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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549


FORM 10-Q

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

For the quarter ended September 30, 2003


OR

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

For the transition period from_______________to _______________


COMMISSION FILE NUMBER 000-31687

EVERGREEN SOLAR, INC.

(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)


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

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

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

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

Yes [X] No [   ]


Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).

Yes [   ] No [X]


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 1, 2003 there
were 11,647,583 shares of common stock outstanding.



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TABLE OF CONTENTS



|                                                |                                                                                               |                                                      |  |  |  |  |  | 
|----------------------------------------------- | --------------------------------------------------------------------------------------------- | ---------------------------------------------------- |  |  |  |  |  | 
|PART I. FINANCIAL INFORMATION                  
|                                                | ITEM 1. FINANCIAL STATEMENTS                                                                 
|                                                |                                                                                               | Condensed Consolidated Balance Sheets               
|                                                |                                                                                               | Condensed Consolidated Statements of Operations     
|                                                |                                                                                               | Condensed Consolidated Statements of Cash Flows     
|                                                |                                                                                               | NOTES TO CONDENSED 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                            
|                                                | ITEM 4. CONTROLS AND PROCEDURES                                                              
|PART II. OTHER INFORMATION                     
|                                                | ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K                                                     
|SIGNATURES                                     
|EX-31.1 SECTION 302 CERTIFICATION OF THE C.E.O.
|EX-31.2 SECTION 302 CERTIFICATION OF THE C.F.O.
|EX-32.1 SECTION 906 CERTIFICATION OF THE C.E.O.
|EX-32.2 SECTION 906 CERTIFICATION OF THE C.F.O.



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EVERGREEN SOLAR, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2003

TABLE OF CONTENTS

|                               |                                                                                               |                                                                                                                           |  |      |   | 
|------------------------------ | --------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------- |  | ---- | - | 
|                               |                                                                                               |                                                                                                                           |  | Page
|                               |                                                                                               |                                                                                                                           |  |     
|PART I  FINANCIAL INFORMATION |                                                                                               |                                                                                                                           |  |     
|                               | ITEM 1: FINANCIAL STATEMENTS                                                                  |                                                                                                                           |  |      |  
|                               |                                                                                               | Unaudited Condensed Consolidated Balance Sheets at December 31, 2002
and September 30, 2003                               |  |      | 3 | 
|                               |                                                                                               | Unaudited Condensed Consolidated Statements of Operations for the
Three and Nine Months Ended September 30, 2003 and 2002 |  |      | 4 | 
|                               |                                                                                               | Unaudited Condensed Consolidated Statements of Cash Flows for the
Three and Nine Months Ended September 30, 2003 and 2002 |  |      | 5 | 
|                               |                                                                                               | Notes to Condensed Consolidated Financial Statements                                                                      |  |      | 6 | 
|                               | ITEM 2: MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS |                                                                                                                           |  | 12   |  
|                               | ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                            |                                                                                                                           |  | 25   |  
|                               | ITEM 4: CONTROLS AND PROCEDURES                                                               |                                                                                                                           |  | 25   |  
|PART II  OTHER INFORMATION    |                                                                                               |                                                                                                                           |  |     
|                               | ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K                                                      |                                                                                                                           |  | 26   |  
|SIGNATURES                     |                                                                                               |                                                                                                                           |  |     
|EXHIBIT INDEX                  |                                                                                               |                                                                                                                           |  |     

2



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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

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

|                                                                                                                                                                                       |                                                                                                                                        |                                                                                                                                                                 |         |               |        |              |         |        |        | 
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------- | ------------- | ------ | ------------ | ------- | ------ | ------ | 
|                                                                                                                                                                                       |                                                                                                                                        |                                                                                                                                                                 |         | September 30, |        | December 31,
|                                                                                                                                                                                       |                                                                                                                                        |                                                                                                                                                                 |         | 2003          |        | 2002        
|                                                                                                                                                                                       |                                                                                                                                        |                                                                                                                                                                 |         |               |        |             
|Assets                                                                                                                                                                                 |                                                                                                                                        |                                                                                                                                                                 |         |               |        |              |         |       
|Current assets:                                                                                                                                                                        |                                                                                                                                        |                                                                                                                                                                 |         |               |        |              |         |       
|                                                                                                                                                                                       | Cash and cash equivalents                                                                                                              |                                                                                                                                                                 | $       | 3,977         |        |              | $       | 1,194  |       
|                                                                                                                                                                                       | Marketable securities                                                                                                                  |                                                                                                                                                                 |         | 20,535        |        |              |         | 7,289  |       
|                                                                                                                                                                                       | Accounts receivable, net of allowance for doubtful accounts of $254
and $140 at September 30, 2003 and December 31, 2002, respectively |                                                                                                                                                                 |         | 2,376         |        |              |         | 2,848  |       
|                                                                                                                                                                                       | Interest receivable                                                                                                                    |                                                                                                                                                                 |         | 295           |        |              |         | 57     |       
|                                                                                                                                                                                       | Inventory                                                                                                                              |                                                                                                                                                                 |         | 1,945         |        |              |         | 2,194  |       
|                                                                                                                                                                                       | Other current assets                                                                                                                   |                                                                                                                                                                 |         | 611           |        |              |         | 1,012  |       
|                                                                                                                                                                                       |                                                                                                                                        |                                                                                                                                                                 |         |               |        |              |         |        |       
|                                                                                                                                                                                       |                                                                                                                                        | Total current assets                                                                                                                                            |         |               | 29,739 |              |         |        | 14,594 | 
|Restricted cash                                                                                                                                                                        |                                                                                                                                        |                                                                                                                                                                 | 414     |               |        |              | 464     |       
|Fixed assets, net                                                                                                                                                                      |                                                                                                                                        |                                                                                                                                                                 | 21,355  |               |        |              | 16,905  |       
|                                                                                                                                                                                       |                                                                                                                                        |                                                                                                                                                                 |         |               |        |              |         |        |       
|Total assets                                                                                                                                                                           |                                                                                                                                        | $                                                                                                                                                               | 51,508  |               |        | $            | 31,963  |       
|                                                                                                                                                                                       |                                                                                                                                        |                                                                                                                                                                 |         |               |        |              |         |        |       
|Liabilities, convertible preferred stock and stockholders equity                                                                                                                      |                                                                                                                                        |                                                                                                                                                                 |         |               |        |              |         |       
|Current liabilities:                                                                                                                                                                   |                                                                                                                                        |                                                                                                                                                                 |         |               |        |              |         |       
|                                                                                                                                                                                       | Accounts payable                                                                                                                       |                                                                                                                                                                 | $       | 1,275         |        |              | $       | 861    |       
|                                                                                                                                                                                       | Accrued employee compensation                                                                                                          |                                                                                                                                                                 |         | 488           |        |              |         | 569    |       
|                                                                                                                                                                                       | Accrued warranty                                                                                                                       |                                                                                                                                                                 |         | 410           |        |              |         | 326    |       
|                                                                                                                                                                                       | Other accrued expenses                                                                                                                 |                                                                                                                                                                 |         | 282           |        |              |         | 294    |       
|                                                                                                                                                                                       |                                                                                                                                        |                                                                                                                                                                 |         |               |        |              |         |        |       
|                                                                                                                                                                                       |                                                                                                                                        | Total current liabilities                                                                                                                                       |         |               | 2,455  |              |         |        | 2,050  | 
|Convertible preferred stock                                                                                                                                                            |                                                                                                                                        |                                                                                                                                                                 |         |               |        |              |         |       
|                                                                                                                                                                                       |                                                                                                                                        | Series A, $.01 par value, 26,227,668 and 0 shares authorized, 26,004,454 and
0 issued and outstanding at September 30, 2003 and December 31, 2002, respectively |         |               | 30,232 |              |         |        |       | 
|Stockholders equity:                                                                                                                                                                  |                                                                                                                                        |                                                                                                                                                                 |         |               |        |              |         |       
|Common stock, $0.01 par value, 70,000,000 and 30,000,000 shares authorized,
11,647,583 and 11,410,826 issued and outstanding at September 30, 2003
and December 31, 2002, respectively |                                                                                                                                        |                                                                                                                                                                 | 116     |               |        |              | 114     |       
|Additional paid-in capital                                                                                                                                                             |                                                                                                                                        |                                                                                                                                                                 | 70,031  |               |        |              | 71,508  |       
|Accumulated other comprehensive income (loss)                                                                                                                                          |                                                                                                                                        |                                                                                                                                                                 | (32     | )             |        |              | 7       |       
|Accumulated deficit                                                                                                                                                                    |                                                                                                                                        |                                                                                                                                                                 | (51,141 | )             |        |              | (41,356 | )     
|Deferred compensation                                                                                                                                                                  |                                                                                                                                        |                                                                                                                                                                 | (153    | )             |        |              | (360    | )     
|                                                                                                                                                                                       |                                                                                                                                        |                                                                                                                                                                 |         |               |        |              |         |        |       
|                                                                                                                                                                                       | Total stockholders equity                                                                                                             |                                                                                                                                                                 |         | 18,821        |        |              |         | 29,913 |       
|                                                                                                                                                                                       |                                                                                                                                        |                                                                                                                                                                 |         |               |        |              |         |        |       
|Total liabilities, convertible preferred stock and stockholders equity                                                                                                                |                                                                                                                                        | $                                                                                                                                                               | 51,508  |               |        | $            | 31,963  |       
|                                                                                                                                                                                       |                                                                                                                                        |                                                                                                                                                                 |         |               |        |              |         |        |       

