##### Table of Contents



FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

(MARK ONE)

|    |  |                                                                                                                                             
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------
|[X] |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended September 30, 2001            
|   
|    |  | 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 the number of shares outstanding of each of the issuers classes
of common stock, as of the latest practicable date: As of November 5, 2001
there were 11,394,025 shares of common stock outstanding.





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TABLE OF CONTENTS



|                                                                                              |                                                                                                                               |  |  |  |  |  |  | 
|--------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I - FINANCIAL INFORMATION                                                               
|ITEM 1: FINANCIAL STATEMENTS                                                                 
|                                                                                              | Unaudited Consolidated Balance Sheets at December 31, 2000 and September 30, 2001                                            
|                                                                                              | Unaudited Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2000 and September 30, 2001
|                                                                                              | Unaudited Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2000 and September 30, 2001          
|ITEM 2: MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK                            
|PART II  OTHER INFORMATION                                                                  
|ITEM 2: CHANGES IN SECURITIES AND USE OF PROCEEDS                                            
|ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K                                                     
|SIGNATURES                                                                                   



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##### Table of Contents



EVERGREEN SOLAR, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2001

TABLE OF CONTENTS

|                                                                                              |  |                                                                                                                                |  | 
|--------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------ |  | 
|PART I  FINANCIAL INFORMATION                                                                |  |                                                                                                                               
|                                                                                             
|ITEM 1: FINANCIAL STATEMENTS                                                                  |  |                                                                                                                               
|                                                                                              |  | Page                                                                                                                          
|                                                                                              |  |                                                                                                                                |  | 
|                                                                                              |  | Unaudited Consolidated Balance Sheets at
December 31, 2000 and September 30, 2001.                                             |  | 
|                                                                                             
|                                                                                              |  | Unaudited Consolidated Statements of Operations for the
Three and Nine Months Ended September 30, 2000 and
September 30, 2001. |  | 
|                                                                                             
|                                                                                              |  | Unaudited Consolidated Statements of Cash Flows for the
Nine Months Ended September 30, 2000 and September 30,
2001.           |  | 
|                                                                                             
|                                                                                              |  | Notes to Consolidated Financial Statements                                                                                     |  | 
|                                                                                             
|ITEM 2: MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS |  |                                                                                                                               
|                                                                                             
|ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK                             |  |                                                                                                                               
|                                                                                             
|PART II  OTHER INFORMATION                                                                   |  |                                                                                                                               
|                                                                                             
|ITEM 2: CHANGES IN SECURITIES AND USE OF PROCEEDS                                             |  |                                                                                                                               
|                                                                                             
|ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K                                                      |  |                                                                                                                               
|                                                                                             
|SIGNATURES                                                                                   
|                                                                                             
|EXHIBIT INDEX                                                                                

2



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##### Table of Contents






PART I. FINANCIAL INFORMATION




ITEM 1. FINANCIAL STATEMENTS




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

|                                     |                                                                                                                                                                         |                                                                                                                |       |              |         |               |        |        |         |  
|------------------------------------ | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------- | ----- | ------------ | ------- | ------------- | ------ | ------ | ------- | -
|                                     |                                                                                                                                                                         |                                                                                                                |       | December 31, |         | September 30,
|                                     |                                                                                                                                                                         |                                                                                                                |       | 2000         |         | 2001         
|                                     |                                                                                                                                                                         |                                                                                                                |       |              |         |              
|Assets                               |                                                                                                                                                                         |                                                                                                                |       |              |         |               |        |       
|                                     | Current assets:                                                                                                                                                         |                                                                                                                |       |              |         |               |        |        |        
|                                     |                                                                                                                                                                         | Cash and cash equivalents                                                                                      | $     | 13,171       |         |               | $      | 710    |        
|                                     |                                                                                                                                                                         | Short-term investments                                                                                         |       | 32,823       |         |               |        | 29,301 |        
|                                     |                                                                                                                                                                         | Accounts receivable, net of allowance for doubtful accounts of $13
at December 31, 2000 and September 30, 2001 |       | 850          |         |               |        | 435    |        
|                                     |                                                                                                                                                                         | Unbilled grant receivable                                                                                      |       |              | 99      |               |        |        | 62      |  
|                                     |                                                                                                                                                                         | Interest receivable                                                                                            |       |              | 200     |               |        |        | 509     |  
|                                     |                                                                                                                                                                         | Inventory                                                                                                      |       |              | 408     |               |        |        | 1,051   |  
|                                     |                                                                                                                                                                         | Other current assets                                                                                           |       |              | 145     |               |        |        | 328     |  
|                                     |                                                                                                                                                                         |                                                                                                                |       |              |         |               |        |       
|                                     |                                                                                                                                                                         | Total current assets                                                                                           |       |              | 47,696  |               |        |        | 32,396  |  
|Restricted cash                      |                                                                                                                                                                         |                                                                                                                | 464   |              |         |               | 464    |       
|Fixed assets, net                    |                                                                                                                                                                         |                                                                                                                | 7,623 |              |         |               | 15,685 |       
|                                     |                                                                                                                                                                         |                                                                                                                |       |              |         |               |        |       
|                                     |                                                                                                                                                                         | Total assets                                                                                                   |       | $            | 55,783  |               |        | $      | 48,545  |  
|                                     |                                                                                                                                                                         |                                                                                                                |       |              |         |               |        |       
|Liabilities and stockholders equity |                                                                                                                                                                         |                                                                                                                |       |              |         |               |        |       
|Current liabilities:                 |                                                                                                                                                                         |                                                                                                                |       |              |         |               |        |       
|                                     | Accounts payable                                                                                                                                                        |                                                                                                                | $     | 661          |         |               | $      | 929    |        
|                                     | Accrued initial public offering financing costs                                                                                                                         |                                                                                                                |       | 225          |         |               |        |       |        
|                                     | Other accrued expenses                                                                                                                                                  |                                                                                                                |       | 706          |         |               |        | 798    |        
|                                     | Accrued warranty                                                                                                                                                        |                                                                                                                |       | 48           |         |               |        | 87     |        
|                                     |                                                                                                                                                                         |                                                                                                                |       |              |         |               |        |       
|                                     | Total current liabilities                                                                                                                                               |                                                                                                                |       | 1,640        |         |               |        | 1,814  |        
|Stockholders equity:                |                                                                                                                                                                         |                                                                                                                |       |              |         |               |        |       
|                                     | Common stock, $0.01 par value, 30,000,000 shares authorized,
11,170,327 and 11,392,927 issued and outstanding at December 31, 2000
and September 30, 2001, respectively |                                                                                                                |       | 111          |         |               |        | 114    |        
|                                     | Additional paid-in capital                                                                                                                                              |                                                                                                                |       | 70,671       |         |               |        | 71,478 |        
|                                     | Other comprehensive income                                                                                                                                              |                                                                                                                |       |             |         |               |        | 252    |        
|                                     | Accumulated deficit:                                                                                                                                                    |                                                                                                                |       |              |         |               |        |        |        
|                                     |                                                                                                                                                                         | Cumulative net loss since inception                                                                            |       |              | (15,680 | )             |        |        | (24,377 | )
|                                     |                                                                                                                                                                         | Deferred compensation                                                                                          |       |              | (959    | )             |        |        | (736    | )
|                                     |                                                                                                                                                                         |                                                                                                                |       |              |         |               |        |       
|                                     | Total stockholders equity                                                                                                                                              |                                                                                                                |       | 54,143       |         |               |        | 46,731 |        
|                                     | Total liabilities and stockholders equity                                                                                                                              |                                                                                                                | $     | 55,783       |         |               | $      | 48,545 |        
|                                     |                                                                                                                                                                         |                                                                                                                |       |              |         |               |        |       

