10-Q 1 b61548ese10vq.htm EVERGREEN SOLAR, INC. e10vq
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
     
þ   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 1, 2006
OR
     
o   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                                          to                                         
COMMISSION FILE NUMBER 000-31687
EVERGREEN SOLAR, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
     
DELAWARE   04-3242254
(State or other jurisdiction of   (I.R.S. Employer
incorporation or organization)   Identification No.)
     
138 BARTLETT STREET    
MARLBORO, MASSACHUSETTS   01752
(Address of principal executive offices)   (Zip Code)
(508) 357-2221
(REGISTRANT’S TELEPHONE NUMBER, INCLUDING AREA CODE)
(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED SINCE LAST REPORT)
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 þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-(2) of the Exchange Act. (Check one).
Large accelerated filer o     Accelerated filer þ     Non-accelerated filer o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
          Yes o No þ
As of August 1, 2006, the registrant has 67,150,582 shares of common stock outstanding.
 
 

 


 

EVERGREEN SOLAR, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JULY 1, 2006
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 Ex-31.1 Section 302 Certification of CEO
 Ex-31.2 Section 302 Certification of CFO
 Ex-32.1 Section 906 Certification of CEO
 Ex-32.2 Section 906 Certification of CFO

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CONCERNS REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 2 of Part I and “Risk Factors” in Item 1A of Part II of this report, contains forward-looking statements that involve risks, uncertainties and assumptions. If the risks or uncertainties ever materialize or the assumptions prove incorrect, the results of the Company may differ materially from those expressed or implied by such forward-looking statements and assumptions. All statements other than statements of historical fact are statements that could be deemed forward-looking statements, including but not limited to statements regarding the Company’s projections regarding future growth, revenue, costs of revenue, earnings and gross margins improvement; any statements of the plans, strategies and objectives of management for future operations; future warranty expenses; the Company’s expectations regarding EverQ’s future growth, revenue, costs of revenue and earnings; the future ownership of EverQ; the future accounting treatment of EverQ; contributions by our strategic partners Q-Cells AG and Renewable Energy Corporation to EverQ and the successful integration of our proprietary technologies; the impact and terms and conditions of the proposed supply agreements and amended joint venture documents; receipt of public grant awards; capital requirements to respond to competitive pressures and acquire complementary businesses and necessary technologies; pursuit of future research contracts that are not part of our current ongoing research activities; costs associated with research and development, building or improving manufacturing facilities, general and administrative expenses, business growth and our status as a public company; the success of the Company’s research and development activities; shifts in our geographic product revenue mix; the manufacturing capacity of the Company and its plans for its Marlboro facility; domestic and international expansion of strategic partnerships, manufacturing operations and distribution networks; operating efficiency of manufacturing facilities including increases in manufacturing scale and technological improvements; the occurrence of and the use of proceeds from sales of our securities; the sufficiency of our cash, cash equivalents and marketable securities to satisfy our anticipated cash requirements; sufficiency of our insurance levels for product liability claims; payment of cash dividends; use of derivative financial instruments to manage foreign currency exchange risks; the potential impact of our critical accounting policies and changes in financial accounting standards or practices; the Company’s plans for expansion and operation of the EverQ facility and its production schedule; the Company’s expectations regarding the marketing and sales of EverQ modules and the revenues of the Company associated with the resale of such modules; the Company’s goal of transitioning to thin wafer production and the expected timing and results of such transition; the expected timing of the EverQ facility becoming fully operational; the expected demand for solar energy; expectations regarding product performance and cost and technological competitiveness; expectations regarding the Company’s and EverQ’s future silicon supply; the anticipated benefits of the Company’s String Ribbon technology; the making of strategic investments and the expectation of future benefit from them; the Company’s ability to hire the necessary personnel to successfully develop and market its products; the development of the quad technology platform and its potential effects on crystal growth; the Company’s position in the solar power market; and the Company’s ability to reduce the costs of producing solar products and are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements may be identified with such words as “we expect”, “we believe”, “we anticipate” or similar indications of future expectations. These statements are neither promises nor guarantees and involve risks and uncertainties, which could cause our actual results to differ materially from such forward-looking statements. Such risks and uncertainties may include, among other things, macroeconomic and geopolitical trends and events, the execution and performance of contracts by customers, suppliers and partners, and other risks and uncertainties described herein, including but not limited to the items discussed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 2 of Part I and “Risk Factors” in Item 1A of Part II of this report and that are otherwise described from time to time in our filings with the Securities and Exchange Commission (“SEC”), copies of which may be accessed through the SEC’s web site at http://www.sec.gov. We caution readers not to place undue reliance on any forward-looking statements contained in this Quarterly Report, which speak only as of the date of this Quarterly Report. We disclaim any obligation to publicly update or revise any such statements to reflect any change in our expectations, or events, conditions, or circumstances on which any such statements may be based, or that may affect the likelihood that actual results will differ from those set forth in such forward-looking statements.

