,016,914 shares of our
common stock. Nth Power Technologies Fund II, LP and Nth Power Technologies
Fund II-A, LP, each of which is an investment entity affiliated with Nth Power
Management II, LP and Nth Power Management II-A, LLC, have agreed to invest $4
million in the aggregate in the private placement in return for shares of
Series A convertible preferred stock on terms identical to those afforded to
each other purchaser, except that Nth Power Technologies Fund II, LP, as one of
the five purchasers who signed the initial term sheet with respect to the
private placement, will have the right to designate a member of our board of
directors and will be eligible to receive a break-up fee under certain
circumstances if the private placement does not close. Dr. Shaw did not
participate in the decision of either of the two Nth Power-related entities to
invest in the private placement. Nth

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Power Technologies Fund II, LP intends to designate Timothy Woodward, a
Managing Director of Nth Power, LLC, as its designee to our board of directors.

Dr. Shaw serves as a member of the investment committee of SAM Private Equity
Energy Fund LP and SAM Sustainability Private Equity Fund LP and he has a
limited partnership interest in SAM Private Equity Energy Fund LP These
entities and another affiliated entity, SAM Smart Energy, have agreed to invest
$3.25 million in the aggregate in the private placement in return for shares of
Series A convertible preferred stock on terms identical to those afforded to
each other purchaser. Dr. Shaw recused himself and did not participate in the
SAM investment committee decisions to invest in the private placement.

Dr. Shaw has no voting power or dispositive power over any Evergreen shares
held by the Nth Power investment entities or the SAM investment entities.

Dr. Shaw, as a result of his relationships with investors in the private
placement as described above, may have interests in the private placement that
are different from those of other Evergreen stockholders. Dr. Shaw was not a
member of, and did not participate in any meetings of our financing committee
that negotiated the private placement and did not participate in any
discussions with the purchasers concerning the terms of the private placement.

Mason Willrich, one of our directors, was previously affiliated with Nth Power,
LLC. From 1996 through December 1999, Mr. Willrich served as a Principal of Nth
Power, LLC, a managerial role that entails reviewing investment candidates and
participating in day-to-day operations management, and from January 2000
through February 2002, he was a Special Limited Partner of Nth Power, LLC, an
advisory role that entailed reviewing investment candidates and providing
insights into market trends and opportunities. As of March 1, 2003, Mr.
Willrich, together with his wife and a trust entity of which he is the sole
trustee, owned an aggregate of 19,503 shares of our common stock. If the
private placement is approved by our stockholders, and if the private placement
is consummated, Mr. Willrich intends to resign from our board.

Mr. Willrich, as a result of his relationship with an investor in the private
placement as described above, may have interests in the private placement that
are different from those of other Evergreen stockholders. Mr. Willrich was not
a member of, and did not participate in any meetings of our financing committee
that negotiated the terms of the private placement and did not participate in
any discussions with the purchasers concerning the terms of the private
placement.

Results of Operations

Product revenues.Product revenues consist of revenues from the sale of solar
cells, panels and systems. Product revenues represented 80% of total revenues
for the three month period ended March 31, 2002 and 74% of total revenues for
the three month period ended March 31, 2003. International product sales
accounted for approximately 79% and 57% of total product revenues for the three
month period ended March 31, 2002, and 2003, respectively. Product sales to a
German distributor accounted for approximately 68% and 48% of total product
revenue for the three months ended March 31, 2002 and March 31, 2003,
respectively. Product sales to two U.S. distributors and another German
distributor accounted for 13%, 11%, and 10% of total product revenue for the
three months ended March 31, 2003, respectively. We anticipate that
international sales will continue to account for a significant portion of our
product revenues for the foreseeable future. Currently, all 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. Our current
intention is not to pursue contracts that are not part of our ongoing research
activities. We recognize research revenues as services are rendered.

Cost of product revenues.Cost of product revenues consists primarily of
salaries and related personnel costs, materials expenses, depreciation
expenses, maintenance, rent, royalties on licensed technology, warranty costs,
and other support expenses associated with the manufacture of our solar power
products. We expect to continue to experience costs in excess of product
revenues 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

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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. We currently
have two active research contracts with total estimated revenues of
approximately $5.0 million, $2.75 million of which has been authorized by the
sponsoring agencies and $2.5 million of which has been recorded as revenue as
of March 31, 2003. We expect the remaining $2.5 million of revenue will be
recognized somewhat ratably over the remaining life of each of the contracts,
which expire on October 31, 2003 and May 31, 2005.