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

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

|                                                                                      |                                                                         |                                                 |        |                    |    |                   |        |       |     |      |         |         |     |   |         |       |    | 
|------------------------------------------------------------------------------------- | ----------------------------------------------------------------------- | ----------------------------------------------- | ------ | ------------------ | -- | ----------------- | ------ | ----- | --- | ---- | ------- | ------- | --- | - | ------- | ----- | -- | 
|                                                                                      |                                                                         |                                                 |        | Three months ended |    | Nine months ended
|                                                                                      |                                                                         |                                                 |        | September 30,      |    | September 30,    
|                                                                                      |                                                                         |                                                 |        | 2003               |    | 2002              |        | 2003  |     | 2002
|                                                                                      |                                                                         |                                                 |        |                    |    |                   |        |       |     |     
|Revenues:                                                                             |                                                                         |                                                 |        |                    |    |                   |        |       |     |      |         |         |     |   |         |      
|                                                                                      | Product revenues                                                        |                                                 | $      | 2,642              |    |                   | $      | 1,461 |     |      | $       | 6,368   |     |   | $       | 3,448 |   
|                                                                                      | Research revenues                                                       |                                                 |        | 463                |    |                   |        | 641   |     |      |         | 1,352   |     |   |         | 1,084 |   
|                                                                                      |                                                                         |                                                 |        |                    |    |                   |        |       |     |      |         |         |     |   |         |       |   
|Total revenues                                                                        |                                                                         |                                                 | 3,105  |                    |    |                   | 2,102  |       |     |      | 7,720   |         |     |   | 4,532   |      
|                                                                                      |                                                                         |                                                 |        |                    |    |                   |        |       |     |      |         |         |     |   |         |       |   
|Operating expenses:                                                                   |                                                                         |                                                 |        |                    |    |                   |        |       |     |      |         |         |     |   |         |      
|                                                                                      | Cost of product revenues                                                |                                                 |        | 4,061              |    |                   |        | 3,041 |     |      |         | 10,969  |     |   |         | 8,861 |   
|                                                                                      | Research and development expenses, including costs of research revenues |                                                 |        | 1,087              |    |                   |        | 935   |     |      |         | 2,872   |     |   |         | 2,776 |   
|                                                                                      | Selling, general and administrative expenses                            |                                                 |        | 1,301              |    |                   |        | 991   |     |      |         | 3,821   |     |   |         | 3,108 |   
|                                                                                      |                                                                         |                                                 |        |                    |    |                   |        |       |     |      |         |         |     |   |         |       |   
|Total operating expenses                                                              |                                                                         |                                                 | 6,449  |                    |    |                   | 4,967  |       |     |      | 17,662  |         |     |   | 14,745  |      
|                                                                                      |                                                                         |                                                 |        |                    |    |                   |        |       |     |      |         |         |     |   |         |       |   
|Operating loss                                                                        |                                                                         |                                                 | (3,344 | )                  |    |                   | (2,865 | )     |     |      | (9,942  | )       |     |   | (10,213 | )    
|                                                                                      | Interest income, net                                                    |                                                 |        | 83                 |    |                   |        | 133   |     |      |         | 157     |     |   |         | 585   |   
|                                                                                      |                                                                         |                                                 |        |                    |    |                   |        |       |     |      |         |         |     |   |         |       |   
|Net loss                                                                              |                                                                         |                                                 | (3,261 | )                  |    |                   | (2,732 | )     |     |      | (9,785  | )       |     |   | (9,628  | )    
|                                                                                      | Accretion and dividends on Series A convertible preferred stock         |                                                 |        | (747               | )  |                   |        |      |     |      |         | (12,802 | )   |   |         |      |   
|                                                                                      |                                                                         |                                                 |        |                    |    |                   |        |       |     |      |         |         |     |   |         |       |   
|Net loss attributed to common stockholders                                            |                                                                         |                                                 | (4,008 | )                  |    |                   | (2,732 | )     |     |      | (22,587 | )       |     |   | (9,628  | )    
|                                                                                      | Other comprehensive income (loss):                                      |                                                 |        |                    |    |                   |        |       |     |      |         |         |     |   |         |       |   
|                                                                                      |                                                                         | Unrealized gain (loss) on marketable securities |        |                    | 22 |                   |        |       | (46 | )    |         |         | (39 | ) |         |       | 47 | 
|                                                                                      |                                                                         |                                                 |        |                    |    |                   |        |       |     |      |         |         |     |   |         |       |   
|Comprehensive loss                                                                    |                                                                         | $                                               | (3,986 | )                  |    | $                 | (2,778 | )     |     | $    | (22,626 | )       |     | $ | (9,581  | )    
|                                                                                      |                                                                         |                                                 |        |                    |    |                   |        |       |     |      |         |         |     |   |         |       |   
|Net loss per common share (basic and diluted)                                         |                                                                         | $                                               | (0.35  | )                  |    | $                 | (0.24  | )     |     | $    | (1.97   | )       |     | $ | (0.84   | )    
|Weighted average shares used in computing basic and diluted
net loss per common share |                                                                         |                                                 | 11,497 |                    |    |                   | 11,408 |       |     |      | 11,440  |         |     |   | 11,403  |      

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

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

|                                                                            |                                                                                                 |                                                             |                      |         |                   |      |         |        |       |        |  
|--------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------- | ----------------------------------------------------------- | -------------------- | ------- | ----------------- | ---- | ------- | ------ | ----- | ------ | -
|                                                                            |                                                                                                 |                                                             |                      |         | Nine Months Ended
|                                                                            |                                                                                                 |                                                             |                      |         | September 30,    
|                                                                            |                                                                                                 |                                                             |                      |         | 2003              |      | 2002   
|                                                                            |                                                                                                 |                                                             |                      |         |                   |      |        
|Cash flows from operating activities:                                       |                                                                                                 |                                                             |                      |         |                   |      |         |       
|                                                                            | Net loss                                                                                        |                                                             | $                    | (9,785  | )                 |      | $       | (9,628 | )    
|Adjustments to reconcile net loss to net cash used in operating activities: |                                                                                                 |                                                             |                      |         |                   |      |         |       
|                                                                            |                                                                                                 | Depreciation expense                                        |                      |         | 1,544             |      |         |        | 1,476 |       
|                                                                            |                                                                                                 | Bad debt expense                                            |                      |         | 114               |      |         |        |      |       
|                                                                            |                                                                                                 | Amortization of bond premiums                               |                      |         | 216               |      |         |        | 233   |       
|                                                                            |                                                                                                 | Write-off of fixed assets                                   |                      |         |                  |      |         |        | 43    |       
|                                                                            |                                                                                                 | Issuance of stock options to consultants                    |                      |         | 37                |      |         |        |      |       
|                                                                            |                                                                                                 | Compensation expense associated with employee stock options |                      |         | 207               |      |         |        | 215   |       
|                                                                            |                                                                                                 | Changes in operating assets and liabilites:                 |                      |         |                   |      |         |        |       |       
|                                                                            |                                                                                                 |                                                             | Inventory            |         |                   | 249  |         |        |       | (1,563 | )
|                                                                            |                                                                                                 |                                                             | Interest receivable  |         |                   | (238 | )       |        |       | 190    |  
|                                                                            |                                                                                                 |                                                             | Accounts receivable  |         |                   | 358  |         |        |       | (2,012 | )
|                                                                            |                                                                                                 |                                                             | Other current assets |         |                   | 401  |         |        |       | (82    | )
|                                                                            |                                                                                                 |                                                             | Accounts payable     |         |                   | 414  |         |        |       | 56     |  
|                                                                            |                                                                                                 |                                                             | Accrued expenses     |         |                   | 75   |         |        |       | 200    |  
|                                                                            |                                                                                                 |                                                             |                      |         |                   |      |         |        |      
|Net cash used in operating activities                                       |                                                                                                 |                                                             | (6,408               | )       |                   |      | (10,872 | )     
|                                                                            |                                                                                                 |                                                             |                      |         |                   |      |         |        |      
|Cash flows from investing activities:                                       |                                                                                                 |                                                             |                      |         |                   |      |         |       
|                                                                            | Purchases of fixed assets                                                                       |                                                             |                      | (5,994  | )                 |      |         | (1,454 | )    
|                                                                            | Restricted cash                                                                                 |                                                             |                      | 50      |                   |      |         |       |      
|                                                                            | Purchases of marketable securities                                                              |                                                             |                      | (22,201 | )                 |      |         | (9,475 | )    
|                                                                            | Proceeds from sale and maturity of marketable securities                                        |                                                             |                      | 8,700   |                   |      |         | 20,180 |      
|                                                                            |                                                                                                 |                                                             |                      |         |                   |      |         |        |      
|Net cash provided by (used in) investing activities                         |                                                                                                 |                                                             | (19,445              | )       |                   |      | 9,251   |       
|                                                                            |                                                                                                 |                                                             |                      |         |                   |      |         |        |      
|Cash flows from financing activities:                                       |                                                                                                 |                                                             |                      |         |                   |      |         |       
|                                                                            | Issuance of Series A convertible preferred stock                                                |                                                             |                      | 29,375  |                   |      |         |       |      
|                                                                            | Financing costs on issuance of Series A convertible preferred stock                             |                                                             |                      | (849    | )                 |      |         |       |      
|                                                                            | Proceeds from issuance of common stock warrant                                                  |                                                             |                      | 100     |                   |      |         |       |      
|                                                                            | Proceeds from exercise of stock options and
shares purchased under Employee Stock Purchase Plan |                                                             |                      | 10      |                   |      |         | 14     |      
|                                                                            |                                                                                                 |                                                             |                      |         |                   |      |         |        |      
|Net cash flow provided by financing activities                              |                                                                                                 |                                                             | 28,636               |         |                   |      | 14      |       
|                                                                            |                                                                                                 |                                                             |                      |         |                   |      |         |        |      
|Net increase (decrease) in cash and cash equivalents                        |                                                                                                 |                                                             | 2,783                |         |                   |      | (1,607  | )     
|Cash and cash equivalents at beginning of period                            |                                                                                                 |                                                             | 1,194                |         |                   |      | 2,554   |       
|                                                                            |                                                                                                 |                                                             |                      |         |                   |      |         |        |      
|Cash and cash equivalents at end of period                                  |                                                                                                 | $                                                           | 3,977                |         |                   | $    | 947     |       
|                                                                            |                                                                                                 |                                                             |                      |         |                   |      |         |        |      
|Supplemental cash flow information:                                         |                                                                                                 |                                                             |                      |         |                   |      |         |       
|                                                                            | Taxes paid                                                                                      |                                                             |                      | 13      |                   |      |         | 36     |      
|                                                                            | Non-cash Series A convertible preferred stock dividends earned                                  |                                                             |                      | 1,114   |                   |      |         |       |      
|                                                                            | Non-cash conversion of Series A convertible preferred stock to common                           |                                                             |                      | 257     |                   |      |         |       |      

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

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EVERGREEN SOLAR, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1.     Basis of Presentation

The accompanying condensed consolidated interim financial statements of
Evergreen Solar, Inc. (Evergreen Solar or the Company) are unaudited and
have been prepared on a basis substantially consistent with the Companys
audited financial statements for the year ended December 31, 2002. The
condensed consolidated interim financial statements have been prepared in
accordance with accounting principles generally accepted in the United States
of America for interim financial information. Consequently, these statements
do not include all disclosures normally required by generally accepted
accounting principles for annual financial statements. These condensed
consolidated interim financial statements should be read in conjunction with
the Companys audited financial statements for the year ended December 31,
2002, which are contained in the Companys Annual Report on Form 10-K for the
fiscal year ended December 31, 2002, which was filed with the Securities and
Exchange Commission on March 27, 2003. The unaudited condensed consolidated
interim financial statements, in the opinion of management, reflect all
adjustments (consisting only of normal recurring accruals) necessary for a fair
presentation of the financial position at September 30, 2003, the results of
operations for the three and nine month periods ended September 30, 2003 and
2002, and the cash flows for the nine month periods ended September 30, 2003
and 2002. The balance sheet at December 31, 2002 has been derived from audited
financial statements as of that date. The results of operations for the
interim periods are not necessarily indicative of the results of operations to
be expected for any other interim period or for the full fiscal year ending
December 31, 2003.