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

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

|                                                                                                                                                                                                                                                                         |                                |   |                    |        |                   |   |        |        |      |   |        |        |   |   |        |         |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ------------------------------ | - | ------------------ | ------ | ----------------- | - | ------ | ------ | ---- | - | ------ | ------ | - | - | ------ | ------- | -
|                                                                                                                                                                                                                                                                         |                                |   | Three months ended |        | Nine months ended
|                                                                                                                                                                                                                                                                         |                                |   | September 30,      |        | September 30,    
|                                                                                                                                                                                                                                                                         |                                |   | 2000               |        | 2001              |   | 2000   |        | 2001
|                                                                                                                                                                                                                                                                         |                                |   |                   
|Revenues:                                                                                                                                                                                                                                                                |                                |   |                    |        |                   |   |        |        |      |   |        |        |   |   |        |        
|                                                                                                                                                                                                                                                                         | Product revenues               |   | $                  | 109    |                   |   | $      | 424    |      |   | $      | 206    |   |   | $      | 782     |  
|                                                                                                                                                                                                                                                                         | Research revenues              |   |                    | 420    |                   |   |        | 153    |      |   |        | 1,428  |   |   |        | 831     |  
|                                                                                                                                                                                                                                                                         |                                |   |                    |        |                   |   |        |        |      |   |        |        |   |   |        |        
|Total revenues                                                                                                                                                                                                                                                           |                                |   | 529                |        |                   |   | 577    |        |      |   | 1,634  |        |   |   | 1,613  |        
|Operating expenses:                                                                                                                                                                                                                                                      |                                |   |                    |        |                   |   |        |        |      |   |        |        |   |   |        |        
|Cost of product revenues (excluding stock-based compensation of $13 and $20 for
the three and nine months ended September 30, 2000, and $18 and $54
for the three and nine months ended September 30, 2001, respectively)                                                |                                |   | 683                |        |                   |   | 2,834  |        |      |   | 1,653  |        |   |   | 6,163  |        
|Research and development expenses, including cost of research revenues
(excluding stock-based compensation of $30 and $79 for the three and nine months
ended September 30, 2000, and $36 and $110 for the three and nine months
ended September 30, 2001, respectively) |                                |   | 766                |        |                   |   | 560    |        |      |   | 2,461  |        |   |   | 2,310  |        
|Selling, general and administrative expenses (excluding stock-based
compensation of $67 and $121 for the three and nine months ended September 30, 2000
and $20 and $59 for the three and nine months ended September 30, 2001, respectively                             |                                |   | 520                |        |                   |   | 1,005  |        |      |   | 1,239  |        |   |   | 3,150  |        
|Stock-based compensation expense                                                                                                                                                                                                                                         |                                |   | 110                |        |                   |   | 74     |        |      |   | 220    |        |   |   | 223    |        
|                                                                                                                                                                                                                                                                         |                                |   |                    |        |                   |   |        |        |      |   |        |        |   |   |        |        
|                                                                                                                                                                                                                                                                         | Total operating expenses       |   |                    | 2,079  |                   |   |        | 4,473  |      |   |        | 5,573  |   |   |        | 11,846  |  
|                                                                                                                                                                                                                                                                         | Operating income (loss)        |   |                    | (1,550 | )                 |   |        | (3,896 | )    |   |        | (3,939 | ) |   |        | (10,233 | )
|Interest income                                                                                                                                                                                                                                                          |                                |   | 231                |        |                   |   | 416    |        |      |   | 746    |        |   |   | 1,535  |        
|                                                                                                                                                                                                                                                                         |                                |   |                    |        |                   |   |        |        |      |   |        |        |   |   |        |        
|Net income (loss)                                                                                                                                                                                                                                                        |                                |   | (1,319             | )      |                   |   | (3,480 | )      |      |   | (3,193 | )      |   |   | (8,698 | )      
|Accretion of redeemable convertible preferred stock                                                                                                                                                                                                                      |                                |   | 797                |        |                   |   |       |        |      |   | 2,053  |        |   |   |       |        
|                                                                                                                                                                                                                                                                         |                                |   |                    |        |                   |   |        |        |      |   |        |        |   |   |        |        
|Net income (loss) attributable to common stockholders                                                                                                                                                                                                                    |                                | $ | (2,116             | )      |                   | $ | (3,480 | )      |      | $ | (5,246 | )      |   | $ | (8,698 | )      
|                                                                                                                                                                                                                                                                         |                                |   |                    |        |                   |   |        |        |      |   |        |        |   |   |        |        
|Other comprehensive income (loss):                                                                                                                                                                                                                                       |                                |   |                    |        |                   |   |        |        |      |   |        |        |   |   |        |        
|                                                                                                                                                                                                                                                                         | Unrealized gain on investments |   |                    |       |                   |   |        | 159    |      |   |        |       |   |   |        | 252     |  
|                                                                                                                                                                                                                                                                         |                                |   |                    |        |                   |   |        |        |      |   |        |        |   |   |        |        
|Comprehensive income (loss) attributable to common stockholders                                                                                                                                                                                                          |                                | $ | (2,116             | )      |                   | $ | (3,321 | )      |      | $ | (5,246 | )      |   | $ | (8,446 | )      
|                                                                                                                                                                                                                                                                         |                                |   |                    |        |                   |   |        |        |      |   |        |        |   |   |        |        
|Net income (loss) per common share (basic and diluted)                                                                                                                                                                                                                   |                                | $ | (2.45              | )      |                   | $ | (0.31  | )      |      | $ | (6.34  | )      |   | $ | (0.77  | )      
|Weighted average shares used in computing basic and diluted
net income (loss) per common share                                                                                                                                                                           |                                |   | 864                |        |                   |   | 11,385 |        |      |   | 827    |        |   |   | 11,273 |        