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.

Stock-based compensation expense.Prior to December 31, 2000, we recorded total
cumulative deferred compensation of approximately $1.3 million representing the
difference between the fair market value of our 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 $71,000 and $69,000 for the three months ended March
31, 2002 and 2003, respectively.

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 bond premium
amortization.

Comparison of Three Months Ended March 31, 2002 and 2003

Revenues.Our product revenues for the three months ended March 31, 2003 were
$1.1 million, an increase of $154,000, or 17%, from $913,000 for the same
period in 2002. The increase in product revenues was due to the increased
production capacity of our new manufacturing facility in Marlboro,
Massachusetts, and our increased marketing and sales activities. Research
revenues for the three months ended March 31, 2003 were $381,000, an increase
of $145,000, or 61%, from $236,000 for the same period in 2002. The increase in
research revenues reflects revenue recognized on a newly awarded research
contract with the National Renewable Energy Laboratory (NREL).

Cost of product revenues.Our cost of product revenues for the three months
ended March 31, 2003 was $2.7 million, a decrease of $238,000, or 8%, from $2.9
million for the same period in 2002. Most of the decrease was due to a
reduction in payments to subcontractors associated with the completion of the
scale up of our first production line at our Marlboro manufacturing facility,
and improved manufacturing costs of our solar panel products.

Research and development expenses, including cost of research revenues.Our
research and development expenses, including cost of research revenues, for the
three months ended March 31, 2003 were $713,000, a decrease of $141,000, or
17%, from $854,000 for the same period in 2002. The decrease was due primarily
to a reduction in costs incurred for payments to subcontractors providing
research activities associated with one of our government contracts.

Selling, general and administrative expenses.Our selling, general and
administrative expenses for the three months ended March 31, 2003 were $1.3
million, an increase of $263,000, or 25%, from $1.1 million for the same period
in 2002. Approximately 30% of the increase was due to increased insurance
costs, approximately 20% of the increase was due to additional professional
fees, approximately 25% of the increase was due to costs associated with the
operations of our European sales office in Berlin, Germany, and the remainder
of the increase was due to increases in sales and marketing activities.

Stock-based compensation expense.Prior to December 31, 2000, we recorded
total cumulative deferred compensation of approximately $1.3 million
representing the difference between the fair market value of our 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 $69,000 for the three months ended March
31, 2003 and $71,000 for the three months ended March 31, 2002. We expect to
recognize total stock-based compensation

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expense for past grants of approximately $270,000 for the year ending December
31, 2003 and approximately $70,000 for the year ending December 31, 2004.

Our stock-based compensation expense for the three months ended March 31, 2003
was $69,000, a decrease of $2,000 from the same period in 2002. The expense in
the three months ended March 31, 2003 and 2002 was due to amortization relating
to options granted in 1999 and 2000.

Net interest income.Our interest income for the three months ended March 31,
2003 was $23,000, a decrease of $219,000, or 91%, from $242,000 for the same
period in 2002. The decrease in interest income was due to declining cash and
investment balances resulting from capital equipment purchases and funding of
operations.

Other comprehensive loss.Our other comprehensive loss for the three months
ended March 31, 2003 was $6,000, compared to $94,000 for the same period in
2002. For the three months ended March 31, 2003, our other comprehensive
income included unrealized gains and losses on marketable securities.

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, research and product revenues. At March 31, 2003, we had working
capital of $9.4 million, including cash, cash equivalents and short-term
investments of $5.6 million.

Net cash used in operating activities was $2.1 million for the three months
ended March 31, 2003, as compared to $3.7 million for the three months ended
March 31, 2002. The decrease in net cash used in operating activities was
primarily due to a decrease in our net loss combined with a decrease in
accounts receivable. For the first quarter in 2003, Days Sales Outstanding
(DSO) was approximately 93 days, versus approximately 111 days as of December
31, 2002. The decrease in DSO was due mainly to significant cash receipts
during the first quarter of 2003 related to sales originated in the fourth
quarter of 2002. Product sales to customers can fluctuate widely
month-to-month, and depending on when sales occur during the quarter, DSO can
fluctuate significantly quarter-to-quarter.