The Companys preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities and
disclosures of contingent assets and liabilities at the dates of the financial
statements and the reported amounts of revenue and expenses during the reported
periods. Estimates are used when accounting for the collectibility of
receivables, valuing deferred tax assets, provisions for warranty claims and
inventory obsolescence.

The Company has historically financed operations and met capital expenditures
requirements primarily through sales of capital stock and, to a lesser extent,
research and product revenues. The first of the Marlboro facilitys two
manufacturing lines became operational in 2001. As more fully described in Note
8 Stockholders Equity, on May 15, 2003, the Company consummated the private
placement transaction contemplated by the purchase agreement entered into on
March 21, 2003 with certain investors to raise $29,475,000 through the issuance
of 26,227,668 shares of Series A convertible preferred stock and the sale of a
warrant to purchase 2,400,000 shares of common stock. The proceeds to the
Company, net of financing expenses of approximately $849,000, were
approximately $28.6 million. The Company expects to use the net proceeds from
this transaction to fund the construction of the second manufacturing line and
other operations of the Company. The Company expects portions of the second
manufacturing line to become operational in late 2003 and that it will be
completed in 2004. As of September 30, 2003, our outstanding commitments for
capital expenditures were approximately $3.3 million. Nearly all of its
commitments for capital expenditures are associated with infrastructure
improvements and equipment purchases for its manufacturing facility. In
addition to the current capital commitments, substantial further capital
expenditures will be required over the next twelve to eighteen months to
increase the capacity at its manufacturing facility to its target level of 10
to 14 megawatts for both lines.

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

2.     Net Loss per Common Share

The Company computes net loss per common share in accordance with SFAS No. 128,
Earnings Per Share (SFAS 128), and SEC Staff Accounting Bulletin No. 98
(SAB 98). Under the provisions of SFAS 128 and SAB 98, basic net loss per
common share is computed by dividing net loss attributable to common
stockholders by the weighted average number of common shares outstanding during
the period. The calculation of diluted net loss per common share for the three
and nine month periods ended September 30, 2003 and 2002 does not include
30,042,944 and 1,557,511 potential shares of common stock equivalents
outstanding at September 30, 2003 and 2002, respectively, as their inclusion
would be antidilutive.

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3.     Inventory

A summary of inventories is as follows:

|                |  |               |           |              |  |   |           | 
|--------------- |  | ------------- | --------- | ------------ |  | - | --------- | 
|                |  | September 30, |           | December 31,
|                |  | 2003          |           | 2002        
|                |  |               |           |             
|Raw materials   |  | $             | 1,318,000 |              |  | $ | 1,236,000 | 
|Work-in-process |  |               | 30,000    |              |  |   | 148,000   | 
|Finished goods  |  |               | 597,000   |              |  |   | 810,000   | 
|                |  |               |           |              |  |   |           | 
|                |  | $             | 1,945,000 |              |  | $ | 2,194,000 | 
|                |  |               |           |              |  |   |           | 

4.     Cash and Investments

Cash and cash equivalents consist of cash and highly liquid investments with
maturities of three months or less from the date of purchase and whose carrying
amount approximates fair value.

The Companys investments are classified as available-for-sale. At September
30, 2003 and December 31, 2002 the Company held US government agency bonds,
treasury notes, municipal bonds, corporate bonds and commercial paper. The
investments generally mature within one year from the date of purchase and are
carried at market value. Cash and investments have increased significantly
since December 31, 2002 due to the Companys Series A convertible preferred
stock and warrant financing that closed on May 15, 2003.

5.     Fixed Assets

Fixed assets consisted of the following at September 30, 2003 and December 31,
2002 (in thousands):

|                                       |  |                                        |  |           |        |          |        |   |        |   |        |  
|-------------------------------------- |  | -------------------------------------- |  | --------- | ------ | -------- | ------ | - | ------ | - | ------ | -
|                                       |  |                                        |  |           |        |          |        |  
|                                       |  | Useful                                 |  | September |        | December
|                                       |  | Life                                   |  | 2003      |        | 2002    
|                                       |  |                                        |  |           |        |         
|Laboratory and manufacturing equipment |  | 3-7 years                              |  | $         | 11,764 |          |        | $ | 10,997 |  
|Computer and office equipment          |  | 3-7 years                              |  |           | 258    |          |        |   | 245    |  
|Leasehold improvements                 |  | Lesser of 15 to 20 years or lease term |  |           | 6,584  |          |        |   | 6,273  |  
|Assets under construction              |  |                                        |  |           |        |          | 7,672  |   |        |   | 2,769  |  
|                                       |  |                                        |  |           |        |          |        |   |        |   |        |  
|                                       |  |                                        |  |           |        |          | 26,278 |   |        |   | 20,284 |  
|Less accumulated depreciation          |  |                                        |  |           |        |          | (4,923 | ) |        |   | (3,379 | )
|                                       |  |                                        |  |           |        |          |        |   |        |   |        |  
|                                       |  |                                        |  |           |        | $        | 21,355 |   |        | $ | 16,905 |  
|                                       |  |                                        |  |           |        |          |        |   |        |   |        |  

Fixed assets have increased significantly since December 31, 2002 due to the
Companys current production capacity expansion program. The Company expects
portions of the second manufacturing line to become operational in late 2003
and that it will be completed in 2004. As of September 30, 2003, the Companys
outstanding commitments for capital expenditures were approximately $3.3
million. Nearly all of its commitments for capital expenditures are associated
with infrastructure improvements and equipment purchases for its manufacturing
facility. In addition to the current capital commitments, substantial further
capital expenditures will be required over the next twelve to eighteen months
to increase the capacity at our manufacturing facility to our target level of
10 to 14 megawatts for both lines.

6.     Guarantor Arrangements

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

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Product Warranty

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

|                                                 |  |   |         | 
|------------------------------------------------ |  | - | ------- | 
|Balance at December 31, 2002                     |  | $ | 326,000 | 
|Accruals for warranties issued during the period |  |   | 84,000  | 
|Settlements made during the period               |  |   |        | 
|                                                 |  |   |         | 
|Balance at the end of the period                 |  | $ | 410,000 | 
|                                                 |  |   |         | 

Indemnification Agreements

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

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

7.     Deferred Compensation and Equity Related Charges

Prior to December 31, 2000, the Company recorded total cumulative deferred
compensation of approximately $1.3 million, representing the difference between
the fair market value of the Companys common stock and the exercise price on
the option grant date. These amounts were presented as a reduction of
stockholders equity and are being amortized ratably over the vesting period of
the options, which is generally four years. The amortization resulted in
charges to operations of $207,000 and $215,000 for the nine months ended
September 30, 2003 and 2002, respectively.

8.     Stock Based Compensation

The Company applies the accounting provisions of Accounting Principles Board
(APB) Opinion 25 and related interpretations and has elected the
disclosure-only alternative permitted under Statement of Financial Accounting
Standards Board (SFAS) No. 123, Accounting for Stock-Based Compensation.
The Company has disclosed
herein pro forma net loss using the fair value based method. All stock-based
awards to non-employees are accounted for at their fair market value, as
calculated using the Black-Scholes model in accordance with SFAS No. 123.

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Had compensation expense for the employee stock option plan been determined
based on the fair value at the grant dates for options granted under the plan
consistent with the method of SFAS No. 123, net loss would have been as follows
(in thousands, except per share data):



|                                                                                                                    |  |                    |        |                    |  |              |       |          |  |   |        |   |  |   |       |  
|------------------------------------------------------------------------------------------------------------------- |  | ------------------ | ------ | ------------------ |  | ------------ | ----- | -------- |  | - | ------ | - |  | - | ----- | -
|                                                                                                                    |  | Three Months Ended
|                                                                                                                    |  |                   
|                                                                                                                    |  | September 30, 2003 |        | September 30, 2002
|                                                                                                                    |  |                    |        |                   
|                                                                                                                    |  | Net Loss           |        | Net Loss           |  | Net Loss     |       | Net Loss
|                                                                                                                    |  | Attributable       |        | Per                |  | Attributable |       | Per     
|                                                                                                                    |  | To Common          |        | Common             |  | To Common    |       | Common  
|                                                                                                                    |  | Stockholders       |        | Share              |  | Stockholders |       | Share   
|                                                                                                                    |  |                    |        |                    |  |              |       |         
|Net loss attributed to common stockholders, as reported                                                             |  | $                  | (4,008 | )                  |  | $            | (0.35 | )        |  | $ | (2,732 | ) |  | $ | (0.24 | )
|Add: Stock-based employee compensation expense
included in reported results                                         |  |                    | 69     |                    |  |              | 0.01  |          |  |   | 72     |   |  |   | 0.01  |  
|Deduct: Total stock-based employee compensation expense
determined under the fair value-based method for all awards |  |                    | (289   | )                  |  |              | (0.03 | )        |  |   | (294   | ) |  |   | (0.03 | )
|                                                                                                                    |  |                    |        |                    |  |              |       |          |  |   |        |   |  |   |       |  
|Pro forma net loss attributed to common stockholders                                                                |  | $                  | (4,228 | )                  |  | $            | (0.37 | )        |  | $ | (2,954 | ) |  | $ | (0.26 | )
|                                                                                                                    |  |                    |        |                    |  |              |       |          |  |   |        |   |  |   |       |  