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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Evergreen Solar, Inc.
Condensed Consolidated Balance Sheets
(in thousands, except share data)
(unaudited)
                 
    December 31,     July 1,  
    2005     2006  
Assets
               
Current assets:
               
Cash and cash equivalents
  $ 30,742     $ 25,296  
Marketable securities
    85,465       67,499  
Accounts receivable, net of allowances for doubtful accounts and sales discounts of $65 and $0 at December 31, 2005 and July 1, 2006, respectively
    4,124       18,404  
Grants receivable
    16,295       17,082  
Inventory
    3,634       11,867  
Interest receivable
    541       1,064  
Other current assets
    4,052       12,581  
 
           
Total current assets
    144,853       153,793  
 
               
Deposits
    8,217       1,170  
Long-term investments
          3,053  
Restricted cash
    1,582       1,020  
Deferred financing costs
    2,877       2,656  
Fixed assets, net
    71,430       119,662  
 
           
 
               
Total assets
  $ 228,959     $ 281,354  
 
           
 
               
Liabilities, minority interest and stockholders’ equity
               
Current liabilities:
               
Accounts payable
  $ 12,210     $ 15,417  
Short term borrowings
    4,131       19,044  
Other accrued expenses
    1,625       15,167  
Accrued employee compensation
    1,778       1,789  
Accrued warranty
    705       705  
 
           
Total current liabilities
    20,449       52,122  
 
               
Subordinated convertible notes
    90,000       90,000  
Deferred grants
    16,284       23,087  
Other long-term debt
    3,553       16,875  
 
           
Total liabilities
    130,286       182,084  
 
Minority interest in EverQ
    11,223       9,657  
 
Stockholders’ equity:
               
Common stock, $0.01 par value, 100,000,000 shares authorized, 61,965,231 and 67,143,913 issued and outstanding at December 31, 2005 and July 1, 2006, respectively
    620       673  
Additional paid-in capital
    182,345       197,501  
Accumulated deficit
    (93,009 )     (108,608 )
Deferred compensation
    (1,036 )      
Accumulated other comprehensive income (loss)
    (1,470 )     47  
 
           
 
               
Total stockholders’ equity
    87,450       89,613  
 
           
 
               
Total liabilities, minority interest and stockholders’ equity
  $ 228,959     $ 281,354  
 
           
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)

                                 
    Quarter Ended     Year-to-date Period Ended  
    July 2,     July 1,     July 2,     July 1,  
    2005     2006     2005     2006  
Revenues:
                               
Product revenues
  $ 10,679     $ 22,048     $ 20,966     $ 33,614  
Research revenues
          354       235       680  
 
                       
 
                               
Total revenues
    10,679       22,402       21,201       34,294  
 
                       
 
                               
Cost of revenue:
                               
Product revenue costs
    10,018       21,121       19,953       34,129  
Research revenue costs
          354       235       680  
 
                       
Total cost of revenue
    10,018       21,475       20,188       34,809  
 
                       
 
                               
Gross profit
    661       927       1,013       (515 )
Operating expenses:
                               
Research and development expenses
    2,647       3,958       4,737       8,151  
Selling, general and administrative expenses
    2,992       6,396       4,952       10,796  
 
                       
Total operating expenses
    5,639       10,354       9,689       18,947  
 
                       
 
                               
Operating loss
    (4,978 )     (9,427 )     (8,676 )     (19,462 )
 
                               
Other income
                               
Foreign exchange gains (losses), net
    (194 )     1,419       86       1,959  
Interest income
    504       1,264       750       2,602  
Interest expense
    (107 )     (1,650 )     (195 )     (3,110 )
 
                       
Loss from operations before minority interest
    (4,775 )     (8,394 )     (8,035 )     (18,011 )
Minority interest in EverQ
    282       929       323       2,412  
 
                       
Net loss
  $ (4,493 )   $ (7,465 )   $ (7,712 )   $ (15,599 )
 
                       
 
                               
Net loss per share (basic and diluted)
  $ (0.07 )   $ (0.11 )   $ (0.13 )   $ (0.24 )
 
                               
Weighted average shares used in computing basic and diluted net loss per share
    60,973       65,789       57,984       64,780  
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)
                 
    Year-to-date Period Ended  
    July 2,     July 1,  
    2005     2006  
Cash flows from operating activities:
               
Net loss
  $ (7,712 )   $ (15,599 )
Adjustments to reconcile net loss to net cash used in operating activities:
               
Depreciation expense
    1,871       3,297  
Amortization of deferred grant credits
          (211 )
Loss on disposal of fixed assets
          222  
Minority interest in EverQ
    (323 )     (2,412 )
Amortization of convertible debt financing costs
          222  
Bad debt expense and provision for early payment discounts
    (15 )     (65 )
Accretion of bond premiums
    (178 )     (605 )
Compensation expense associated with employee stock options
          3,013  
Changes in operating assets and liabilites:
               
Accounts receivable
    1,410       (14,209 )
Prepaid inventory
    (1,510 )      
Inventory
    (660 )     (7,950 )
Interest receivable
    (33 )     (523 )
Other current assets
    (905 )     (8,086 )
Grants receivable
          6,440  
Accounts payable
    5,033       2,481  
Accrued expenses
    977       13,204  
 