Net cash provided by investing activities was $4.4 million for the three months
ended March 31, 2003, as compared to $1.8 million for the three months ended
March 31, 2002. Net cash was provided by selling or maturity of short-term
investments as required to fund operations offset by purchases of equipment
associated with the build-out of our Marlboro manufacturing facility.

Net cash used in financing activities was $213,000 for the three months ended
March 31, 2003, as compared to net cash provided by financing activities of
$2,000 for the three months ended March 31, 2002. The cash used in financing
activities represents costs associated with our pending Series A private
placement financing transaction (which had not closed as of March 31, 2003),
and are recorded in other current assets until the closing of the pending
financing transaction. The cash provided by financing activities represents
proceeds from common stock shares issued under our Employee Stock Purchase
Plan, and proceeds from the exercise of options to purchase common stock.

Capital expenditures were $538,000 for the three months ended March 31, 2003,
as compared to $232,000 for the three months ended March 31, 2002. Capital
expenditures for the three months ended March 31, 2003 were primarily for
equipment needed for our manufacturing facility. As of March 31, 2003, our
outstanding commitments for capital expenditures were approximately $1.5
million. Nearly all of our commitments for capital expenditures are associated
with infrastructure improvements and equipment purchases for our manufacturing
facility. The first of the Marlboro facilitys two manufacturing lines became
operational in 2001. During the first part of 2002, we began engineering and
authorized capital expenditures for equipment for a second manufacturing line.
We have also entered into agreements to purchase some of the longer-lead time
equipment that is planned for the second manufacturing line. We will fund our
current capital commitments with the proceeds from our initial public offering,
which closed in November 2000. In addition to the current capital commitments,
substantial further capital expenditures will be required over the next twelve
to eighteen months to increase the capacity at our manufacturing facility to
our target level of 10 to 14 megawatts for both lines. However, our current
cash, cash equivalents and short-term investments will not be sufficient to
fund this capacity expansion or our operations (as presently conducted) through
fiscal year 2003 and, as a result, we will need to raise significant additional
financing in order to successfully build out our manufacturing capacity and
fund our operations. As more fully described in Part I of this report under
the heading Financing Transaction, on March 21, 2003, we entered into a
definitive purchase agreement with certain investors to raise $29,475,000
through the issuance of up to a maximum of approximately 43,200,000 shares of
Series A convertible preferred stock and the sale of a warrant to purchase
2,400,000 shares of our common stock. Consummation of the transactions
contemplated by the purchase agreement

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is subject to obtaining stockholder approval and other closing conditions. If
we are able to complete this financing in a timely manner, we expect the second
manufacturing line to become operational in late 2003 and in 2004. If we are
not able to complete a financing in a timely manner, we will need to implement
fundamental changes to our business and operations which will likely include
substantially reducing, suspending, or terminating our capacity expansion and
substantially reducing our daily operating expenditures from current levels, in
which case we believe our cash, cash equivalents and short-term investments
will then be sufficient to fund our operations through the end of fiscal year
2003.

In addition, we may need additional financing to execute our business plan
sooner if we need to respond to business contingencies such as 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.

We currently do not have any special purpose entities or off-balance sheet
financing arrangements. As of March 31, 2003, our cash commitments, as
disclosed in Note 11 to our consolidated financial statements included in our
Annual Report on Form 10-K for the year ended December 31, 2002, have not
significantly changed.

Certain Factors Which May Affect Future Results

Risks Relating to Our Financial Results

Evaluating our business and future prospects may be difficult 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
Marlboro manufacturing facility in June 2001. We have shipped only a limited
number of solar power panels 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 $3.2 million for the three month period ended March 31, 2003. As a
result of ongoing operating losses, we had a cumulative net loss of $44.6
million as of March 31, 2003. 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 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.

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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
could 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 micro turbines;                                                                                                  
|
| | - |  | 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.                                                                                                                                                           

Problems with product quality or product performance may cause us to incur
warranty expenses and may damage our market reputation and prevent us from
achieving increased sales and market share.