[Additional columns below]

[Continued from above table, first column(s) repeated]

|                                                                                                                    |  |                    |         |                    |  |              |       |          |  |   |         |   |  |   |       |  
|------------------------------------------------------------------------------------------------------------------- |  | ------------------ | ------- | ------------------ |  | ------------ | ----- | -------- |  | - | ------- | - |  | - | ----- | -
|                                                                                                                    |  | Nine Months Ended 
|                                                                                                                    |  |                   
|                                                                                                                    |  | September 30, 2003 |         | September 30, 2002
|                                                                                                                    |  |                    |         |                   
|                                                                                                                    |  | Net Loss           |         | Net Loss           |  | Net Loss     |       | Net Loss
|                                                                                                                    |  | Attributable       |         | Per                |  | Attributable |       | Per     
|                                                                                                                    |  | To Common          |         | Common             |  | To Common    |       | Common  
|                                                                                                                    |  | Stockholders       |         | Share              |  | Stockholders |       | Share   
|                                                                                                                    |  |                    |         |                    |  |              |       |         
|Net loss attributed to common stockholders, as reported                                                             |  | $                  | (22,587 | )                  |  | $            | (1.97 | )        |  | $ | (9,628  | ) |  | $ | (0.84 | )
|Add: Stock-based employee compensation expense included in reported results                                         |  |                    | 207     |                    |  |              | 0.02  |          |  |   | 215     |   |  |   | 0.02  |  
|Deduct: Total stock-based employee compensation expense
determined under the fair value-based method for all awards |  |                    | (857    | )                  |  |              | (0.07 | )        |  |   | (867    | ) |  |   | (0.08 | )
|                                                                                                                    |  |                    |         |                    |  |              |       |          |  |   |         |   |  |   |       |  
|Pro forma net loss attributed to common stockholders                                                                |  | $                  | (23,237 | )                  |  | $            | (2.02 | )        |  | $ | (10,280 | ) |  | $ | (0.90 | )
|                                                                                                                    |  |                    |         |                    |  |              |       |          |  |   |         |   |  |   |       |  

9.     Segment Information

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

|              |                                                             |  |                   |    |      |  |     |    |  
|------------- | ----------------------------------------------------------- |  | ----------------- | -- | ---- |  | --- | -- | -
|              |                                                             |  | Nine Months Ended
|              |                                                             |  | September 30,    
|              |                                                             |  |                  
|              |                                                             |  | 2003              |    | 2002
|              |                                                             |  |                   |    |     
|By geography: |                                                             |  |                   |    |      |  |     |   
|              | U.S. distributors                                           |  |                   | 22 | %    |  |     | 29 | %
|              | U.S. Government (research revenue)                          |  |                   | 18 | %    |  |     | 24 | %
|              | Germany                                                     |  |                   | 56 | %    |  |     | 36 | %
|              | Japan                                                       |  |                   | 0  | %    |  |     | 4  | %
|              | All other                                                   |  |                   | 4  | %    |  |     | 7  | %
|              |                                                             |  |                   |    |      |  |     |   
|              |                                                             |  | 100               | %  |      |  | 100 | % 
|By customer:  |                                                             |  |                   |    |      |  |     |   
|              | European distributor #1                                     |  |                   | 40 | %    |  |     | 33 | %
|              | European distributor #2                                     |  |                   | 10 | %    |  |     | 0  | %
|              | National Institute of Industry Standards (research revenue) |  |                   | 8  | %    |  |     | 13 | %
|              | National Renewable Energy Laboratory (research revenue)     |  |                   | 9  | %    |  |     | 11 | %
|              | All other                                                   |  |                   | 33 | %    |  |     | 43 | %
|              |                                                             |  |                   |    |      |  |     |   
|              |                                                             |  | 100               | %  |      |  | 100 | % 

10.     Stockholders Equity

The Company has two classes of capital stock: common and preferred. In May
2003, the Company increased the number of authorized shares of common stock to
70,000,000. At September 30, 2003, 7,650,000 shares of common stock were
authorized for issuance under the Companys 2000 Stock Option Plan and
40,000,000 shares were reserved for issuance upon conversion of Series A
convertible preferred stock sold to several purchasers and upon exercise of a
warrant issued to Beacon Power Corporation.

In May 2003, the Company increased the number of authorized shares of preferred
stock to 27,227,668, of which 26,227,668 shares were designated Series A
convertible preferred stock. On May 15, 2003, the Company consummated the
transaction contemplated by a Stock and Warrant Purchase Agreement which was
entered into on March 21, 2003 with Perseus 2000, L.L.C., Nth Power
Technologies Fund II, LP, Nth Power Technologies Fund II-A, LP, RockPort
Capital Partners, L.P., RP Co-Investment Fund, I, Micro-Generation Technology
Fund, LLC, UVCC Fund II, UVCC II Parallel Fund, L.P., Caisse de depot et
placement du Quebec, CDP Capital - Technology Ventures U.S. Fund 2002 L.P.,
Beacon Power Corporation, Massachusetts Technology Park Corporation, Zero Stage
Capital VII, L.P., Zero Stage Capital (Cayman) VII, L.P., Zero Stage Capital
SBIC VII, L.P., IMPAX Environmental Markets plc, Merrill Lynch New Energy
Technology Plc, MLIIF New Energy Fund, PNE Invest Limited, Odyssey Fund, SAM
Private Equity Energy Fund LP, SAM Sustainability Private Equity LP and SAM
Smart Energy. As a result of the consummation of this transaction, the Company
issued 26,227,668 shares of Series A convertible preferred stock at a per share
purchase price of $1.12. Additionally, Beacon Power Corporation purchased a
warrant to purchase 2,400,000 shares of common stock at a per share exercise
price equal to $3.37, for $100,000. A total of $29,475,000 was raised as a
result of the consummation of the transaction. The proceeds to the Company,
net of financing expenses of approximately $849,000, were approximately $28.6
million for the

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transaction. The shares of Series A convertible preferred stock
were initially convertible into shares of common stock on a 1-to-1 basis which
is subject to adjustment to account for the payment of dividends, to take into
account certain changes to the Companys capital structure and to account for
future dilutive issuances. As a condition to the obligation of the purchasers
to consummate the financing transaction, the Company agreed to register for
resale the shares of common stock issuable upon the conversion of the Series A
convertible preferred stock and the exercise of the warrant.

As a result of the Series A convertible preferred stock and warrant financing,
accretion and dividends of $12.8 million was recorded for the nine-month period
ended September 30, 2003. $11.7 million of this charge was recognized
immediately (during the second quarter) since the holders of shares of the
Series A convertible preferred stock are entitled to convert their shares into
common stock at any time. The sources of the discounts on issuance requiring
this accretion charge and dividends are summarized in the following table:

|                                                             |                                               |   |            |            | 
|------------------------------------------------------------ | --------------------------------------------- | - | ---------- | ---------- | 
|Beneficial conversion feature                                |                                               | $ | 10,314,000 |           
|Proceeds allocated to the fair value of common stock warrant |                                               |   | 525,000    |           
|Financing costs                                              |                                               |   | 849,000    |           
|Preferred stock dividend through September 30, 2003          |                                               |   | 1,114,000  |           
|                                                             |                                               |   |            |           
|                                                             | Total preferred stock accretion and dividends |   | $          | 12,802,000 | 
|                                                             |                                               |   |            |           

The difference between the issuance price of the Series A convertible preferred
stock and the fair value of the Companys common stock on the date of issuance
of the Series A convertible preferred stock resulted in a beneficial conversion
feature totaling approximately $10.3 million, which was calculated in
accordance with EITF 00-27, Application of Issue No. 98-5 to Certain
Convertible Instruments.

Liquidation Preference of Series A Convertible Preferred Stock

In the event of voluntary or involuntary liquidation under applicable
bankruptcy or reorganization legislation, dissolution or winding up, the
holders of shares of Series A convertible preferred stock will be paid in cash
for each share of Series A convertible preferred stock held thereby, out of the
Companys assets legally available for distribution to stockholders, before any
payment or distribution is made to any other class or series of the Companys
capital stock, an amount equal to the greater of (i) the sum of (x) the
Accreted Value of each share of Series A convertible preferred stock as of such
date, plus (y) all dividends accrued since the previous Compounding Date, or
(ii) the aggregate amount then payable with respect to the number of shares of
common stock into which such share of Series A convertible preferred stock is
convertible immediately prior to such liquidation event. The liquidation
preference of the Series A convertible preferred stock initially will be the
purchase price per share paid by the purchasers for the Series A convertible
preferred stock of $1.12, subject to adjustment.

In the event of the merger, consolidation or sale of all or substantially all
of the Companys assets or in the event of certain other change of control
transactions, the holders of shares of Series A convertible preferred stock
will be paid for each share of Series A convertible preferred stock held
thereby, before any payment or distribution is made to any other class or
series of our capital stock, an amount equal to the greater of (i) the sum of
the Accreted Value of each share of Series A convertible preferred stock as of
such date, plus all dividends accrued since the previous Compounding Date, or (ii) the aggregate amount payable in the applicable change
of control transaction with respect to the number of shares of our common stock
into which a share of Series A convertible preferred stock is convertible
immediately prior to the consummation of the change of control transaction. If
the assets available for distribution to the holders of shares of Series A
convertible preferred stock are insufficient to permit payment in full to the
holders thereof of the amount described above, then all of the assets available
for distribution to holders of shares of Series A convertible preferred stock
will be distributed among and paid to those holders ratably in proportion to
the amounts that would be payable to those holders if such assets were
sufficient to permit payment in full. Any liquidation payment due upon a change
of control transaction will be paid in the form of consideration paid in such
change of control transaction on the closing date of the transaction.