           
Net cash used in operating activities
    (2,045 )     (20,781 )
 
           
 
               
Cash flows from investing activities:
               
Purchases of fixed assets
    (7,920 )     (46,841 )
Decrease in deposits on fixed assets under construction
          7,212  
Decrease (increase) in restricted cash
    (2,018 )     672  
Purchases of marketable securities
    (21,253 )     (38,297 )
Proceeds from sale and maturity of marketable securities
    13,119       53,750  
 
           
Net cash used in investing activites
    (18,072 )     (23,504 )
 
           
 
               
Cash flows from financing activities:
               
Proceeds from the issuance of common stock, net of offering costs
    62,335        
Proceeds from convertible debt financing, net of offering costs
    86,939        
Increase in long-term debt
          12,527  
Increase in short-term debt
            13,834  
Capital contribution to EverQ from minority interest holder
    3,788        
Proceeds from exercise of warrants
          11,305  
Proceeds from exercise of stock options, and shares purchased under Employee Stock Purchase Plan
    315       1,928  
 
           
Net cash flow provided by financing activities
    153,377       39,594  
 
               
Effect of exchange rate changes on cash and cash equivalents
    (936 )     (755 )
 
           
 
               
Net increase in cash and cash equivalents
    132,324       (5,446 )
 
               
Cash and cash equivalents at beginning of period
    5,379       30,742  
 
           
 
               
Cash and cash equivalents at end of period
  $ 137,703     $ 25,296  
 
           
The accompanying notes are an integral part of these financial statements.

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Evergreen Solar, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
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, 2005. 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, 2005, which are contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2005, which was filed with the Securities and Exchange Commission on March 16, 2006. The unaudited condensed consolidated interim financial statements, in the opinion of management, reflect all adjustments necessary for a fair statement of the financial position at July 1, 2006, the results of operations for the quarters and year-to-date periods ended July 1, 2006 and July 2, 2005, and the cash flows for the year-to-date periods ended July 1, 2006 and July 2, 2005. The balance sheet at December 31, 2005 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, 2006.
The condensed consolidated interim financial statements include the accounts of the Company’s wholly owned subsidiaries, Evergreen Solar Securities, Inc. and Evergreen Solar GmbH. All material intercompany accounts and transactions have been eliminated. The Company currently owns a 64% share in EverQ GmbH, a strategic partnership with Q-Cells AG, or Q-Cells, and Renewable Energy Corporation ASA, or REC. The Company consolidates the financial statements of EverQ. The functional currency for Evergreen Solar GmbH and EverQ is the Euro. Revenues and expenses of Evergreen Solar GmbH and EverQ are translated into U.S. dollars at the average rates of exchange during the quarter, and assets and liabilities are translated into U.S. dollars at quarter-end rates of exchange.
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 is subject to risks common to companies in the high-technology and energy industries including, but not limited to, development by the Company or its competitors of new technological innovations, dependence on key personnel, protection of proprietary technology and compliance with government regulations. Any delay in the Company’s plan to scale its capacity may result in increased costs and could impair business operations.
For the quarter and year-to-date periods ended July 1, 2006, the Company has presented a gross margin subtotal in its condensed consolidated statement of operations, and has similarly presented an equivalent subtotal for the comparative periods in 2005.
Stock-based Compensation
On January 1 2006, the Company adopted the provisions of Statement of Financial Accounting Standards No. 123—revised 2004, “Share-Based Payment” and related interpretations (“SFAS 123R”). SFAS 123R requires entities to measure compensation cost arising from the grant of share-based payments to employees at fair value and to recognize such cost in income over the period during which the employee is required to provide service in exchange for the award, usually the vesting period. The Company selected the modified prospective method for implementing SFAS 123R and began applying the provisions to stock-based awards granted on or after January 1, 2006, plus any unvested awards granted prior to January 1, 2006. Stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense on a straight-line basis over the awards’ service periods, which is the vesting periods, less estimated forfeitures. The valuation provisions of SFAS 123R apply to new grants and to grants that were outstanding as of the date of adoption. Estimated compensation for grants that were outstanding as of the effective date will be recognized over the remaining service period using the compensation cost estimated for the SFAS 123R pro forma disclosures for prior periods. See Note 6 for further

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information regarding the Company’s stock-based compensation assumptions and expenses, including pro forma disclosures for prior periods as if we had recorded stock-based compensation expense in accordance with SFAS 123R.
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 quarters and year-to-date periods ended July 2, 2005 and July 1, 2006 does not include approximately 23.3 million and 20.5 million potential shares of common stock equivalents outstanding at July 2, 2005 and July 1, 2006, respectively, as their inclusion would be anti-dilutive.
3. Inventory
Inventory consisted of the following at December 31, 2005 and July 1, 2006 (in thousands):
                 
    December 31,     July 1,  
    2005     2006  
Raw materials
  $ 2,929     $ 8,525  
Work-in-process
    519       2,516  
Finished goods
    186       826  
 