As is consistent with standard practice in our industry, the duration of our
product warranties is lengthy relative to expected product life and has
recently been increasing. Our current standard product warranty includes a one
or two-year warranty period for defects in material and workmanship and a
25-year warranty period for declines in power performance. We believe our
warranty periods are consistent with industry practice. Due to the long
warranty period, we bear the risk of extensive warranty claims long after we
have shipped product and recognized revenues. Although we have sold over
30,000 solar panels since 1997, none of these panels has been operating more
than six years, and over 50% of them have been operating less than one year.
The possibility of future product failures could cause us to incur substantial
expense to repair or replace defective product. Furthermore, widespread
product failures may damage our market reputation and reduce our market share
and cause sales to decline.

We may fail to successfully bring to market our new solar power products under
development, which may prevent us from achieving increased sales and market
share.

Although we have been selling our solar power products since 1997, we expect to
derive a substantial portion of our revenues from sales of our new solar power
products 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

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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. Many of our new product and manufacturing technologies are
novel and represent a departure from conventional solar power technologies, and
it is difficult to predict whether we will be successful in completing their
development. Our manufacturing technologies have been tested only in our pilot
manufacturing facility and, in most cases, only limited pre-production
prototypes of our new products have been field-tested.

Our solar power products may not gain market acceptance, which would prevent us
from achieving increased sales and market share.

The development of a successful market for our solar power products may be
adversely affected by a number of factors, many of which are beyond our
control, including:



| | - |  | our failure to produce solar power products 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 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.                                                                        

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 manufacturing facility may take longer and cost more than
we expect, which would likely result in lower revenues and earnings 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 entered
service 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 in late 2003 and in 2004 if we are able
to raise the funds necessary to finance its construction. 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. We plan to incorporate first-time equipment designs
and technology improvements, which we expect to lower unit capital and
operating costs, but this new technology may not be successful, which would
increase cost, limit capacity, and prevent us from achieving increases in
sales. 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.

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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.

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.

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 March 31, 2003, we sold our solar power products to approximately 20
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 expand our business abroad.

From our inception through March 31, 2003, approximately 61% 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
continue to be significant. 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 with which we have limited
experience. If we are unable to effectively manage these risks, it could impair
our ability to grow our business abroad. These risks include:



| | - |  | difficult and expensive compliance with the commercial and legal
requirements of international markets, with which we have only limited
experience;                                                                                   
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | - |  | inability to obtain 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.

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

From our inception through March 31, 2003, our three largest resellers
accounted for approximately 68% of our product sales and our 10 largest
resellers accounted for approximately 88% of our product sales. We anticipate
that sales of our solar power products to a limited number of key resellers
will continue to account for a significant portion of our total product
revenues for the foreseeable future. Consequently, any one of the following
events may cause 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 time frames and we may experience
order cancellation and loss of market share. We currently do not have contracts
with many of our suppliers and may not be able to procure sufficient quantities
of the materials and components necessary to manufacture our products on
acceptable commercial terms or at all. To the extent the processes that our
suppliers use to manufacture materials and components are proprietary, we may
be unable to obtain comparable materials and components from alternative
suppliers. The failure of a supplier to supply materials and components in a
timely manner, or to supply materials and components that meet our quality,
quantity and cost requirements could impair our ability to manufacture our
products 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 adequate quality and on terms acceptable to us could delay our capacity
expansion to our 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 long-term contracts or 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 and mix 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 any of our other executive
officers and key employees, our business could be materially and adversely
impacted. We had 131 employees as of March 31, 2003, 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. Competition for personnel is
intense, and qualified technical personnel are likely to remain a limited
resource for the foreseeable future. Locating candidates with the

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appropriate qualifications, particularly in the desired geographic location,
can be costly and difficult. We may not be able to hire the necessary personnel
to implement our business strategy, or we may need to provide higher
compensation or more training to our personnel than we currently anticipate.
Moreover, any officer or employee can terminate his or her relationship with us
at any time.

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

The existing members of our management team have had only limited experience
managing a rapidly growing company on either a public or private basis. In
connection with the planned expansion of our manufacturing capacity, we have
undergone and anticipate undergoing further rapid growth in the scope of our
operations and the number of our employees, which is likely to place a
significant strain on our senior management team and other resources. In
addition, we may encounter difficulties in effectively managing the budgeting,
forecasting and other process control issues presented by this rapid growth. We
may seek to augment or replace members of our management team or we may lose
key members of our management team, and we may not be able to attract new
management talent with sufficient skill and experience. If 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 require additional financing to fund our planned manufacturing capacity
expansion and may not be able to raise additional financing or financing on
favorable terms.