Accreted Value means, as of any date, with respect to each share of Series A
convertible preferred stock, the purchase price paid for such share, plus the
amount of dividends that have accrued and compounded and have been added
thereto to such date pursuant to the terms of the Certificate of the Powers,
Designations, Preferences and Rights of the Series A Convertible Preferred
Stock. Compounding Date means March 31, September 30, September 30 or
December 31 of each year, each of which is a date upon which holders of shares
of Series A convertible preferred stock are entitled to receive cumulative
dividends quarterly in arrears.

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Dividend Rights of Series A Convertible Preferred Stock

Shares of Series A convertible preferred stock pay a compounding dividend of
10% per annum, paid quarterly, in cash, or at the Companys election, to be
added to the liquidation preference of the Series A convertible preferred stock
on a quarterly basis, which would result in an increase in the number of shares
of common stock issuable upon conversion of the Series A convertible preferred
stock. To date, a total of $1,114,000 in dividends has accrued on the
outstanding Series A convertible preferred stock, which the Company elected to
add to the liquidation preference of the Series A convertible preferred stock.
Subject to changes in business conditions, the Company presently anticipates
that the dividend will be added to the liquidation preference for the
foreseeable future.

Conversion of Series A Convertible Preferred Stock

The holders of shares of Series A convertible preferred stock are entitled to
convert their shares into common stock at any time. The number of shares of
common stock issuable upon the conversion of a share of Series A convertible
preferred stock is equal to the product of (x) the number of shares of Series A
convertible preferred stock to be converted and (y) the quotient obtained by
dividing the sum of the Accreted Value, plus all dividends accrued since the
previous Compounding Date by the conversion price per share of the Series A
convertible preferred stock, which conversion price initially was $1.12.

The applicable conversion price is subject to adjustment for stock splits,
stock dividends, combinations, and other similar structural events.
Additionally, the Series A convertible preferred stock provides for
full-ratchet anti-dilution protection, subject to standard exceptions, with
respect to the issuance of the Companys capital stock at a purchase price per
share which is below the conversion price of the Series A convertible preferred
stock then in effect. If, on any date after May 15, 2005, the average market
price for a share of common stock for the trailing 180 consecutive trading days
is at least $7.50 (subject to adjustment for stock splits, stock dividends,
combinations, and other similar structural events), then the Company may elect,
at its option, to convert all, but not less than all, of the outstanding shares
of Series A convertible preferred stock into the number of shares of common
stock as is equal to the product of (x) the number of shares of Series A
convertible preferred stock to be converted and (y) the quotient obtained by
dividing the sum of (i) $1.12 and (ii) all accrued and unpaid dividends on such
shares by the then applicable conversion price.

Voting Rights of Series A Convertible Preferred Stock

Holders of the Series A convertible preferred stock will have the right to vote
on all matters that the holders of common stock vote on, voting together with
the holders of common stock as single class. Each share of Series A convertible
preferred stock will be entitled to the number of votes as is equal to the
number of shares of the Companys common stock into which it is convertible.
However, the maximum number of votes to which a share of Series A convertible
preferred stock will be entitled is capped at 0.7417, subject to adjustment to
reflect stock splits, stock dividends, recapitalizations and the like.

Preemptive Rights of Series A Convertible Preferred Stock

For so long as 5,350,000 of the shares of Series A convertible preferred stock
remain outstanding, subject to adjustment to reflect stock splits, stock
dividends, recapitalizations and the like, the purchasers will have preemptive
rights for any private placement of equity securities by the Company.

11.     Warrants

In connection with the Series A convertible preferred stock financing
transaction (described in Note 8), Beacon Power Corporation purchased a warrant
for $100,000, which is exercisable for 2,400,000 shares of the Companys common
stock at an exercise price of $3.37 per share. The warrant issued to Beacon
Power Corporation is exercisable in whole (and not in part) at any time prior
to May 14, 2006 and may not be exercised on a cashless basis. Additionally,
Beacon Power Corporation purchased 892,857 shares of Series A convertible
preferred stock for $1,000,000. The total proceeds of $1.1 million from Beacon
Power Corporation were allocated between the Series A convertible preferred
stock ($475,000) and the warrant ($625,000) based on their relative fair
values. The fair value of the warrant was calculated using the Black-Scholes
pricing model with the following assumptions: dividend yield of zero percent;
expected volatility of 90%; risk free interest rate of 2% and a term of three
years. The difference between the proceeds allocated to the relative fair value
of the warrant, $625,000, and the amount paid for the warrant, $100,000, or
$525,000 was included in the accretion charge of $12.8 million for the
nine-month period ended September 30, 2003.

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

We caution readers that statements in this Quarterly Report on Form 10-Q that
are not strictly historical statements, including, but not limited to:
statements reflecting our expectations regarding the timing, cost, and success
of our manufacturing scale-up at our facility in Marlboro, Massachusetts and
future manufacturing expansion and production, as well as related financing
requirements; future financial performance; our technology and product
development, cost and performance; our current and future strategic
relationships and future market opportunities; and our other business and
technology strategies and objectives, constitute forward-looking statements
which are made pursuant to the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. These statements may be identified with such
words as we expect, we believe, we anticipate or similar indications of
future expectations. These statements are neither promises nor guarantees and
involve risks and uncertainties, which could cause our actual results to differ
materially from such forward-looking statements. Such risks and uncertainties
may include, among other things, those risks and uncertainties described in
this Quarterly Report and in our other filings with the Securities and Exchange
Commission, copies of which may be accessed through the SECs Web Site at
http://www.sec.gov. We caution readers not to place undue reliance on any
forward-looking statements contained in this Quarterly Report, which speak only
as of the date of this Quarterly Report. We disclaim any obligation to publicly
update or revise any such statements to reflect any change in our expectations,
or events, conditions, or circumstances on which any such statements may be
based, or that may affect the likelihood that actual results will differ from
those set forth in such forward-looking statements.

Overview

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

Financing Transaction

On May 15, 2003, we consummated a private placement financing transaction with
Perseus 2000, L.L.C., Nth Power Technologies Fund II, LP, Nth Power
Technologies Fund II-A, LP, RockPort Capital Partners, L.P., RP Co-Investment
Fund, I, Micro-Generation Technology Fund, LLC, UVCC Fund II, UVCC II Parallel
Fund, L.P., Caisse de depot et placement du Quebec, CDP Capital - Technology
Ventures U.S. Fund 2002 L.P., Beacon Power Corporation, Massachusetts
Technology Park Corporation, Zero Stage Capital VII, L.P., Zero Stage Capital
(Cayman) VII, L.P., Zero Stage Capital SBIC VII, L.P., IMPAX Environmental
Markets plc, Merrill Lynch New Energy Technology Plc, MLIIF New Energy Fund,
PNE Invest Limited, Odyssey Fund, SAM Private Equity Energy Fund LP, SAM
Sustainability Private Equity LP and SAM Smart Energy. As a result of the
consummation of this transaction, on May 15, 2003, we issued 26,227,668 shares
of Series A convertible preferred stock at a per share purchase price of $1.12.
Additionally, Beacon Power Corporation purchased a warrant to purchase
2,400,000 shares of common stock at an exercise price equal to $3.37 per share.
A total of $29,475,000 was raised as a result of the consummation of the
transaction. The proceeds to us, net of financing expenses of approximately
$849,000, were approximately $28.6 million. The shares of Series A convertible
preferred stock were initially convertible into shares of common stock on a
1-to-1 basis which is subject to adjustment to account for the payment of
dividends, to take into account certain changes to our capital structure and to
account for future dilutive issuances. As a condition to the obligation of the
purchasers to consummate the financing transaction, we agreed to register for
resale the shares of common stock issuable upon the conversion of the Series A
convertible preferred stock and the exercise of the warrant.

Results of Operations

There were no material changes in the our critical accounting policies as
disclosed in our Annual Report on Form 10-K for the year ended December 31,
2002.

Product revenues.Product revenues consist of revenues from the sale of solar
cells, panels and systems. Product revenues represented 82% of total revenues
for the nine- month period ended September 30, 2003 and 76% of total revenues
for the nine- month period ended September 30, 2002. International product
sales accounted for approximately 74% of total product revenues for the
nine-month periods ended September 30, 2003, and 2002.

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Product sales to a German distributor accounted for approximately 49% and 44%
of total product revenue for the nine-months ended September 30, 2003 and 2002,
respectively. Product sales to a second German distributor accounted for
approximately 12% and 0% of total product revenue for the nine-months ended
September 30, 2003 and 2002, respectively. Product sales to a U.S. distributor
accounted for 0% and 11% of total product revenue for the nine- months ended
September 30, 2003 and 2002, respectively. We anticipate that international
sales will continue to account for a significant portion of our product
revenues for the foreseeable future. Currently, all product revenues are
denominated in United States dollars. Foreign exchange rate fluctuations have
impacted the relative competitiveness of our products in other markets, but we
have not had any direct foreign exchange exposure relating to our sales.
However, market conditions in the future may require us to denominate a portion
of our sales in local currencies, which could further expose us to foreign
exchange gains or losses. As we expand our manufacturing operations and
distribution network internationally, our exposure to fluctuations in currency
exchange rates may increase.

Research revenues.Research revenues consist of revenues from various state and
federal government agencies to fund our ongoing research, development, testing
and enhancement of our products and manufacturing technology. Our current
intention is not to pursue contracts that are not part of our ongoing research
activities. We recognize research revenues as services are rendered.

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

Research and development expenses, including cost of research revenues.
Research and development expenses, including cost of research revenues, consist
primarily of salaries and related personnel costs, consulting expenses, and
prototype costs related to the design, development, testing and enhancement of
our products and manufacturing technology. We expense our research and
development costs as incurred. We believe that research and development is
critical to our strategic objectives of enhancing our technology, reducing
manufacturing costs and meeting the changing requirements of our customers. As
a result, we expect that our total research and development expenses will
increase in the future. We currently have two active research contracts with
total estimated revenues of approximately $5.0 million, $3.5 million of which
has been authorized by the sponsoring agencies and $3.4 million of which has
been recorded as revenue as of September 30, 2003. We have fully recognized all
revenue associated with our contract that expires on October 31, 2003, and we
expect the remaining $1.6 million of revenue will be recognized somewhat
ratably over the remaining life of the second contract, which expires on May
31, 2005.