           
 
  $ 3,634     $ 11,867  
 
           
4. Fixed Assets
Fixed assets consisted of the following at December 31, 2005 and July 1, 2006 (in thousands):
                         
    Useful     December 31,     July 1,  
    Life     2005     2006  
Laboratory and manufacturing equipment
  3-7 years   $ 28,447     $ 41,775  
 
                       
Computer and office equipment
  3-7 years     1,235       1,918  
 
                       
Leasehold improvements
  Lesser of 15 to 20 years or lease term     8,360       8,360  
 
                       
Land
    N/A       599       661  
 
                       
Buildings
  15 years           23,741  
 
                       
Assets under construction
            43,199       56,947  
 
                   
 
            81,840       133,402  
Less: Accumulated depreciation
            (10,410 )     (13,740 )
 
                   
 
          $ 71,430     $ 119,662  
 
                   
5. Guarantor Arrangements
The following is a summary of the Company’s agreements that are within the scope of FASB Interpretation No. 45 “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.”

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Product Warranty
The Company’s current standard product warranty includes a two-year warranty period for defects in material and workmanship and a 25-year warranty period for declines in power performance. The Company has provided for estimated future warranty costs of $705,000, representing its best estimate of the likely expense associated with fulfilling its obligations under such warranties. Given the Company’s limited operating history, prior to the first quarter of 2005, the Company used historical industry solar panel failure rates, adjusted for the differences and uncertainties associated with its manufacturing process, as a basis for the accrued warranty costs. However, since the Company has not incurred any charges to date against its warranty accrual, the Company chose not to add to its warranty accrual for the quarter and year-to-date periods ended July 1, 2006 as the Company believes the accrual reflects its best estimate of warranty costs on products sold to date. The Company engages in product quality programs and processes, including monitoring and evaluating the quality of component suppliers, in an effort to ensure the quality of its product and reduce its warranty exposure. The Company’s warranty obligation will be affected not only by its product failure rates, but also the costs to repair or replace failed products and potentially service and delivery costs incurred in correcting a product failure. If the Company’s actual product failure rates, repair or replacement costs, service or delivery costs differ from these estimates, accrued warranty costs would be adjusted in the period that such events or costs become known.
Indemnification Agreements
The Company enters into standard indemnification agreements in its ordinary course of business. Pursuant to these agreements, the Company indemnifies, holds harmless, and agrees to reimburse the indemnified party for losses suffered or incurred by the indemnified party, generally our business partners, customers, directors and officers. The term of these indemnification agreements is generally perpetual any time after execution of the agreement. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is unlimited. However, the Company has never incurred costs to defend lawsuits or settle claims related to these indemnification agreements. The Company believes the estimated fair value of such agreements is minimal.
EverQ Debt Guarantee
In November 2005, a Credit Agreement (the “Credit Agreement”) was entered into between EverQ, Q-Cells, Evergreen and a syndicate of banks led by Deutsche Bank Aktiengesellschaft (“Deutsche Bank”) and Bayerische Hypo-und Vereinsbank AG. The Credit Agreement provides EverQ with aggregate borrowing availability of up to 22.5 million Euro comprised as follows: (i) a long-term loan facility amounting to 8.0 million Euro, (ii) a short-term loan facility amounting to 12.0 million Euro and (iii) a short-term revolving credit facility amounting to 2.5 million Euro. Pursuant to the Credit Agreement, the Company has agreed to guarantee EverQ’s repayment obligations under the Credit Agreement. As of July 1, 2006, EverQ had total obligations outstanding under this Credit Agreement of 14.8 million Euro ($18.9 million at July 1, 2006 exchange rates).
Letters of Credit
The Company maintains a letter of credit for the benefit of a landlord of its manufacturing facility in Marlboro, Massachusetts for $414,000, which is required under the terms of the lease and expires upon termination of the lease in 2010. In addition, EverQ maintains a guarantee for equipment for an equipment vendor totaling approximately $0.5 million Euro (approximately $0.6 million at July 1, 2006 exchange rates). The amount of cash guaranteeing the letters of credit is classified as restricted cash in the Company’s balance sheet. To the extent that EverQ’s cash balance is not sufficient to cover the letters of credit, availability under EverQ’s working capital line of credit facility with Deutsche Bank is reduced by the amount of this shortfall.
6. Stock-Based Compensation
The following table presents stock-based compensation expense included in the Company’s consolidated statements of operations (in thousands):
                 
            Year-to-date  
    Quarter Ended     Period Ended  
    July 1, 2006     July 1, 2006  
Cost of product revenues
  $ 126     $ 239  
Research and development expenses
    457       786  
Selling, general and administrative expenses
    1,263       1,988  