We believe that our current cash, cash equivalents and short-term investments
will not be sufficient to fund our planned manufacturing capacity expansion and
operating expenditures over the next twelve months. As a result, we will need
to raise significant additional financing if we are to successfully build out
our manufacturing capacity and continue operating expenditures at current
levels. As more fully described in Part I of this report under the heading
Financing Transaction, on March 21, 2003, we entered into a definitive
purchase agreement with certain investors to raise $29,475,000 through the
issuance of up to approximately 43,200,000 shares of Series A convertible
preferred stock and the sale of a warrant to purchase 2,400,000 shares of our
common stock. Consummation of the transactions contemplated by the purchase
agreement is subject to obtaining stockholder approval and other closing
conditions. If we are able to raise this financing on time, we expect the
second manufacturing line to become operational during late 2003 and in 2004.
If we are not able to complete a financing in a timely manner, we will need to
implement fundamental changes to our business and operations which will likely
include substantially reducing, suspending, or terminating our capacity
expansion and substantially reducing our daily operating expenditures from
current levels, in which case we believe our cash, cash equivalents and
short-term investments will then be sufficient to fund our operations through
the end of fiscal year 2003. In addition, we may need additional financing to
execute our business plan sooner if we need to respond to business
contingencies such as 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. 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. There are over 20 companies in the world that produce solar
power products, including BP Solar, Kyocera Corporation, Royal Dutch Shell,
Sharp Corporation, and AstroPower, Inc. All of these solar power product
producers, as well as several others, have historically derived 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, some 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. 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

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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;                                                                                                                                                                                                                                                   
|
| | - |  | 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

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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, from time to time, provided subsidies or financing on
preferred terms for rural electrification programs. We believe that the
availability of financing could have a significant effect on the level of sales
of off-grid solar power applications, particularly in developing countries
where users may not have sufficient resources or credit to otherwise acquire
solar power systems. If existing financing programs for off-grid solar power
applications are eliminated or if financing is inaccessible, the growth of the
market for off-grid applications may be adversely affected, which could cause
our sales to decline.

Our reliance on government contracts to partially fund our research and
development programs could impair our ability to commercialize our solar power
technologies and would increase our research and development expenses.

We intend to continue our policy of selectively pursuing contract research,
product development, and market development programs funded by various agencies
of the United States, state and international governments to complement and
enhance our own resources. The percentage of our total revenues derived from
government-related contracts was approximately 26% for the three month period
ended March 31, 2003. We currently have two active research contracts with
total estimated revenues of approximately $5.0 million, $2.75 million of which
has been authorized by the sponsoring agencies and $2.5 million of which has
been recorded as revenue as of March 31, 2003. The remaining $2.5 million of
revenue will be recognized over the remaining life of each of the contracts,
which expire on October 31, 2003 and May 31, 2005. 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, because action is necessary to alleviate health
or safety needs, or to meet requirements of federal regulations, or to give the
United States industry preference. Funding from government contracts also may
limit when and how we can deploy our technology developed under those
contracts.

Compliance with environmental regulations can be expensive and 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

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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 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
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 18% of our common stock and may be able to
significantly influence corporate actions.

As of April 25, 2003, our executive officers, directors and entities affiliated
with them controlled approximately 18% 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. If we complete the financing
transaction as described in this report, our executive officers, directors and
entities affiliated with them would control up to approximately 56% of our
common stock on an as converted basis.

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. The proposed financing may add to
the volatility 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 as 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. If the financing transaction described in
Part I of this report under the heading Financing Transaction is consummated,
our current stockholders will experience significant dilution as the result of
the conversion of the Series A convertible preferred stock and exercise of the
warrant to be issued in the financing transaction.

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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 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

Interest Rate Risk

We do not use derivative financial instruments. We generally place our
marketable security investments in high quality credit 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 currently denominated in United States dollars.
Accordingly, we have not been materially exposed to fluctuations in currency
exchange rates. However, since we sell a significant portion of our products
internationally, the relative competitiveness of our products is impacted by
foreign currency exchange rates. As we expand our manufacturing operations and
distribution network internationally, our exposure to fluctuations in currency
exchange rates may increase.