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

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

Comparison of Three Months Ended September 30, 2003 and 2002

Revenues.Our product revenues for the three months ended September 30, 2003
were $2.6 million, an increase of $1.2 million, or 81%, from $1.5 million for
the same period in 2002. The increase in product revenues was due to the
increased production capacity of our new manufacturing facility in Marlboro,
Massachusetts, and our increased marketing and sales activities. Research
revenues for the three months ended September 30, 2003 were $463,000, a
decrease of $178,000, or 28%, from $641,000 for the same period in 2002. The
decrease in research revenues is the result of unusually high contract revenues
in 2002 as at that time we were able to invoice costs on one R&D contract costs
incurred prior to Q3 2002 in Q3 2002.

Cost of product revenues.Our cost of product revenues for the three months
ended September 30, 2003 was $4.1 million, an increase of $1.0 million, or 33%,
from $3.0 million for the same period in 2002. Most of the increase was due to
an increase in materials consumption and labor costs due to increased product
sales. Product gross margin for the three months ended September 30, 2003 was
54% versus -108% for the same period in 2002. Product gross margin improved
due primarily to yield and efficiency improvements associated with the scale-up
of

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our manufacturing line. Due to the relatively large component of fixed costs,
product gross margins will still be highly dependent on sales volumes.
Therefore, we do not expect substantial improvements in product gross margin
until we realize production capacity increases associated with the inauguration
of our second manufacturing line, expected in the first half of 2004.

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, 2003 were $1.1 million, an increase of
$152,000, or 16%, from $935,000 for the same period in 2002. The increase was
due mainly to increased activity associated with our research contract with the
National Renewable Energy Laboratory (NREL) awarded in late 2002, as well as
increased activity associated with other internal research and development
programs.

Selling, general and administrative expenses.Our selling, general and
administrative expenses for the three months ended September 30, 2003 were $1.3
million, an increase of $310,000, or 31%, from $991,000 for the same period in
2002. The increase was primarily due to increased insurance costs and
increased costs associated with sales and marketing initiatives.

Interest income, net.Our net interest income for the three months ended
September 30, 2003 was $83,000, a decrease of $50,000, or 38%, from $133,000
for the same period in 2002. The decrease in interest income was due to
declining cash and investment balances for a portion of the period resulting
from capital equipment purchases and funding of operations and generally lower
yields realized on marketable securities.

Accretion and dividends on preferred stock.On May 15, 2003, we issued
26,227,668 shares of Series A convertible preferred stock at a per share
purchase price of $1.12 to several purchasers. Shares of Series A convertible
preferred stock pay a compounding dividend of 10% per annum, paid quarterly, in
cash, or at our election to be added to the liquidation preference of the
Series A convertible preferred stock on a quarterly basis, which would result
in an increase in the number of shares of common stock issuable upon conversion
of the Series A convertible preferred stock. For the quarter ended September
30, 2003, $747,395 in dividends accrued on the outstanding Series A convertible
preferred stock, which we elected to add to the liquidation preference of the
Series A convertible preferred stock. Subject to changes in business
conditions, we presently anticipate that the dividend will be added to the
liquidation preference for the foreseeable future.

Other comprehensive income (loss).Our other comprehensive income for the
three months ended September 30, 2003 was $22,000, compared to a loss of
$46,000 for the same period in 2002, consisting of net unrealized gains and
losses on marketable securities.

Comparison of Nine Months Ended September 30, 2003 and 2002

Revenues.Our product revenues for the nine months ended September 30, 2003
were $6.4 million, an increase of $2.9 million, or 85%, from $3.5 million for
the same period in 2002. The increase in product revenues was due to the
increased production capacity of our manufacturing facility, and our increased
marketing and sales activities. Research revenues for the nine months ended
September 30, 2003 were $1.4 million, an increase of $268,000, or 25%, from
$1.1 million for the same period in 2002. The increase in research revenues
reflects revenue recognized on a research contract with the NREL awarded in
late 2002.

Cost of product
revenues. Our cost of product revenues for the nine months
ended September 30, 2003 was $11.0 million, an increase of $2.1 million, or
24%, from $8.9 million for the same period in 2002. Most of the increase was
due to an increase in materials consumption and labor costs due to increased
product sales. Product gross margin for the nine months ended September 30,
2003 was 72% versus -157% for the same period in 2002. Product gross margin
improved due primarily to yield and efficiency improvements associated with the
scale-up of our manufacturing line. Due to the relatively large component of
fixed costs and scale-up of our production, product gross margins will still be
highly dependent on sales volumes. Therefore, we do not expect substantial
improvements in product gross margin until we realize production capacity
increases associated with the inauguration of our second manufacturing line,
expected in the first half of 2004.

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, 2003 were $2.9 million, an increase of $96,000,
or 4%, from $2.8 million for the same period in 2002. The increase was due
mainly to increased activity associated with our research contract with the
NREL awarded in late 2002, as well as increased activity associated with other
internal research and development programs.

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Selling, general and administrative expenses.Our selling, general and
administrative expenses for the nine months ended September 30, 2003 were $3.8
million, an increase of $713,000, or 23%, from $3.1 million for the same period
in 2002. The increase was primarily due to increased insurance costs and
increased costs associated with sales and marketing initiatives.

Interest income, net.Our net interest income for the nine months ended
September 30, 2003 was $157,000, a decrease of $428,000, or 73%, from $585,000
for the same period in 2002. The decrease in interest income was due to
declining cash and investment balances for a portion of the period resulting
from capital equipment purchases and funding of operations and generally lower
yields realized on marketable securities.

Accretion and dividends on
preferred stock. As disclosed above, on May 15,
2003, we issued 26,227,668 shares of Series A convertible preferred stock and
warrant to purchase 2,400,000 shares of common stock. As a result of the
preferred stock and warrant financing, accretion and dividends of $12.8 million
were recorded for the nine-month period ended September 30, 2003. $11.7
million of this charge was recognized immediately (during the second quarter)
since the holders of shares of the Series A convertible preferred stock are
entitled to convert their shares into common stock at any time. The sources of
the discounts on issuance requiring this accretion charge and dividends are
summarized in the following table:

|                                                             |                                               |   |            |            | 
|------------------------------------------------------------ | --------------------------------------------- | - | ---------- | ---------- | 
|Beneficial conversion feature                                |                                               | $ | 10,314,000 |           
|Proceeds allocated to the fair value of common stock warrant |                                               |   | 525,000    |           
|Financing costs                                              |                                               |   | 849,000    |           
|Preferred stock dividend through September 30, 2003          |                                               |   | 1,114,000  |           
|                                                             |                                               |   |            |           
|                                                             | Total preferred stock accretion and dividends |   | $          | 12,802,000 | 
|                                                             |                                               |   |            |           

The difference between the issuance price of the Series A convertible preferred
stock and the fair value of our common stock on the date of issuance of
preferred stock resulted in a beneficial conversion feature totaling
approximately $10.3 million, which was calculated in accordance with EITF
00-27, Application of Issue No. 98-5 to Certain Convertible Instruments.
Certain terms of the Series A convertible preferred stock might require us to
calculate and record additional beneficial conversion charges in future
periods.

The total proceeds of $1.1 million from Beacon Power Corporation were allocated
between the Series A convertible preferred stock ($475,000) and
the warrant ($625,000) based on their relative fair values. The
value of the warrant was calculated using the Black-Scholes pricing model with
the following assumptions: dividend yield of zero percent; expected volatility
of 90%; risk free interest rate of 2% and a term of three years.
The difference between the proceeds allocated to the relative fair value of the
warrant, $625,000, and the amount paid for the warrant, $100,000, or $525,000
was included in the accretion charge of $12.8 million for the nine-month period
ended September 30, 2003.

Other comprehensive income
(loss). Our other comprehensive loss for the nine
months ended September 30, 2003 was $39,000, compared to comprehensive income
of $47,000 for the same period in 2002, consisting of net unrealized gains and
losses on marketable securities.

Liquidity and Capital Resources

We have historically financed our operations and met our capital expenditures
requirements primarily through sales of our capital stock and, to a lesser
extent, research and product revenues. At September 30, 2003, we had working
capital of $27.3 million, including cash, cash equivalents and short-term
investments of $24.5 million.

Net cash used in operating activities was $6.4 million for the nine months
ended September 30, 2003, as compared to $10.9 million for the nine months
ended September 30, 2002. The decrease in net cash used in operating
activities was primarily due to a decrease in our accounts receivable and
inventory and an increase in accounts payable. For the third quarter in 2003,
Days Sales Outstanding (DSO) was approximately 69 days, versus approximately 85
days for the second quarter of 2003. The decrease in DSO was due mainly to
significant cash
receipts during the third quarter of 2003 related to sales originating in the
second quarter of 2003. Product sales to customers can fluctuate widely
month-to-month, and depending on when sales occur during the quarter, DSO can
fluctuate significantly quarter-to-quarter.

Net cash used in investing activities was $19.4 million for the nine months
ended September 30, 2003, as compared to net cash provided by investing
activities of $9.3 million for the nine months ended September 30, 2002. For
the nine-months ended September 30, 2003, net cash was used to purchase
equipment associated with the build-out of

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our Marlboro manufacturing plant as
well as purchases of marketable securities. For the nine months ended
September 30, 2002, net cash was provided from the net sales of marketable
securities somewhat offset by purchases of equipment associated with the
build-out of our Marlboro manufacturing plant.

Net cash provided by financing activities was $28.6 million for the nine months
ended September 30, 2003, as compared to $14,000 for the nine months ended
September 30, 2002. The cash provided by financing activities principally
represents the net proceeds resulting from our Series A convertible preferred
stock and warrant financing which closed on May 15, 2003.

Capital expenditures were $6.0 million for the nine months ended September 30,
2003, as compared to $1.5 million for the nine months ended September 30, 2002.
Capital expenditures for the nine months ended September 30, 2003 were
primarily for equipment needed for our manufacturing facility. As of September
30, 2003, our outstanding commitments for capital expenditures were
approximately $3.3 million. Nearly all of our commitments for capital
expenditures are associated with infrastructure improvements and equipment
purchases for our manufacturing facility. The first of the Marlboro facilitys
two manufacturing lines became operational in 2001. We have purchased certain
equipment that is planned for the second manufacturing line. We will fund our
current capital commitments primarily with the proceeds from our Series A
convertible preferred stock and warrant financing which closed on May 15, 2003.
In addition to the current capital commitments, substantial further capital
expenditures will be required over the next twelve to eighteen months to
increase the capacity at our manufacturing facility to our target level of 10
to 14 megawatts for both lines. We expect portions of the second manufacturing
line to become operational in late 2003 and that it will be completed in 2004.
We believe that our cash, cash equivalents and short-term investments will be
sufficient to fund our operations for the next 12 months.