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The Company estimates the fair value of stock options using the Black-Scholes valuation model. Key input assumptions used to estimate the fair value of stock options include the exercise price of the award, the expected option term, the expected volatility of the Company’s stock over the option’s expected term, the risk-free interest rate over the option’s expected term, and the Company’s expected annual dividend yield. The Company believes that the valuation technique and the approach utilized to develop the underlying assumptions are appropriate in calculating the fair values of the Company’s stock options granted during the quarter and year-to-date periods ended July 1, 2006. Estimates of fair value are not intended to predict actual future events or the value ultimately realized by persons who receive equity awards. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option valuation model with the following weighted-average assumptions:
                 
    Year-to-date     Year-to-date  
    Period Ended     Period Ended  
    July 2, 2005     July 1, 2006  
Expected option term (years)
    7.00       6.25  
Expected volatility factor
    90 %     130 %
Risk-free interest rate
    4.0 %     4.9%-5.1 %
Expected annual dividend yield
    0 %     0 %
The Company’s expected option term assumption was determined using the simplified method for estimating expected option life, which qualify as “plain-vanilla” options. The expected stock volatility factor was determined using historical daily price changes of the Company’s common stock. The Company bases the risk-free interest rate that is used in the option valuation model on U.S. Treasury securities issued with maturities similar to the expected term of the options. The Company does not anticipate paying any cash dividends in the foreseeable future and therefore uses an expected dividend yield of zero in the option valuation model. The Company estimates forfeitures at the time of grant and revises those estimates in subsequent periods if actual forfeitures differ from those estimates. The Company uses historical data to estimate pre-vesting option forfeitures and records stock-based compensation expense only for those awards that are expected to vest.
Prior to the adoption of SFAS 123R on January 1, 2006, the Company accounted for its stock-based employee compensation plans under APB Opinion No. 25. Accordingly, no compensation cost was recorded as all options granted had an exercise price of at least equal to the fair market value of the underlying common stock on the date of the grant.
The Company had previously adopted the provisions of Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation,” (“SFAS 123”), as amended by SFAS No. 148, “Accounting for Stock-Based Compensation—Transition and Disclosure” through disclosure only. The following table illustrates the effects on net loss and net loss per share for the quarter and year-to-date periods ended July 2, 2005 as if the Company had applied the fair value recognition provisions of SFAS 123R to share-based employee awards.
                                 
    Quarter Ended     Year-to-Date Period Ended  
    July 2, 2005     July 2, 2005  
            Net Loss             Net Loss  
            Per             Per  
            Basic & Diluted             Basic & Diluted  
    Net Loss     Share     Net Loss     Share  
 
                           
Net loss attributable to common stockholders, as reported
  $ (4,493 )   $ (0.07 )   $ (7,712 )   $ (0.13 )
Deduct: Total stock-based employee compensation expense determined under the fair-value-based method for all awards
    (763 )     (0.01 )     (1,473 )     (0.03 )
 
                       
Pro forma net loss
  $ (5,256 )   $ (0.08 )   $ (9,185 )   $ (0.16 )
 
                       

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Stock Incentive Plans
The Company is authorized to issue up to 10,650,000 shares of common stock pursuant to its Amended and Restated 2000 Stock Option and Incentive Plan (the “2000 Plan”). The purpose is to encourage employees and other individuals who render services to the Company by providing opportunities to purchase stock in the Company. The 2000 Plan authorizes the issuance of incentive stock options, nonqualified stock options, restricted stock awards, stock appreciation rights, performance units and performance shares. All options granted will expire ten years from their date of issuance. Incentive stock options generally have a four-year vesting period from their date of issuance and nonqualified options generally vest immediately upon their issuance.
Stock option activity under the Company’s stock option plan for the year-to-date period ended July 1, 2006 is summarized as follows:
                 
            Weighted-  
            Average  
    Shares     Exercise Price  
Outstanding at January 1 , 2006
    6,049,529     $ 3.15  
 
           
Granted
    623,000       14.56  
Exercised
    (750,273 )     2.37  
Terminated
    (164,712 )     4.01  
 
           
Outstanding at July 1, 2006
    5,757,544     $ 4.53  
 
           
The following table summarizes information about stock options outstanding at July 1, 2006:
                                                     
                        Options Outstanding   Options Exercisable
                        Weighted                
                        Average   Weighted           Weighted
Range of           Remaining   Average           Average
Exercise   Number   Contractual   Exercise   Number   Exercise
Prices   Outstanding   Life (Years)   Price   Exercisable   Price
$
0.65
 -   $ 1.60       365,200       5.73       $ 1.33       274,575       $ 1.27  
 
1.61
 -     1.61       1,638,000       7.44       1.61       638,000       1.61  
 
1.68
 -     2.17       1,197,076       6.97       2.01       618,948       2.03  
 
2.19
 -     6.51       1,168,468       7.76       3.93       535,105       4.05  
 
6.53
 -     19.00       1,388,800       8.66       11.50       343,396       10.68  
 
                                                   
 
                                                   
 
                5,757,544       7.59       $4.53       2,410,024       $3.50  
 
                                                   
In addition to the stock option activity summarized in the table above, for the year-to-date period ending July 1, 2006, the Company also awarded 246,713 restricted shares of the Company’s common stock as part of its stock compensation plan. Additionally, on February 27, 2006, the Board of Directors of the Company authorized a non-recurring grant of up to an aggregate of 800,000 shares of the Company’s common stock as performance-based restricted share awards (the “Restricted Share Awards”) to the Company’s executive officers, which immediately vest upon the achievement of $300 million in revenue, such revenue to include 100% of the Company’s revenue and the Company’s pro rata share of any joint venture revenue, and certain gross margin and net income financial performance targets, achieved in one fiscal year. The Restricted Share Awards will expire after five years if they have not vested. The Company has assumed that none of the performance-based restricted share awards will vest and accordingly has not provided for compensation expense associated with the awards. The Company will evaluate the likelihood of reaching the performance requirements periodically.