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

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

|                                                 |                                                                                      |                                                             |                                       |        |                   |        |        |         |     |        |  
|------------------------------------------------ | ------------------------------------------------------------------------------------ | ----------------------------------------------------------- | ------------------------------------- | ------ | ----------------- | ------ | ------ | ------- | --- | ------ | -
|                                                 |                                                                                      |                                                             |                                       |        | Nine months ended
|                                                 |                                                                                      |                                                             |                                       |        | September 30,    
|                                                 |                                                                                      |                                                             |                                       |        | 2000              |        | 2001  
|                                                 |                                                                                      |                                                             |                                       |        |                   |        |       
|Cash flows for operating activities:             |                                                                                      |                                                             |                                       |        |                   |        |        |        
|                                                 | Net loss                                                                             |                                                             | $                                     | (3,193 | )                 |        | $      | (8,698  | )  
|                                                 | Adjustments to reconcile net income (loss) to net
cash used in operating activities: |                                                             |                                       |        |                   |        |        |         |    
|                                                 |                                                                                      | Depreciation expense                                        |                                       |        | 191               |        |        |         | 402 |       
|                                                 |                                                                                      | Non-cash investment income                                  |                                       |        | (648              | )      |        |         |    |       
|                                                 |                                                                                      | Compensation expense associated with employee stock options |                                       |        | 176               |        |        |         | 223 |       
|                                                 |                                                                                      | Issuance and revaluation of stock options to consultants    |                                       |        | 220               |        |        |         |    |       
|                                                 |                                                                                      | Changes in operating assets and liabilites:                 |                                       |        |                   |        |        |         |     |       
|                                                 |                                                                                      |                                                             | Inventory and other current           |        |                   | (588   | )      |         |     | (826   | )
|                                                 |                                                                                      |                                                             | Interest receivable                   |        |                   |       |        |         |     | (309   | )
|                                                 |                                                                                      |                                                             | Accounts receivable                   |        |                   | 119    |        |         |     | 452    |  
|                                                 |                                                                                      |                                                             | Accounts payable and accrued expenses |        |                   | 427    |        |         |     | 174    |  
|                                                 |                                                                                      |                                                             |                                       |        |                   |        |        |        
|                                                 |                                                                                      |                                                             | Net cash used in operating activities |        |                   | (3,296 | )      |         |     | (8,582 | )
|Cash flow for investing activities:              |                                                                                      |                                                             |                                       |        |                   |        |        |        
|                                                 | Purchases of fixed assets                                                            |                                                             |                                       | (3,038 | )                 |        |        | (8,464  | )  
|                                                 | Purchases of investments                                                             |                                                             |                                       | (9,713 | )                 |        |        | (57,393 | )  
|                                                 | Proceeds from sale and maturity of investments                                       |                                                             |                                       | 12,648 |                   |        |        | 61,167  |    
|                                                 |                                                                                      |                                                             |                                       |        |                   |        |        |        
|                                                 | Net cash used in investing activites                                                 |                                                             |                                       | (103   | )                 |        |        | (4,690  | )  
|Cash flow from financing activities:             |                                                                                      |                                                             |                                       |        |                   |        |        |        
|                                                 | Restricted cash                                                                      |                                                             |                                       | (464   | )                 |        |        |        |    
|                                                 | Convertible preferred stock                                                          |                                                             |                                       | 5,617  |                   |        |        |        |    
|                                                 | Proceeds from the exercise of stock options and warrants                             |                                                             |                                       | 75     |                   |        |        | 811     |    
|                                                 |                                                                                      |                                                             |                                       |        |                   |        |        |        
|                                                 | Net cash flow provided by financing activities                                       |                                                             |                                       | 5,228  |                   |        |        | 811     |    
|                                                 |                                                                                      |                                                             |                                       |        |                   |        |        |        
|                                                 | Net (decrease) increase in cash and cash equivalents                                 |                                                             |                                       | 1,829  |                   |        |        | (12,461 | )  
|Cash and cash equivalents at beginning of period |                                                                                      |                                                             | 1,466                                 |        |                   |        | 13,171 |        
|                                                 |                                                                                      |                                                             |                                       |        |                   |        |        |        
|Cash and cash equivalents at end of period       |                                                                                      | $                                                           | 3,295                                 |        |                   | $      | 710    |        
|                                                 |                                                                                      |                                                             |                                       |        |                   |        |        |        
|Supplemental cash flow information:              |                                                                                      |                                                             |                                       |        |                   |        |        |        
|                                                 | Non-cash transactions:                                                               |                                                             |                                       |        |                   |        |        |         |    
|                                                 |                                                                                      | Deferred compensation                                       |                                       |        | 953               |        |        |         |    |       

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

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|   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|1. |  | Basis of Presentation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|  
|   |  | The accompanying 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, 2000. The
consolidated 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
consolidated interim financial statements should be read in conjunction
with the Companys audited financial statements for the year ended
December 31, 2000, which are contained in Evergreens Annual Report on
Form 10-K for the fiscal year ended December 31, 2000, which was filed
with the Securities and Exchange Commission on April 2, 2001. The
unaudited 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
September 30, 2001, the results of operations for the three and nine
month periods ended September 30, 2001 and 2000, and the cash flows for
the three and nine month periods ended September 30, 2001 and 2000. The
balance sheet at December 31, 2000 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, 2001.
|  
|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. The calculation of diluted net loss per
common share for the three and nine month periods ending September 30,
2001 and 2000 does not include 2,029,326 and 8,567,496 potential shares
of common stock equivalents outstanding at September 30, 2001 and 2000,
respectively, as their inclusion would be antidilutive.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|  
|3. |  | Inventory                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|  
|   |  | Inventory consisted of finished goods of $178,000 and $86,000, and both
raw materials and work in process of $230,000 and $965,000 at December
31, 2000 and September 30, 2001, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|  
|4. |  | Deferred Compensation and Equity Related Changes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|  
|   |  | For the nine months ended September 30, 2000 and 2001, the Company
recorded $953,000 and $0, respectively, of deferred compensation related
to stock option grants to employees. The deferred compensation
represents differences between the estimated fair value of common stock
on the date of grant and the exercise price. The deferred compensation
is being amortized and charged to operations over the vesting period of
the related options. Total employee stock option-related compensation
expense was $220,000 and $223,000 for the nine months ended September 30,
2000 and 2001, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|  
|5. |  | Segment Information                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|  
|   |  | For the nine months ended September 30, 2000 and 2001, revenues generated
from within the United States represented $1.45 million and 1.58 million;
and revenues generated from outside the United States represented
$180,000 and $33,000, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

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|   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |  | For the nine months ended September 30, 2000 and 2001, revenues from The
Commonwealth of Massachusetts accounted for 19% of total revenues for
both periods; revenues from the National Institute of Standards and
Technology accounted for 32% and 26% of total revenues, respectively;
revenues from the National Renewable Energy Laboratory accounted for 19%
and 46% of total revenues, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|  
|6. |  | Recent Accounting Pronouncements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|  
|   |  | In July 2001, the Financial Accounting Standards Board (''FASB) issued
Statement of Financial Accounting Standard (SFAS) No. 141, ''Business
Combinations, and SFAS No. 142, ''Goodwill and Other Intangible
Assets. SFAS 141 requires use of the purchase method of accounting for
business combinations initiated after June 30, 2001 and eliminated the
pooling-of-interests method. SFAS 142 requires the discontinuance of
goodwill amortization and includes provisions for the reclassification of
certain existing recognized intangible assets into goodwill, the
reassessment of the useful lives of existing recognized intangible
assets, the reclassification of certain intangible assets out of
previously reported goodwill and the identification of reporting units
for purposes of assessing potential future impairments of goodwill. The
Company must adopt SFAS 142 by July 1, 2002. The Company does not
believe that the adoption of SFAS 141 and SFAS 142 in 2002 will have a
significant impact on its financial position or its results from
operations.
|  
|   |  | In October 2001, the FASB issued SFAS 144, Accounting for the Impairment
or Disposal of Long-Lived Assets. The objectives of SFAS 144 are to
address significant issues relating to the implementation of SFAS 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of,and to develop a single accounting model, based
on the framework established in SFAS 121, for long-lived assets to be
disposed of by sale, whether previously held and used or newly acquired.
SFAS 144 is effective for financial statements issued for fiscal years
beginning after December 15, 2001 and, generally, its provisions are to
be applied prospectively. Management is currently determining what
effect, if any, SFAS 144 will have on its financial position and results
of operations.                                                                                                                                                                                                                                                                