We may need additional financing to execute our business plan sooner if we need
to respond to business contingencies such as the need to enhance our operating
infrastructure, respond to competitive pressures and acquire complementary
businesses or necessary technologies. We do not know whether we will be able
to raise additional financing or financing on terms favorable to us. If
adequate funds are not available or are not available on acceptable terms, our
ability to fund our operations, develop and expand our manufacturing operations
and distribution network, or otherwise respond to competitive pressures would
be significantly limited.

We currently do not have any special purpose entities or off-balance sheet
financing arrangements. As of September 30, 2003, our cash commitments, as
disclosed in Note 11 to our consolidated financial statements included in our
Annual Report on Form 10-K for the year ended December 31, 2002, have not
significantly changed.

Certain Factors Which May Affect Future Results

Risks Relating to Our Financial Results

Evaluating our business and future prospects may be difficult due to our
limited operating history.

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

In addition, our early stage of development means that we have less insight
into how market and technology trends may affect our business. The revenue and
income potential of our business is unproven and the market we are addressing
is rapidly evolving. You should consider our business and prospects in light of
the risks, expenses and challenges that we will face as an early-stage company
seeking to develop and manufacture new products in a growing and rapidly
evolving market.

We have a history of losses, expect to incur substantial further losses and may
not achieve or maintain profitability in the future, which may decrease the
market value of our stock.

Since our inception, we have incurred significant net losses, including net
losses of $9.8 million for the nine-month period ended September 30, 2003. As a
result of ongoing operating losses, we had a cumulative net loss of $51.1
million as of September 30, 2003. We expect to incur substantial losses for the
foreseeable future, and may never become profitable. Even if we do achieve
profitability, we may be unable to sustain or increase our profitability in

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the
future, which could materially decrease the market value of our common stock.
We expect to continue to incur significant capital expenditures and anticipate
that our expenses will increase substantially in the foreseeable future as we
seek to: expand our manufacturing operations, develop our distribution network,
continue to research and develop our products and manufacturing technologies,
implement internal systems and infrastructure in conjunction with our growth
and hire additional personnel.

We do not know whether our revenues will grow at all or grow rapidly enough to
absorb these expenses, and our limited operating history makes it difficult to
assess the extent of these expenses or their impact on our operating results.

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

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

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

Risks Relating to Our Industry, Products and Operations

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

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



| | - |  | cost-effectiveness of solar power technologies as compared with
conventional and non-solar alternative energy technologies;                                                                                    
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | - |  | performance and reliability of solar power products as compared with
conventional and non-solar alternative energy products;                                                                                   
|
| | - |  | success of alternative distributed generation technologies such as
fuel cells, wind power and micro turbines;                                                                                                  
|
| | - |  | fluctuations in economic and market conditions which impact the
viability of conventional and non-solar alternative energy sources, such
as increases or decreases in the prices of oil and other fossil fuels;
|
| | - |  | continued deregulation of the electric power industry and broader energy industry; and                                                                                                                         
|
| | - |  | availability of government subsidies and incentives.                                                                                                                                                           

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

As is consistent with standard practice in our industry, the duration of our
product warranties is lengthy relative to expected product life and has
recently been increasing. Our current standard product warranty includes a one
or two-year warranty period for defects in material and workmanship and a
25-year warranty period for declines in power performance. We believe our
warranty periods are consistent with industry practice. Due to the long
warranty period, we bear the risk of extensive warranty claims long after we
have shipped product and recognized revenues. Although we have sold over
48,000 solar panels since 1997, none of these panels has been operating more
than six

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years, and over 50% of them have been operating less than one year.
The possibility of future product failures could cause us to incur substantial
expense to repair or replace defective product. Furthermore, widespread
product failures may damage our market reputation and reduce our market share
and cause sales to decline.

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

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

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

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



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

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

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

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

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

If we fail to successfully complete the build-out of our Marlboro manufacturing
facility, our business and results of operations would likely be materially
impaired. The first of the Marlboro facilitys two manufacturing lines entered
service in 2001. The Company expects portions of the second manufacturing line
to become operational in late 2003 and that it will be completed in 2004.
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

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manufacturing processes also use custom-built equipment that may not be
delivered and installed in our new facility in a timely manner. In addition,
this equipment may take longer and cost more to debug than planned and may
never operate as designed. We plan to incorporate first-time equipment designs
and technology improvements, which we expect to lower unit capital and
operating costs, but this new technology may not be successful, which would
increase cost, limit capacity, and prevent us from achieving increases in
sales. If we experience any of these or similar difficulties, we may be unable
to complete the build-out of the facility, our manufacturing capacity could be
substantially constrained and our revenues and earnings would likely be
materially impaired.

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

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

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

We currently sell our solar power products primarily to distributors, system
integrators and other value-added resellers within and outside of North
America, which typically resell our products to end users on a global basis.
Through September 30, 2003, we sold our solar power products to approximately
20 distributors, system integrators and other value-added resellers. If we are
unable to successfully maintain our existing distribution relationships and
expand our distribution channels, our revenues and future prospects will be
materially harmed. As we seek to grow our sales by entering new markets in
which we have little experience selling our solar power products, our ability
to increase market share and sales will depend substantially on our ability to
expand our distribution channels by identifying, developing and maintaining
relationships with resellers both within and outside of North America. We may
be unable to enter into relationships with resellers in the markets we target
or on terms and conditions favorable to us, which could prevent us from
entering these markets or entering these markets in accordance with our plans.
Our ability to enter into and maintain relationships with resellers will be
influenced by the relationships between these resellers and our competitors,
market acceptance of our solar power products and our low brand recognition as
a new entrant.

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

From our inception through September 30, 2003, approximately 65% of our product
sales have been made to resellers outside North America. We expect that our
sales both to resellers and distributors outside of North America and through
our resellers and distributors to end users outside of North America will
continue to be significant. Sales in Germany constituted approximately 61% of
our total product sales for the nine month period ended September 30, 2003. It
will require significant management attention and financial resources to
successfully develop our international sales channels. In addition, the
marketing, distribution and sale of our solar power products internationally
exposes us to a number of markets with which we have limited experience. If we
are unable to effectively manage these risks, it could impair our ability to
grow our business abroad. These risks include:



| | - |  | difficult and expensive compliance with the commercial and legal
requirements of international markets, with which we have only limited
experience;                                                                               
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | - |  | inability to obtain 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;
|
| | - |  | difficulty of enforcing revenue collection internationally; and                                                                                                                                                                   
|
| | - |  | our continued ability to sell our products in the German market.                                                                                                                                                                  

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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, 2003, our three largest resellers
accounted for approximately 58% of our product sales and our 10 largest
resellers accounted for approximately 83% of our product sales. We anticipate
that sales of our solar power products to a limited number of key resellers
will continue to account for a significant portion of our total product
revenues for the foreseeable future. Consequently, any one of the following
events may cause significant fluctuations or declines in our product revenues:



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

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

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

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

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

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

We have attracted a highly skilled management team and specialized workforce,
including scientists, engineers, researchers, and manufacturing and marketing
professionals. If we were to lose the services of Mark A. Farber, our Chief
Executive Officer, President and a director, or any of our other executive
officers and key employees, our business could be materially and adversely
impacted. We had 142 employees as of September 30, 2003, and anticipate that we
will need to hire a significant number of new highly-skilled technical,
manufacturing, sales and marketing, and administrative personnel if we are to
successfully develop and market our products, develop our distribution network,
and operate our expanded manufacturing facility. Competition for personnel is
intense, and qualified technical personnel are likely to remain a limited
resource for the foreseeable future. Locating candidates with the appropriate
qualifications, particularly in the desired geographic location, can be costly
and difficult. We may not be able to hire the necessary personnel to implement
our business strategy, or we may need to provide higher compensation or more
training to our personnel than we currently anticipate. Moreover, any officer
or employee can terminate his or her relationship with us at any time.

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

The existing members of our management team have had only limited experience
managing a rapidly growing company on either a public or private basis. In
connection with the planned expansion of our manufacturing capacity, we have
undergone and anticipate undergoing further rapid growth in the scope of our
operations and the number of our employees, which is likely to place a
significant strain on our senior management team and other resources. In
addition, we may encounter difficulties in effectively managing the budgeting,
forecasting and other process control issues presented by this rapid growth. We
may seek to augment or replace members of our management team or we may lose
key members of our management team, and we may not be able to attract new
management talent with sufficient skill and experience. If our management team
is unable to manage the rapid growth of our business operations, then our
product development, the expansion of our manufacturing operations and
distribution network, and our sales and marketing activities would be
materially and adversely affected.

We have significant capital requirements in order to maintain and grow our
business.

On May 15, 2003, we consummated a private placement financing transaction that
raised $29,475,000 through the issuance of 26,227,668 shares of Series A
convertible preferred stock and the sale of a warrant to purchase 2,400,000
shares of our common stock. We believe that our current cash, cash equivalents
and short-term investments will be sufficient to fund our planned manufacturing
capacity expansion and operating expenditures over the next twelve months. In
addition to the capital raised in our private placement financing transaction,
we may need additional financing to execute our business plan sooner if we need
to respond to business contingencies such as the need to further enhance our
operating infrastructure, respond to competitive pressures and acquire
complementary businesses or necessary technologies. We do not know whether we
will be able to raise additional financing or financing on terms favorable to
us. If adequate funds are not available or are not available on acceptable
terms, our ability to fund our operations, develop and expand our manufacturing
operations and distribution network, or otherwise respond to competitive
pressures would be significantly limited. In addition, if we raise additional
funds through the issuance of equity or convertible debt securities, the
percentage ownership of our existing stockholders will be reduced. These newly
issued securities may have rights, preferences and privileges senior to those
of existing stockholders.