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Restricted stock award activity under the Company’s stock plans for the year-to-date period ended July 1, 2006 is summarized as follows:
                 
            Weighted-  
            Average  
            Grant-date  
Nonvested Shares   Shares     Fair Value  
Outstanding at January 1 , 2006
    100,000     $ 10.42  
Granted
    1,046,713       14.82  
Vested
    (6,988 )     12.21  
Terminated
           
 
           
Outstanding at July 1, 2006
    1,139,725     $ 14.43  
 
           
The weighted average grant-date fair value of stock options granted during the quarter and year-to-date periods ended July 1, 2006 was $11.31 and $13.27, respectively. The aggregate intrinsic value of outstanding options as of July 1, 2006 was $49.9 million, of which $23.0 million were vested. The aggregate intrinsic value of outstanding options as of January 1, 2006 was $48.5 million, of which $25.7 million were vested. The aggregate intrinsic value of outstanding restricted stock awards, including performance-based awards, as of July 1, 2006 was $14.8 million. The intrinsic value of options exercised during the quarter and year-to-date period ended July 1, 2006 was $3.9 million and $8.9 million, respectively. As of July 1, 2006, there was $13.8 million of total unrecognized compensation cost related to unvested stock options granted under the Company’s stock plans. That cost is expected to be recognized over a weighted-average period of 2.5 years. Additionally, there was $4.1 million of total unrecognized compensation cost related to unvested restricted stock awards (excluding performance-based awards that have been assumed will not vest) under the Company’s stock plans which is expected to be recognized over a weighted-average period of 3.6 years.
In September 2000, the Company’s Board of Directors adopted a non-compensatory Employee Stock Purchase Plan (the “ESPP”). Under the ESPP, eligible employees of the Company who elect to participate are granted options to purchase common stock at a 15% discount from the market value of such stock. The ESPP provides semi-annual offering periods beginning each April 1 and October 1. For quarter ended April 1, 2006, employees paid the company $139,000 to purchase approximately 17,000 shares and the company recognized approximately $21,000 of compensation expense related to this ESPP activity. Compensation expense was calculated using the fair value of the employees’ purchase rights under the Black-Scholes model.
7. Stockholders’ Equity
The Company has two classes of capital stock: common and preferred. At July 1, 2006, 10,650,000 shares of common stock were authorized for issuance under the 2000 Plan and approximately 1.4 million shares were reserved for issuance upon conversion of outstanding warrants issued in connection with the Series A Private Placement and the Common Stock Private Placement.
In connection with the Series A convertible preferred stock financing transaction consummated in May 2003, Beacon Power Corporation purchased a warrant for $100,000, which was exercisable for 2,400,000 shares of the Company’s common stock at an exercise price of $3.37 per share. During 2005, Beacon Power Corporation sold this warrant to CRT Capital Group, and on February 8, 2006, CRT Capital Group exercised the Warrant to purchase 2,400,000 shares of the Company’s common stock resulting in proceeds to the Company of $8.1 million.
In connection with the Company’s Common Stock Private Placement consummated on June 21, 2004, the Company issued warrants to purchase up to 2,298,851 shares of its common stock to the investors participating in the financing as well as a warrant to purchase 125,000 shares of common stock to CRT Capital Group LLC, as compensation for CRT Capital Group’s services as the placement agent for the Common Stock Private Placement. The terms of the placement agent warrant are identical to the terms of the warrants issued to the investors participating in the Common Stock Private Placement. The warrants entitle the holders to shares of the Company’s common stock at an exercise price of $3.34. The warrants are exercisable at any time on or after December 22, 2004 and prior to June 22, 2009. On various dates during the year-to-date period ending July 1, 2006, holders of warrants associated with the Company’s Common Stock Private Placement exercised their warrants to purchase 964,541 shares of the Company’s common stock resulting in proceeds to the Company of approximately $3.2 million.
8. Segment Information
Statement of Financial Accounting Standards No. 131, “Disclosures about Segments of an Enterprise and Related Information” (“SFAS No. 131”), establishes standards for reporting information about operating segments. The following information is provided in accordance with the requirements of SFAS No. 131 and is consistent with how business results are reported internally to management.