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 constitute forward-looking
statements which are made pursuant to the safe harbor provisions of Section 21E
of the Securities Exchange Act of 1934. These statements may be identified
with such words as we expect, we believe, we anticipate or similar
indications of future expectations. These statements are neither promises nor
guarantees, and involve risks and uncertainties which could cause our actual
results to differ materially from such forward-looking statements, including,
among other things, those risks and uncertainties described below in this
Quarterly Report under the caption Certain Factors which may Affect Future
Results and in our other filings with the Securities and Exchange Commission.
We caution readers not to place undue reliance on any forward-looking
statements contained in this Quarterly Report, which speak only as of the date
of this Report.

OVERVIEW

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

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Product revenues. Product revenues consist of revenues from the sale of
solar cells, panels and systems. These revenues have been limited by our
current production capacity, and we have relocated our operations to a new
facility to permit greater manufacturing capacity. We recognize product
revenues upon shipment.

Research revenues. Research revenues consist of revenues from various
state and federal government agencies to fund our ongoing research,
development, testing and enhancement of our products and manufacturing
technology. We have not in the past, nor is it our intention in the future, to
pursue contracts that are not part of our ongoing research activities. We
recognize research revenues using the percentage of completion method.

Cost of product revenues. Cost of product revenues consists primarily of
salaries and related personnel costs, materials expenses, depreciation
expenses, maintenance, royalties on licensed technology and other support
expenses associated with the manufacture of our solar power products. We
expect to continue to experience costs in excess of revenues until we achieve
greater efficiencies and higher production levels.

Research and development expenses, including cost of research revenues.
Research and development expenses, including cost of research revenues, consist
primarily of salaries and related personnel costs, consulting expenses, and
prototype costs related to the design, development, testing and enhancement of
our products and manufacturing technology. We expense our research and
development expenses as incurred. We believe that research and development is
critical to our strategic objectives of enhancing our technology, reducing
manufacturing costs and meeting the changing requirements of our customers. As
a result, we expect that our total research and development expenses will
increase in the future.

Selling, general and administrative expenses. Selling, general and
administrative expenses consist primarily of salaries and related personnel
costs, professional fees, rent, insurance and other sales expenses. We expect
that selling expenses will increase substantially in absolute dollars as we
increase our sales efforts, hire additional sales personnel, initiate
additional marketing programs and incur additional costs related to the growth
of our business and our operations as a public company.

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

COMPARISON OF THREE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000

Revenues. Our product revenues for the three months ended September 30,
2001 were $424,000, an increase of $315,000, or 289%, from $109,000 for the
same period in 2000. 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 September 30, 2001 were $153,000, a
decrease of $267,000, or 64%, from $420,000 for the same period in 2000. The
decline in research revenues reflects reduced revenues received under our
research contracts, as two of three multi-year contracts were completed in the
second quarter of 2001.

Cost of product revenues.Our cost of product revenues for the three
months ended September 30, 2001 was $2.8 million, an increase of $2.2 million,
or 315%, from $683,000 for the same period in 2000. These increases were
associated with the expansion of our pilot manufacturing operations, and the
relocation, preparation and start-up of our manufacturing operations in our new
Marlboro facility. Approximately 31% of the increase was due to higher salary
expense for resulting from additional personnel, 35% of the increase was caused
by increases in materials purchases due to increased production, and 25% of the
increase was due to increases in consulting fees.

Research and development expenses, including cost of research revenues.
Our research and development expenses, including cost of research revenues, for
the three months ended September 30, 2001 were $560,000, a decrease of
$206,000, or 27%, from $766,000 for

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the same period in 2000. The decrease was principally caused by fewer
costs incurred for our research contracts, as two of three multi-year contracts
were completed in the second quarter of 2001.

Selling, general and administrative expenses.Our selling, general and
administrative expenses for the three months ended September 30, 2001 were $1.0
million, an increase of $485,000, or 93%, from $520,000 for the same period in
2000. Approximately 25% of the increase was due to increases in professional
fees paid for legal, audit and other consulting services, approximately 45% of
the increase was due to increased salary expense from both additional
administrative personnel and salary increases, and most of the remainder of the
increase was due to higher rental expense from the addition of our Marlboro
facility and higher premiums for our directors and officers liability
insurance policy.

Stock-based compensation expense.As of September 30, 2001, we had
recorded total cumulative deferred compensation of approximately $1.3 million,
representing the difference between fair market value of the common stock on
the option grant date and the exercise price. These amounts are presented as a
reduction of stockholders equity and will be amortized ratably over the
vesting period of the options, which is generally four years. The amortization
resulted in charges to operations of $74,000 and $110,000 for the three months
ended September 30, 2001 and 2000, respectively. We expect to recognize
stock-based compensation expenses for the grants made through September 30,
2001 of approximately $295,000 for each of the years ended December 31, 2001
and December 31, 2002, $292,000 for the year ended December 31, 2003 and
$76,000 for the year ended December 31, 2004.

Our stock-based compensation expense for the three months ended September
30, 2001 was $74,000, a decrease of $36,000, or 33%, from the same period in
2000. The expense in the three months ended September 30, 2001 and 2000 was
due to amortization relating to options granted in 1999 and 2000.

Interest income.Our interest income for the three months ended September
30, 2001 was $416,000, an increase of $185,000, or 80%, from $231,000 for the
same period in 2000. The increase in interest income was due to higher average
cash balances that resulted from the closing of our initial public offering of
stock completed in November 2000.

Other comprehensive income.Our other comprehensive income for the three
months ended September 30, 2001 was $159,000, an increase of $159,000 from the
same period in 2000. For the three months ended September 30, 2001, our other
comprehensive loss included unrealized gains and losses on marketable
securities.

COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000

Revenues. Our product revenues for the nine months ended September 30,
2001 were $782,000, an increase of $576,000, or 280%, from $206,000 for the
same period in 2000. Our increase in product revenues was due to capacity
expansions at our pilot manufacturing facility in Waltham, Massachusetts, the
start-up of our new manufacturing facility in Marlboro, Massachusetts, and our
increased marketing and sales activities. Research revenues for the nine months
ended September 30, 2001 were $831,000, a decrease of $597,000, or 42%, from
$1.4 million for the same period in 2000. The decline in research revenues
reflects reduced revenues received under our research contracts, as two of
three multi-year contracts were completed in the second quarter of 2001.

Cost of product revenues.Our cost of product revenues for the nine
months ended September 30, 2001 was $6.2 million, an increase of $4.5 million,
or 273%, from $1.7 million for the same period in 2000. These increases were
associated with the expansion of our pilot manufacturing operations, and the
relocation, preparation and start-up of our manufacturing operations in our new
Marlboro facility. Approximately 30% of the increase was caused by increases
in materials purchases due to increased production, 40% of the increase was due
to higher salary expense for resulting from additional personnel, and 15% was
due to increases in consulting fees.