We face intense competition from other companies producing solar power and
other energy generation products. If we fail to compete effectively, we may be
unable to increase our market share and sales.

The solar power market is intensely competitive and rapidly evolving. Our
competitors have established a market position more prominent than ours, and if
we fail to attract and retain customers and establish a successful distribution
network for our solar power products, we may be unable to increase our sales
and market share. There
are over 20 companies in the world that produce solar power products, including
BP Solar, Kyocera Corporation, Royal Dutch Shell, Sharp Corporation, and
AstroPower, Inc. All of these solar power product producers, as well as several
others, have historically derived all or a majority of their sales from
conventional manufacturing technology that involves using wafers made from
slicing solid blocks of crystalline silicon. In addition, some of these
companies are developing advanced crystalline silicon or thin film
technologies, including technologies such as advanced crystalline sheet and
ribbon technologies and thin films of amorphous silicon, cadmium telluride and
copper indium diselenide, and project future cost savings similar to or greater
than ours. Other existing and potential competitors in the solar power market
include universities and research institutions. We also expect that future

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competition will include new entrants to the solar power market offering new
technological solutions. Further, many of our competitors are developing and
are currently producing products based on new solar power technologies,
including other crystalline silicon ribbon and sheet technologies, that they
believe will ultimately have costs similar to, or lower than, our projected
costs.

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

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

Our ability to compete effectively against competing solar power technologies
will depend, in part, on our ability to protect our current and future
proprietary technology, product designs and manufacturing processes through a
combination of patent, copyright, trademark, trade secret and unfair
competition laws. We may not be able to adequately protect our intellectual
property and may need to defend our intellectual property against infringement
claims, either of which could result in the loss of our competitive advantage
in the solar power market and materially harm our business and profitability.
We face the following risks in protecting our intellectual property:



| | - |  | we cannot be certain that our pending United States and foreign
patent applications will result in issued patents or that the claims
allowed are or will be sufficiently broad to protect our technology or
processes;                                                                                                                                                                    
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | - |  | our license, but not our right, to practice the String Ribbon
technology terminates upon expiration of the underlying patents, the
first of which expired in June 2003, and our historical operating
experience with String Ribbon and our related patented and proprietary
manufacturing processes may not adequately protect our competitive
advantage after these patents have expired;
|
| | - |  | third parties may design around our patented technologies or seek to
challenge or invalidate our patented technologies;                                                                                                                                                                                                                                                                   
|
| | - |  | we may incur significant costs and diversion of management resources
in prosecuting or defending patent infringement suits;                                                                                                                                                                                                                                                               
|
| | - |  | we may not be successful in prosecuting or defending patent
infringement suits and, as a result, may need to seek to obtain a
license of the third partys intellectual property rights; however, a
license may not be available to us or may not be available to us on
commercially reasonable terms; and                                                                                
|
| | - |  | the contractual provisions we rely on to protect our trade secrets
and proprietary information, such as our confidentiality and
non-disclosure agreements with our employees, consultants and other
third parties, may be breached and our trade secrets and proprietary
information disclosed to the public.                                                                             

Existing regulations and changes resulting from electric utility deregulation
may present technical, regulatory and economic barriers to the purchase and use
of solar power products, which may significantly reduce demand for our
products.

The market for electricity generation products is heavily influenced by
federal, state and local government regulations and policies concerning the
electric utility industry, as well as internal policies and regulations
promulgated by electric utilities. These regulations and policies often relate
to electricity pricing and technical interconnection of customer-owned
electricity generation. In the United States and in a number of other
countries,
these regulations and policies are being modified and may continue to be
modified. Customer purchases of, or further investment in the research and
development of, alternative energy sources, including solar power technology,
could be deterred by these regulations and policies, which could result in a
significant reduction in the potential demand for our solar power products.

We anticipate that our solar power products and their installation will be
subject to oversight and regulation in accordance with national and local
ordinances relating to building codes, safety, environmental protection,
utility interconnection and metering and related matters. Any new government
regulations or utility policies pertaining to

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our solar power products may
result in significant additional expenses to us, our resellers and their
customers and, as a result, could cause a significant reduction in demand for
our solar power products.

The reduction or elimination of government subsidies and economic incentives
for on-grid applications could cause our sales to decline.

We believe that the growth of some of our target markets, including the market
for on-grid applications, depends in part on the availability and size of
government subsidies and economic incentives. Accordingly, the reduction or
elimination of government subsidies and economic incentives may adversely
affect the growth of these markets, which could cause our sales to decline.
Today, the cost of solar power substantially exceeds the cost of power
furnished by the electric utility grid. As a result, federal, state and local
governmental bodies in many countries, most notably the United States, Japan
and Germany, have provided subsidies in the form of cost reductions, tax
write-offs and other incentives to end users, distributors, systems integrators
and manufacturers of solar power products to promote the use of solar energy in
on-grid applications and to reduce dependency on other forms of energy. These
government subsidies and economic incentives could be reduced or eliminated
altogether.

The lack or inaccessibility of financing for off-grid solar power applications
could cause our sales to decline.

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

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

We intend to continue our policy of selectively pursuing contract research,
product development, and market development programs funded by various agencies
of the United States, state and international governments to complement and
enhance our own resources. The percentage of our total revenues derived from
government-related contracts was approximately 18% for the nine-month period
ended September 30, 2003. We currently have two active research contracts with
total estimated revenues of approximately $5.0 million, $3.5 million of which
has been authorized by the sponsoring agencies and $3.4 million of which has
been recorded as revenue as of September 30, 2003. We have fully recognized all
revenue associated with our contract that expires on October 31, 2003, and we
expect the remaining $1.6 million of revenue will be recognized somewhat
ratably over the remaining life of the second contract, which expires on May
31, 2005. These government agencies may not continue their commitment to
programs to which our development projects are applicable. Moreover, we may not
be able to compete successfully to obtain funding through these or other
programs. A reduction or discontinuance of these programs or of our
participation in these programs would increase our research and development
expenses, which could impair our ability to develop our solar power
technologies.

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

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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 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 69% of our voting stock and may be able to
significantly influence corporate actions.

As of November 1, 2003, our executive officers, directors and entities
affiliated with them controlled 69% of our voting stock. As a result, these
stockholders, acting together, may be able to significantly influence all
matters requiring approval by our stockholders, including the election of
directors, the approval of charter and by-law amendments, and the approval of
mergers or other business combinations.

The price of our common stock may be volatile.

The stock market has, from time to time, experienced extreme price and trading
volume fluctuations, and the market prices of technology companies such as ours
have been extremely volatile. Our operating performance will significantly
affect the market price of our common stock. To the extent we are unable to
compete effectively and gain market share or the other factors described in
this section affect us, our stock price will likely decline. The market price
of our common stock also may be adversely impacted by broad market and industry
fluctuations regardless of our operating performance, including general
economic and technology trends. In addition, companies that have experienced
volatility in the market price of their stock have been the subject of
securities class action litigation. We may be involved in securities class
action litigation in the future. This litigation often results in substantial
costs and a diversion of managements attention and resources.

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

The market price of our common stock could decline as a result of the resale of
the shares of common stock issuable upon conversion of the Series A convertible
preferred stock and the exercise of the warrant issued in connection with the
private placement financing 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.

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

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




ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

Interest Rate Risk

We do not use derivative financial instruments. Interest income earned on our
cash, cash equivalents and short-term investments is subject to interest rate
fluctuations, but we believe that the impact of these fluctuations does not
have a material effect on our financial position due to the short-term nature
of these financial instruments. We have no long-term debt. Our interest
income is sensitive to the general level of interest rates in the United
States. Sensitivity analysis is used to measure our interest rate risk. For
the three and nine months ended September 30, 2003, a 100-basis point adverse
change in interest rates would not have had a material effect on our
consolidated financial position, earnings or cash flow.

Foreign Currency Exchange Rate Risk

All of our sales are currently denominated in United States dollars.
Accordingly, we have not been materially exposed to fluctuations in currency
exchange rates with respect to our product sales. However, since we sell a
significant portion of our products internationally, the relative
competitiveness of our products is impacted by foreign currency exchange rates.
In addition, market conditions in the future may require us to denominate a
portion of our sales in local currencies, which could further expose us to
foreign exchange gains or losses. As we expand our manufacturing operations
and distribution network internationally, our exposure to fluctuations in
currency exchange rates may increase. Additionally, from time to time we may
purchase equipment and materials internationally, and to the extent that such
purchases are billed in foreign currency, we may be exposed to currency gains
or losses.




ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our Chief Executive Officer and our Chief Financial Officer, after evaluating
the effectiveness of our disclosure controls and procedures as of the end of
the period covered by this report (the Evaluation Date), have concluded that
as of the Evaluation Date, our disclosure controls and procedures were
effective, in all material respects, to ensure that information required to be
disclosed in the reports that we file and submit under the Exchange Act of 1934
is recorded, processed, summarized and reported as and when required.

Internal Control Over Financial Reporting

During the period covered by this report, there have been no changes in our
internal control over financial reporting that have materially affected or are
reasonably likely to materially affect our internal control over financial
reporting.

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PART II. OTHER INFORMATION




ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits:

|       |  |                                                                                                                                                       |  |  |  | 
|------ |  | ----------------------------------------------------------------------------------------------------------------------------------------------------- |  |  |  | 
|Number |  | Description                                                                                                                                           |  |  |  | 
|       |  |                                                                                                                                                       |  |  |  | 
|31.1   |  | Certification of the Chief Executive Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
|       |  |                                                                                                                                                      
|31.2   |  | Certification of the Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
|       |  |                                                                                                                                                      
|32.1   |  | Certification of Chief Executive Officer Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002    
|       |  |                                                                                                                                                      
|32.2   |  | Certification of Chief Financial Officer Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002    

(b) Reports on Form 8-K:

During the quarter ended September 30, 2003, the Company filed a report on Form
8-K dated July 31, 2003, reporting information under Item 5 relating to the
press release regarding its financial results for the quarter ending June 30,
2003.




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 12, 2003 |  | /s/ Richard G. Chleboski                        
|                        |  |                                                 
|                        |  | Richard G. Chleboski                            
|                        |  | Chief Financial Officer, Treasurer and Secretary
|                        |  | (Principal Financial Officer)                   

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