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The Company has two reportable operating segments: Evergreen Solar Inc. and EverQ GmbH. The chief operating decision maker evaluates performance based on a number of factors, the primary measure being product revenue and gross profit. Information on segment assets is not disclosed as it is not reviewed by the chief operating decision maker. The purpose of EverQ is to develop and operate facilities to manufacture solar products based on the Company’s proprietary String Ribbon technology using fabrication processes that combine the Company’s, Q-Cells’ and REC’s manufacturing technologies. Evergreen Solar develops, manufactures and markets solar power products enabled by its proprietary String Ribbon technology.
The accounting principles applied at the operating segment level are generally the same as those applied at the consolidated financial statement level. All inter-segment sales and transfers are accounted for at market-based prices and are eliminated at the corporate consolidation level.
Segment Revenue and Gross Profit
Reportable segment information for the quarter and year-to-date periods ended July 2, 2005 and July 1, 2006 were as follows (in thousands):
                                 
    Quarter Ended     Year-to-date Period Ended  
    July 2,     July 1,     July 2,     July 1,  
    2005     2006     2005     2006  
Product revenue
                               
Evergreen Solar
  $ 10,679     $ 21,649     $ 20,966     $ 33,215  
EverQ
          10,658             10,658  
Eliminations
          (10,259 )           (10,259 )
 
                       
Total
  $ 10,679     $ 22,048     $ 20,966     $ 33,614  
 
                       
 
                               
Gross profit
                               
Evergreen Solar
  $ 661     $ 1,273     $ 1,013     $ 2,306  
EverQ
          (346 )           (2,821 )
 
                       
Total
  $ 661     $ 927     $ 1,013     $ (515 )
 
                       
Geographic Concentration of Revenue Information
Revenues are attributed to regions based on the location of customers. The following table summarizes the Company’s geographic and concentration of total external revenue:
                 
    Year-to-Date Period  
    July 2,     July 1,  
    2005     2006  
By geography:
               
U.S. distributors
    34 %     33 %
U.S. Government (research revenue)
    1 %     2 %
Germany
    65 %     63 %
All other
    0 %     2 %
 
           
 
    100 %     100 %
 
           
 
               
By customer:
               
Ralos Vertriebes
    0 %     16 %
Donauer Solartechnik
    16 %     12 %
Krannich Solartechnik
    23 %     7 %
All other
    61 %     65 %
 
           
 
    100 %     100 %
 
           
9. EverQ Investment Grants
On April 25, 2005, EverQ received notification that, subject to certain conditions, including receipt of European Union approval for a portion of the total grants, it will receive German government grants which, together with tax incentives expected to be received from German government authorities, would amount to approximately 28 million Euro ($35.8 million at July 1, 2006 exchange rates). As the grants are earned, EverQ records a deferred credit that will be amortized over the useful lives of the fixed assets for which the grants were used, in part, to acquire. As of July 1, 2006, total deferred grants were $23.1 million. The grants are subject to certain terms including, among other things, a minimum employment requirement of 350 people through December 31, 2007, and a requirement that

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EverQ remains in Thalheim, Germany through at least December 31, 2012, and are earned during the investment period ending on December 31, 2007. If such terms are not fully complied with, EverQ may have to refund a portion of the grants originally received.
As of July 1, 2005, total grants receivable were $17.1 million. EverQ has received approximately $6.7 million in grant funds to date.
10. Accumulated Other Comprehensive Loss
Accumulated comprehensive loss consists of unrealized gains and losses on available-for-sale securities and cumulative foreign currency translation adjustments. The following table presents the components of comprehensive income as of July 2, 2005 and July 1, 2006, respectively (in thousands):
                                 
    Quarter Ended     Year-to-Date Period Ended  
    July 2,     July 1,     July 2,     July 1,  
    2005     2006     2005     2006  
Net loss
  $ (4,493 )   $ (7,465 )   $ (7,712 )   $ (15,599 )
Other comprehensive income (loss):
                               
Unrealized gain (loss) on marketable securities
    12       (26 )     25       (64 )
Unrealized gain on permanent intercompany loans
          77             77  
Cumulative translation adjustments
    (819 )     1,042       (847 )     1,504  
 
                       
Total comprehensive loss
  $ (5,300 )   $ (6,372 )   $ (8,534 )   $ (14,082 )
 
                       
11. Long-Term Debt
On June 29, 2005, the Company issued Convertible Subordinated Notes (“Notes”) in the aggregate principal amount of $90.0 million. Interest on the Notes is payable semiannually at the annual rate of 4.375%. The Notes do not have required principal payments prior to maturity on July 1, 2012. However, the Notes are convertible at any time prior to maturity, redemption or repurchase, into shares of the Company’s common stock at an initial conversion rate of 135.3180 shares of common stock per $1,000 principal amount of Notes (equivalent to a conversion price of approximately $7.39 per share), subject to adjustment. On or after July 1, 2010, the Company may redeem the Notes for cash at the following prices expressed as a percentage of the principal amount:
         