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Research and development expenses, including cost of research revenues.
Our research and development expenses, including cost of research revenues, for
the nine months ended September 30, 2001 were $2.3 million, a decrease of
$151,000, or 6%, from $2.5 million for the same period in 2000. The decrease
was principally caused by fewer costs incurred for our research contracts, as
two of three multi-year contracts were completed in the second quarter of 2001.

Selling, general and administrative expenses.Our selling, general and
administrative expenses for the nine months ended September 30, 2001 were $3.2
million, an increase of $1.9 million, or 154%, from $1.2 million for the same
period in 2000. Approximately 25% of the increase was due to increases in
professional fees paid for legal, audit and other consulting services,
approximately 20% of the increase was due to increased salary expense from both
salary increases and additional administrative personnel, approximately 15% was
due to higher premiums for our directors and officers liability insurance
policy, and most of the remainder of the increase was due to higher rental
expense from the addition of our Marlboro facility.

Stock-based compensation expense.As of September 30, 2001, we had
recorded total cumulative deferred compensation of approximately $1.3 million,
representing the difference between fair market value of the common stock on
the option grant date and the exercise price. These amounts are presented as a
reduction of stockholders equity and will be amortized ratably over the
vesting period of the options, which is generally four years. The amortization
resulted in charges to operations of $223,000 and $220,000 for the nine months
ended September 30, 2001 and 2000, respectively. We expect to recognize
stock-based compensation expenses for the grants made through September 30,
2001 of approximately $295,000 for each of the years ended December 31, 2001
and December 31, 2002, $292,000 for the year ended December 31, 2003 and
$76,000 for the year ended December 31, 2004.

Our stock-based compensation expense for the nine months ended September
30, 2001 was $223,000, an increase of $3,000, or 1%, from the same period in
2000. The expense in the nine months ended September 30, 2001 and 2000 was due
to amortization relating to options granted in 1999 and 2000.

Interest income.Our interest income for the nine months ended September
30, 2001 was $1.5 million, an increase of $789,000, or 106%, from $746,000 for
the same period in 2000. The increase in interest income was due to higher
average cash balances that resulted from the closing of our initial public
offering of stock completed in November 2000.

Other comprehensive income.Our other comprehensive income for the nine
months ended September 30, 2001 was $252,000, an increase of $252,000 from the
same period in 2000. For the nine months ended September 30, 2001, 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 from funds provided by operations, including primarily research
revenues. At September 30, 2001, we had working capital of $30.6 million, and
cash, cash equivalents and short-term investments of $30.0 million. Net cash
used in operating activities primarily represents net loss and increases in
working capital partially offset by depreciation expense.

Net cash used in operating activities was $8.6 million for the nine months
ended September 30, 2001, as compared to $3.3 million for the nine months ended
September 30, 2000. The increase in net cash used in operating activities for
the nine months ended September 30, 2001 was primarily due to increases in our
net loss and working capital associated with our inventory build and capacity
expansion.

Net cash used in investing activities was $4.7 million for the nine months
ended September 30, 2001, as compared to $0.1 million for the nine months ended
September 30, 2000. The increase in net cash used in investing activities was
due primarily to increased capital

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spending for equipment needed for our new manufacturing facility. Net
cash used in investing activities primarily represents capital expenditures,
and also includes purchases, sales and maturities of high quality corporate
paper, corporate bonds and United States government-backed obligations with
contractual maturities typically less than one year.

Capital expenditures were $8.5 million for the nine months ended September
30, 2001, as compared to $3.0 million for the nine months ended September 30,
2000. The capital expenditures for the nine months ended September 30, 2001
were primarily for plant and equipment needed for line one of our Marlboro
manufacturing facility. As of September 30, 2001, our outstanding commitments
for capital expenditures were $750,000. Nearly all of our commitments for
capital expenditures are associated with infrastructure improvements and
equipment purchases for line one of our Marlboro manufacturing facility. We
expect to fund our current capital commitments with the proceeds from our
initial public offering, which closed in November 2000. In addition to the
$8.5 million of capital expenditures in the nine months ended September 30,
2001 and the $750,000 of outstanding capital commitments, we expect to spend an
additional $0.3 to $2.3 million for capital expenditures, primarily related to
the completion of line one of our Marlboro manufacturing facility, during the
fourth quarter of 2001. We expect further capital expenditures will be
required after 2001 to achieve full capacity at our Marlboro facility.

Net cash provided by financing activities was $811,000 for the nine months
ended September 30, 2001, as compared to $5.2 million for the nine months ended
September 30, 2000. The cash provided by financing activities for the nine
months ended September 30, 2001 represents proceeds from the exercise of
options and warrants to purchase common stock, and the cash provided by
financing activities for the nine months ended September 30, 2000 primarily
represents private placements of redeemable convertible preferred stock.

We believe our current cash, cash equivalents and short-term investments,
will be sufficient to satisfy our current capital commitments and projected
operating expenditures for approximately the next 12 months. We anticipate that
we are likely to need additional financing to execute our business model
beginning in 12 months, or sooner if we elect to make additional
capital expenditures before then to further expand our Marlboro manufacturing
facility or if we need to respond to business contingencies. These
contingencies may include the need to enhance our operating infrastructure,
respond to competitive pressures and acquire complementary businesses or
necessary technologies. We do not know whether we will be able to raise
additional financing or financing on terms favorable to us. If adequate funds
are not available or are not available on acceptable terms, our ability to fund
our operations, develop our manufacturing operations and distribution network,
or otherwise respond to competitive pressures would be significantly limited.

RECENT ACCOUNTING PRONOUNCEMENTS

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

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

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applied prospectively. Management is currently determining what effect,
if any, SFAS 144 will have on its financial position and results of operations.

CERTAIN FACTORS WHICH MAY AFFECT FUTURE RESULTS

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 managements expectations regarding the timing, cost, and
success of the Companys relocation to its new facility in Marlboro,
Massachusetts and future manufacturing scale-up and production; the Companys
future financial performance; the Companys technology and product development,
cost and performance; the Companys current and future strategic relationships
and future market opportunities; and the Companys other business and
technology strategies and objectives, constitute forward-looking statements
which are made pursuant to the safe harbor provisions of Section 21E of the
Securities Exchange Act of 1934. These statements may be identified with such
words as we expect, we believe, we anticipate or similar indications of
future expectations. These statements are neither promises nor guarantees, and
involve risks and uncertainties which could cause our actual results to differ
materially from such forward-looking statements. Such risks and uncertainties
may include, among other things, those risks and uncertainties described below
and in our other filings with the Securities and Exchange Commission, including
the Companys Annual Report on Form 10-K filed with the Securities and Exchange
Commission on April 2, 2001, 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 Report. We disclaim any obligation to
publicly update or revise any such statements to reflect any change in our
expectations, or events, conditions, or circumstances on which any such
statements may be based, or that may affect the likelihood that actual results
will differ from those set forth in such forward-looking statements.