ITEM 4. EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures.

The principal executive officer and principal financial officer have evaluated
the disclosure controls and procedures as of a date within 90 days before the
filing date of this quarterly report. Based on this evaluation they conclude
that the companys disclosure controls and procedures effectively ensure that
information required to be disclosed in our filings and submissions under the
Exchange Act is recorded, processed, summarized, and reported within the time
periods specified in the Securities and Exchange Commissions rules and forms.

Changes in Internal Controls.

There have been no significant changes in our internal controls or in other
factors that could significantly affect these controls subsequent to their
evaluation, including any corrective actions with regard to significant
deficiencies and material weaknesses.

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PART II. OTHER INFORMATION




ITEM 2. CHANGES IN SECURITIES AND 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 approximately $1,310,000, was approximately $37.7
million. Through March 31, 2003, approximately $32.1 million of the net
offering proceeds was spent, of which approximately $8.2 million was spent on
capital equipment and the remainder on general operations. We have invested
all of the remaining proceeds in investment grade, interest-bearing securities.
Other than salaries paid to our officers in the ordinary course of 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 any of our affiliates.

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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits:

|       |  |                                                                                                                                                  
|------ |  | -------------------------------------------------------------------------------------------------------------------------------------------------
|Number |  | Description                                                                                                                                      
|       |  |                                                                                                                                                  
|99.1   |  | Certification of Chief Executive Officer Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
|       |  |                                                                                                                                                  
|99.2   |  | Certification of Chief Financial Officer Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002

(b) Reports on Form 8-K:

During the quarter ended March 31, 2003, the Company filed a report on Form 8-K
dated March 24, 2003, reporting information under Item 5 relating to the
proposed Series A private placement financing transaction.




SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

|                   |  |                                                 
|------------------ |  | ------------------------------------------------
|                   |  | EVERGREEN SOLAR, INC.                           
|                   |  |                                                 
|Date: May 14, 2003 |  |                                                 
|                   |  | /s/ Richard G. Chleboski                        
|                   |  |                                                 
|                   |  | Richard G. Chleboski                            
|                   |  | Chief Financial Officer, Treasurer and Secretary
|                   |  | (Principal Financial Officer)                   

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Certifications

I, Mark A. Farber, certify that:



|1. |  | I have reviewed this quarterly report on Form 10-Q of Evergreen Solar;                                                                                                                                                                                                                                                        
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
|  
|3. |  | Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;                   
|  
|4. |  | The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:                                                                                                     



| | a) |  | designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | evaluated the effectiveness of the registrants disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the Evaluation Date); and                                                                                                  
|
| | c) |  | presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                        



|5. |  | The registrants other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent function):
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrants
ability to record, process, summarize and report financial data and
have identified for the registrants auditors any material
weaknesses in internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | any fraud, whether or not material, that involves management
or other employees who have a significant role in the registrants
internal controls; and                                                                                                                                        



|6. |  | The registrants other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                   |  |                        
|------------------ |  | -----------------------
|Date: May 14, 2003 |  |                        
|                   |  |                        
|                   |  | /s/ Mark A. Farber     
|                   |  |                        
|                   |  | Mark A. Farber         
|                   |  | Chief Executive Officer

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I, Richard G. Chleboski, certify that:



|1. |  | I have reviewed this quarterly report on Form 10-Q of Evergreen Solar;                                                                                                                                                                                                                                                        
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
|  
|3. |  | Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;                   
|  
|4. |  | The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:                                                                                                     



| | a) |  | designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | evaluated the effectiveness of the registrants disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the Evaluation Date); and                                                                                                  
|
| | c) |  | presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                        



|5. |  | The registrants other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent function):
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrants
ability to record, process, summarize and report financial data and
have identified for the registrants auditors any material
weaknesses in internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | any fraud, whether or not material, that involves management
or other employees who have a significant role in the registrants
internal controls; and                                                                                                                                        



|6. |  | The registrants other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                   |  |                         
|------------------ |  | ------------------------
|Date: May 14, 2003 |  |                         
|                   |  | /s/ Richard G. Chleboski
|                   |  |                         
|                   |  | Richard G. Chleboski    
|                   |  | Chief Financial Officer 

27