Risks Relating to our Financial Results

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

We are at an early stage of development and there is limited historical
information available upon which you can base your evaluation of our business
and prospects. We were formed in 1994 to research and develop crystalline
silicon technology for use in manufacturing solar power products. Although we
began shipping product from our pilot manufacturing facility in 1997, the
primary objective of our pilot production line was the technical development
and further refinement of our String Ribbon technology and related
manufacturing processes. We shipped our first commercial products from our new
Marlboro manufacturing facility in June 2001. We have shipped only a limited
number of solar power panels as of September 30, 2001 and have recognized
limited revenues since our inception.

In addition, our earlier stage of development means that we have less
insight into how market and technology trends may affect our business. The
revenue and income potential of our business is unproven and the market we are
addressing is rapidly evolving. You should consider our business and prospects
in light of the risks, expenses and challenges that we will face as an
early-stage company seeking to develop and manufacture new products in an
emerging 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 $8.7 million for the nine months ended September 30, 2001. As a
result of ongoing operating losses, we had a cumulative net loss of $24.4
million as of September 30, 2001. We expect to incur substantial losses for the
foreseeable future, and may never become profitable. Even if we do achieve
profitability, we may be unable to sustain or increase our profitability in the
future, which

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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.

Our stock price could fall substantially if our quarterly revenue or operating
results fluctuate or are disappointing.

Our quarterly revenue and operating results have fluctuated significantly
in the past and may fluctuate significantly from quarter to quarter in the
future due to a variety of factors, many of which are discussed elsewhere in
this section.

We anticipate that our operating expenses will continue to increase
significantly. If sales in any quarter do not increase correspondingly, our net
losses for that period will increase. For these reasons, quarter-to-quarter
comparisons of our results of operations are not necessarily meaningful and you
should not rely on results of operations in any particular quarter as an
indication of future performance. If our quarterly revenue or results of
operations fall below the expectations of investors or public market analysts
in any quarter, the market value of our common stock would likely decrease, and
may decrease rapidly and substantially.

Risks Relating to our Industry, Products and Operations

If solar power technology is not suitable for widespread adoption or sufficient
demand for solar power products does not develop or takes longer to develop
than we anticipate, our sales would not significantly increase and we would be
unable to achieve or sustain profitability.

The market for solar power products is emerging and rapidly evolving, and
its future success is uncertain. If solar power technology proves unsuitable
for widespread commercial deployment or if demand for solar power products
fails to develop sufficiently, we would be unable to generate enough revenues
to achieve and sustain profitability. In addition, demand for solar power
products in the markets and geographic regions we target may not develop or may
develop more slowly than we anticipate. Many factors will influence the
widespread adoption of solar power technology and demand for solar power
products, including:



| |  |  | cost-effectiveness of solar power technologies as compared with
conventional and non-solar alternative energy technologies;                                                                                    
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | performance and reliability of solar power products as compared with
conventional and non-solar alternative energy products;                                                                                   
|
| |  |  | success of alternative distributed generation technologies such as
fuel cells, wind power and microturbines;                                                                                                   
|
| |  |  | fluctuations in economic and market conditions which impact the
viability of conventional and non-solar alternative energy sources, such
as increases or decreases in the prices of oil and other fossil fuels;

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| |  |  | continued deregulation of the broader energy industry; and
| | - |  | ----------------------------------------------------------
|
| |  |  | availability of government subsidies and incentives.      

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

Although we have been selling our solar power products since 1997, we
expect to derive a substantial portion of our revenues from sales of our new
solar power products which are under development and not yet commercially
available. Many of these new products are derived from our innovative cell
fabrication and advanced panel design technologies, which are under
development. If we fail to successfully develop our new solar power products or
technologies, we will likely be unable to recover the losses we will have
incurred to develop these products and technologies and may be unable to
increase our sales and market share and to become profitable. Much of our new
product and manufacturing technologies are novel and represent a departure from
conventional solar power technologies, and it is difficult to predict whether
we will be successful in completing their development. Our manufacturing
technologies have been tested only in our pilot manufacturing facility and, in
most cases, only limited pre-production prototypes of our new products have
been field tested.

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

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



| |  |  | our failure to produce solar power products which compete favorably
against other solar power products on the basis of cost, quality and
performance;                                                                          
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | our failure to produce solar power products which compete favorably
against conventional energy sources and alternative distributed
generation technologies, such as fuel cells, on the basis of cost,
quality and performance;
|
| |  |  | whether customers accept the thin polymer-frame design of our solar
panels and the new techniques we are developing to mount them; and                                                                                         
|
| |  |  | our failure to develop and maintain successful relationships with
distributors, systems integrators and other resellers, as well as
strategic partners such as Kawasaki.                                                       

If our solar power products fail to gain market acceptance, we would be unable
to increase our sales and market share and to achieve and sustain
profitability.

Technological changes in the solar power industry could render our solar power
products obsolete, which could reduce our market share and cause our sales to
decline.

Our failure to further refine our technology and develop and introduce new
solar power products could cause our products to become obsolete, which could
reduce our market share and cause our sales to decline. The solar power
industry is rapidly evolving and competitive. We will need to invest
significant financial resources in research and development to keep pace with
technological advances in the solar power industry and to effectively compete
in the future. We believe that there are a variety of competing solar power
technologies under development by other companies that could result in lower
manufacturing costs than those expected for our solar power products. Our
development efforts may be rendered obsolete by the technological advances of
others, and other technologies may prove more advantageous for the
commercialization of solar power products.

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

If we fail to successfully complete the build-out of our new manufacturing
facility and begin large-scale manufacturing there on time and at budgeted
costs, our business and results of operations would likely be materially
impaired. 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, delays,
equipment problems and other start-up and operating difficulties. Our
manufacturing processes also use custom-built equipment that may not be
delivered and installed in our new facility in a timely manner. In addition
this equipment may take longer and cost more to debug than planned and may
never operate as designed. If we experience any of these or similar
difficulties, our manufacturing capacity could be substantially constrained and
our revenues and earnings would likely be materially impaired.

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

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

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

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

Our ability to increase market share and sales depends on our ability to
successfully maintain our existing distribution relationships and expand our
distribution channels.

We currently sell our solar power products primarily to distributors,
system integrators and other value-added resellers within and outside of North
America, which typically resell our products to end users on a global basis.
Through September 30, 2001, we sold our solar power products to approximately
10 distributors, system integrators and other value-added resellers. If we are
unable to successfully maintain our existing distribution relationships and
expand our distribution channels, our revenues and future prospects will be
materially harmed. As we seek to grow our sales by entering new markets in
which we have little experience selling our solar power products, our ability
to increase market share and sales will depend substantially on our ability to
expand our distribution channels by identifying, developing and maintaining
relationships with resellers both within and outside of North America. We may
be unable to enter into relationships with resellers in the markets we target
or on terms and conditions favorable to us, which could prevent us from
entering these markets or entering these markets in accordance with our plans.
Our ability to enter into and maintain relationships with resellers will be
influenced by the relationships between these resellers and our competitors,
market acceptance of our solar power products and our low brand recognition as
a new entrant.

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We face risks associated with the marketing, distribution and sale of our solar
power products internationally, and if we are unable to effectively manage
these risks, it could impair our ability to grow our business abroad.

From our inception through September 30, 2001, approximately 58% of our
product sales have been made to resellers outside North America. We expect that
our sales both to resellers and distributors outside of North America and
through our resellers and distributors to end users outside of North America
will increase in the future, including sales made in Japan to Kawasaki. We will
require significant management attention and financial resources to
successfully develop our international sales channels. In addition, the
marketing, distribution and sale of our solar power products internationally
exposes us to a number of risks that we have not yet encountered due to the
limited number of products we have sold internationally. If we are unable to
effectively manage these risks, it could impair our ability to grow our
business abroad. These risks include:



| |  |  | difficult and expensive compliance with the commercial and legal
requirements of international markets, with which we have only limited
experience;                                                                                   
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | inability to obtain intellectual property protection;                                                                                                                                                                                 
|
| |  |  | encountering trade barriers such as export requirements, tariffs,
taxes and other restrictions and expenses, which could affect the
competitive pricing of our solar power products and reduce our market
share in some countries; and
|
| |  |  | difficulty of enforcing revenue collection internationally.                                                                                                                                                                           

We expect that our international sales will be generally denominated in
United States dollars. As a result, increases in the value of the United States
dollar relative to foreign currencies would cause our products to become less
competitive in international markets and could result in limited, if any, sales
and profitability. To the extent that we denominate sales in foreign
currencies, we will be exposed to increased risks of currency fluctuations.

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

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

From our inception through September 30, 2001, our three largest resellers
accounted for approximately 75% of our product sales and our 10 largest
resellers accounted for approximately 95% of our product sales. We anticipate
that sales of our solar power products to a limited number of key resellers,
including Kawasaki, will continue to account for a significant portion of our
total product revenues for the foreseeable future. Consequently, any one of the
following events may cause significant fluctuations or declines in our product
revenues:



| |  |  | reduction, delay or cancellation of orders from one or more of our significant resellers;                           
| | - |  | --------------------------------------------------------------------------------------------------------------------
|
| |  |  | selection by one or more of our significant resellers of products competitive with ours;                            
|
| |  |  | loss of one or more of our significant resellers and our failure to
recruit additional or replacement resellers; and
|
| |  |  | failure of any of our significant resellers to make timely payment of
our invoices.                                 

Our dependence on a limited number of third party suppliers for raw materials,
key components for our solar power products and custom-built equipment for our
operations could prevent us from delivering our products to our customers
within required timeframes and we may experience order cancellation and loss of
market share.

We manufacture all of our solar power products using materials and
components procured from a limited number of third-party suppliers. If we fail
to develop or maintain our relationships

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with these or our other suppliers, we may be unable to manufacture our
products or our products may be available only at a higher cost or after a long
delay, which could prevent us from delivering our products to our customers
within required timeframes and we may experience order cancellation and loss of
market share. We currently do not have contracts with most of our suppliers and
may not be able to procure sufficient quantities of the materials and
components necessary to manufacture our products on acceptable commercial terms
or at all. To the extent the processes that our suppliers use to manufacture
materials and components are proprietary, we may be unable to obtain comparable
materials and components from alternative suppliers. The failure of a supplier
to supply materials and components in a timely manner, or to supply materials
and components that meet our quality, quantity and cost requirements could
impair our ability to manufacture our products and/or increase their costs,
particularly if we are unable to obtain substitute sources of these materials
and components on a timely basis or on terms acceptable to us. In addition, our
manufacturing processes utilize custom-built equipment that is currently
produced by a limited number of suppliers. A suppliers failure to supply this
equipment in a timely manner, with adequate quality and on terms acceptable to
us could delay our capacity expansion to our new manufacturing facility and
otherwise, disrupt our production schedule or increase our costs of production.

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

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

The success of our business depends on the continuing contributions of our key
personnel and our ability to attract and retain new qualified employees in a
competitive labor market.

We have attracted a highly skilled management team and specialized
workforce, including scientists, engineers, researchers, and manufacturing and
marketing professionals. If we were to lose the services of Mark A. Farber, our
Chief Executive Officer, President and a director, or Dr. Jack I. Hanoka, our
Chief Technical Officer, or any of our other executive officers and key
employees, our business could be materially and adversely impacted. We had 119
employees as of September 30, 2001, and anticipate that we will need to hire a
significant number of new highly-skilled technical, manufacturing, sales and
marketing, and administrative personnel if we are to successfully develop and
market our products, develop our distribution network, and operate and expand
our 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 appropriate qualifications, particularly
in the desired geographic location, can be costly and difficult. We may not be
able to hire the necessary personnel to implement our business strategy, or we
may need to provide higher compensation or training to our personnel than we
currently anticipate. Moreover, any officer or employee can terminate his or
her relationship with us at any time.

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

The existing members of our management team have had only limited
experience managing a rapidly growing company on either a public or private
basis. We are undergoing rapid growth in the size of our physical plant, the
scope of our operations and the number of our employees, which is likely to
place a significant strain on our senior management team and other resources.
In addition, we may encounter difficulties in effectively managing the
budgeting, forecasting and other process control issues presented by our rapid
growth. If our management team is unable to manage the rapid growth of our
business operations, then our product development, the

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expansion of our manufacturing operations and distribution network, and
our sales and marketing activities would be materially and adversely affected.

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

We currently anticipate that our current cash, cash equivalents and
short-term investments, will be sufficient to meet our anticipated needs for
developing our manufacturing and distribution capabilities, funding ongoing
research and development, expanding our sales and marketing activities, and
funding our operations and general corporate purposes through at least the next
12 months. We anticipate that we are likely to need additional financing to
execute our business model after that time or sooner if we need to respond to
business contingencies. These contingencies may include the need to:



| |  |  | enhance our operating infrastructure;                      
| | - |  | -----------------------------------------------------------
|
| |  |  | expand our manufacturing capacity;                         
|
| |  |  | 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. If
our competitors establish a market position more prominent than ours and we
fail to attract and retain customers and establish a successful distribution
network for our solar power products, we may be unable to increase our sales
and market share. A number of the largest companies in the world, including BP
Solar, which is a division of BP Amoco, Siemens Solar Group, Kyocera
Corporation and Sharp Corporation, as well as a number of other large and small
companies, including AstroPower, Inc., have developed or are developing solar
power products that compete with ours. Other existing and potential competitors
in the solar power market include universities and research institutions. We
also expect that future competition will include new entrants to the solar
power market offering new technological solutions. Further, many of our
competitors are developing and are currently producing products based on new
solar power technologies, including other crystalline silicon ribbon and sheet
technologies, that they believe will ultimately have costs similar to or lower
than our projected costs.

Most of our competitors are substantially larger than we are, have longer
operating histories and have substantially greater financial, technical,
manufacturing and other resources than we do. Many also have greater name
recognition, a more established distribution network and a larger installed
base of customers. In addition, many of our competitors have well-established
relationships with our current and potential customers and have extensive
knowledge of our target markets. As a result, our competitors may be able to
devote greater resources to the research, development, promotion and sale of
their products and respond more quickly to evolving industry standards and
changing customer requirements than we can.

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If we are unable to protect our intellectual property adequately, we could lose
our competitive advantage in the solar power market.

Our ability to compete effectively against competing solar power
technologies will depend, in part, on our ability to protect our current and
future proprietary technology, product designs and manufacturing processes
through a combination of patent, copyright, trademark, trade secret and unfair
competition laws. We may not be able to adequately protect our intellectual
property and may need to defend our 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 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

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

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

We intend to continue our policy of selectively pursuing contract
research, product development, and market development programs funded by
various agencies of the United States, state and international governments to
complement and enhance our own resources. The percentage of our total revenues
derived from government-related contracts was approximately 52% for the nine
months ended September 30, 2001. We currently have one active research contract
with total estimated revenues of approximately $2.0 million, $1.35 million of
which has been authorized by the sponsoring agency and $0.5 million of which
has been recorded as revenue as of September 30, 2001. The remaining $1.5
million of revenue will be recognized over the remaining life of the contract,
which expires on October 31, 2003. These government agencies may not continue
their commitment to programs to which our development projects are applicable.
Moreover, we may not be able to compete successfully to obtain funding through
these or other programs. A reduction or discontinuance of these programs or of
our participation in these programs would increase our research and development
expenses, which could impair our ability to develop our solar power
technologies.

In addition, contracts involving government agencies may be terminated at
the convenience of the agency. Other risks include potential disclosure of our
confidential information to third parties and the exercise of march-in rights
by the government. Our government-sponsored research contracts require that we
provide regular written technical updates on a monthly, quarterly or annual
basis, and, at the conclusion of the research contract, a final report on the
results of our technical research. Because these reports are generally
available to the public, third parties may obtain some aspects of our sensitive
confidential information. March-in rights refer to the right of the United
States government or government agency to require us to grant a license to the
technology to a responsible applicant or, if we refuse, the government may
grant the license itself. The government can exercise its march-in rights if it
determines that action is necessary because we fail to achieve practical
application of the technology, or because action is necessary to alleviate
health or safety needs, or to meet requirements of federal regulations, or to
give United States industry preference. Funding from government contracts also
may limit when and how we can deploy our technology developed under those
contracts.

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Compliance with environmental regulations can be expensive and inadvertent
noncompliance may result in adverse publicity and potentially significant
monetary damages and fines.

We are required to comply with all federal, state and local regulations
regarding protection of the environment. If more stringent regulations are
adopted in the future, the costs of compliance with these new regulations could
be substantial. We believe that we have all necessary permits to conduct our
business as it is presently conducted. If we fail to comply with present or
future environmental regulations, however, we may be required to pay
substantial fines, suspend production or cease operations. We use, generate and
discharge toxic, volatile and otherwise hazardous chemicals and wastes in our
research and development and manufacturing activities. Any failure by us to
control the use of, or to restrict adequately the discharge of, hazardous
substances could subject us to potentially significant monetary damages and
fines. In addition, under some federal and state statutes and regulations, a
governmental agency may seek recovery and response costs from operators of
property where releases of hazardous substances have occurred or are ongoing,
even if the operator was not responsible for such release or otherwise at
fault.

Product warranty claims could reduce our profitability.

As is consistent with standard practice in our industry, the duration of
our product warranties is lengthy relative to expected product life and has
recently been increasing. Our current standard product warranty includes a
one-year warranty period for defects in material and workmanship and a 20-year
warranty period for declines in power performance. We believe our warranty
periods are consistent with industry practice. Due to the long warranty period,
we bear the risk of extensive warranty claims long after we have shipped
product and recognized revenues.

Product liability claims against us could result in adverse publicity and
potentially significant monetary damages.

Like other retailers, distributors and manufacturers of products that are
used by consumers, we face an inherent risk of exposure to product liability
claims in the event that the use of the solar power products we sell results in
injury. Since our products are electricity producing devices, it is possible
that consumers could be injured or killed by our products, whether by product
malfunctions, defects, improper installation or other causes. In addition,
since sales of our existing products have been modest and the products we are
developing incorporate new technologies and use new installation methods, we
cannot predict whether product liability claims will be brought against us in
the future or the effect of any resulting adverse publicity on our business.
Moreover, we may not have adequate resources in the event of a successful claim
against us. We have evaluated the potential risks we face and believe that we
have appropriate levels of insurance for product liability claims. We rely on
our general liability insurance to cover product liability claims and have not
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 22% of our common stock and may be able to
significantly influence corporate actions.

As of November 5, 2001, our executive officers, directors and entities
affiliated with them controlled approximately 22% of our common stock. As a
result, these stockholders, acting together, may be able to significantly
influence all matters requiring approval by our stockholders, including the
election of directors, the approval of charter and by-law amendments, and the
approval of mergers or other business combinations.

The price of our common stock may be volatile.

The stock market has, from time to time, experienced extreme price and
trading volume fluctuations, and the market prices of technology companies such
as ours have been extremely volatile. Our operating performance will
significantly affect the market price of our common stock. To the extent we are
unable to compete effectively and gain market share or the other factors
described in this section affect us, our stock price will likely decline. The
market price of our

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common stock also may be adversely impacted by broad market and industry
fluctuations regardless of our operating performance, including general
economic and technology trends. In addition, companies that have experienced
volatility in the market price of their stock have been the subject of
securities class action litigation. We may be involved in securities class
action litigation in the future. This litigation often results in substantial
costs and a diversion of managements attention and resources.

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

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

We are subject to anti-takeover provisions in our charter and by-laws and under
Delaware law that could delay or prevent an acquisition of our company, even if
the acquisition would be beneficial to our stockholders.

Provisions of our certificate of incorporation, our by-laws and Delaware
law could make it more difficult and expensive for a third party to pursue a
tender offer, change in control transaction or takeover attempt which is
opposed by our board of directors. Stockholders who wish to participate in
these transactions may not have the opportunity to do so. We also have a
staggered board of directors which makes it difficult for stockholders to
change the composition of our board of directors in any one year. If a tender
offer, change in control transaction, takeover attempt or change in our board
of directors is prevented or delayed, the market price of our common stock
could decline.




ITEM 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 credit quality instruments. We do not
expect any material loss from our marketable security investments and therefore
believe that our potential interest rate exposure is not material.

FOREIGN CURRENCY EXCHANGE RATE RISK

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

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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 $1,300,000, was approximately $37.7
million. Through September 30, 2001, approximately $7.7 million of the net
offering proceeds was spent, of which approximately $3.9 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 affiliates of us.

Effective July 30, 2001, Solstice Capital Partners exercised in full a warrant
to purchase up to 15,195 shares of the Companys Common Stock at an exercise
price equal to $4.33 per share. Pursuant to the warrants cashless exercise
feature, the Company issued to Solstice Capital Partners 8,476 shares of the
Companys Common Stock. The Company made such issuances in reliance upon an
exemption from the registration provisions of the Securities Act of 1933 set
forth in Section 4(2) thereof as a transaction by an issuer not involving a
public offering.




ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a)  Exhibits:

None.

(b)  Reports on Form 8-K:

No reports on Form 8-K were filed during the quarterly period ended September
30, 2001.






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: November 13, 2001 |  | By: /s/ Richard G. Chleboski                    
|                        |  |                                                 
|                        |  | Richard G. Chleboski                            
|                        |  | Chief Financial Officer, Treasurer and Secretary
|                        |  | (Principal Financial Officer)                   



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