Redemption Period   Price (%)
Beginning on July 1, 2010 and ending on June 30, 2011
    101.250  
Beginning on July 1, 2011 and ending on June 30, 2012
    101.625  
On July 1, 2012
    100.000  
The Company may redeem the Notes on or after July 6, 2008 and prior to July 1, 2010 only if the closing price of the Company’s common stock exceeds 130% of the then-current conversion price of the Notes for at least 20 trading days in a period of 30 consecutive trading days ending on the trading day prior to the date on which the Company provides notice of redemption. The Company may be required to repurchase the Notes upon a designated event (either a termination of trading or a change in control) at a price (which will be in cash or, in the case of a change in control, cash, shares of the Company’s common stock or a combination of both) equal to 100% of the principal amount of the Notes to be repurchased plus accrued interest. Upon a change in control, the Company may under certain circumstances be required to pay a premium on redemption which will be a number of additional shares of the Company’s common stock as determined by the Company’s stock price and the effective date of the change in control.
The Notes are subordinate in right of payment to all of the Company’s existing and future senior debt.
The Company incurred financing costs of approximately $3.1 million which are being amortized ratably over the term of the notes, which is seven years. For the quarter and year-to-date periods ended July 1, 2006, the Company recorded $1.1million and $2.2 million, respectively, in interest expense associated with the Notes.
EverQ Long-term Debt
EverQ entered into a certain Credit Agreement (the “Credit Agreement”) dated November 9, 2005, between EverQ, Q-Cells AG, Evergreen and a syndicate of banks led by Deutsche Bank Aktiengesellschaft and Bayerische Hypo-und Vereinsbank AG. The Credit Agreement provides EverQ with aggregate borrowing availability of up to 22.5 million Euro comprised as follows: (i) a long-term loan facility amounting to 8.0 million Euro, (ii) a short-term loan

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facility amounting to 12.0 million Euro and (iii) a short-term revolving credit facility amounting to 2.5 million Euro. The Facility A interest rate is the Interbank Offered Rate (“EURIBOR”) plus between 1.75% and 2.75% depending on whether EverQ meets certain financial targets specified in the Credit Agreement. The Facility B interest rate is EURIBOR plus 2.75% and the Facility C interest rate is 7.5%. In the event of a default by EverQ, Evergreen has agreed to relinquish certain rights to certain assets of EverQ which collateralize EverQ’s repayment obligations under the Credit Facility. In addition, pursuant to the Credit Agreement, Evergreen has agreed to guarantee EverQ’s repayment obligations under the Credit Agreement. As of July 1, 2006, the total amount of debt outstanding relating to the Credit Agreement was 14.8 million Euro (approximately $18.9 million at July 1, 2006 exchange rates); of which 6.8 million Euro (approximately $8.7 million at July 1, 2006 exchange rates) is classified as current in the Company’s balance sheet.
Evergreen Solar Loan to EverQ
In November 2005, the Company entered into a Shareholder Loan Agreement to provide EverQ with a loan totaling 8.0 million Euro. Under the terms of the Shareholder Loan Agreement, the loan bears a fixed interest rate of 5.4%, has a term of four years and is subordinated to all other outstanding debt of EverQ. The loan must be repaid in full if the Company’s ownership interest in EverQ falls below 50% or if the Master Joint Venture Agreement of EverQ is terminated under certain circumstances. As of July 1, 2006, 8.0 million Euro ($10.2 million at July 1, 2006 exchange rates) of the loan was outstanding and is eliminated in the Company’s balance sheet consolidation. Additionally, during the second quarter of 2006, the Company provided EverQ with additional loans totaling 9.8 million EURO ($12.5 million at July 1, 2006 exchange rates). In addition to the loans provided by the Company, EverQ received loans from each of Q-Cells and REC in equal amounts under the same terms as the Company loans. The terms of the additional loans provided to EverQ during the second quarter are substantially the same as the terms associated with the Company’s loan granted earlier in 2006.
12. Recent Accounting Pronouncements
In November 2004, the FASB issued SFAS No. 151, Inventory Costs, an amendment of ARB No. 43, Chapter 4 (“SFAS 151”). SFAS 151 amends the guidance in Accounting Revenue Bulletin (“ARB 43”), Chapter 4, “Inventory Pricing,” to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage). Paragraph 5 of ARB 43, Chapter 4, previously stated that “... under some circumstances, items such as idle facility expense, excessive spoilage, double freight, and rehandling costs may be so abnormal as to require treatment as current period charges . . .”. This Statement requires that those items be recognized as current-period charges regardless of whether they meet the criterion of “so abnormal.” In addition, SFAS 151 requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. The adoption of SFAS 151, effective January 1, 2006, did not have a material impact on the Company’s financial position, results of operations and cash flows.
In February 2006, the FASB issued Statement of Financial Accounting Standards No. 155 (“SFAS 155”), “Accounting for Certain Hybrid Financial Instruments” which amends Statement of Financial Accounting Standards No. 133 (“SFAS 133”), “Accounting for Derivative Instruments and Hedging Activities” and Statement of Financial Accounting Standards No. 140 (“SFAS 140”), “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.” SFAS 155 simplifies the accounting for certain derivatives embedded in other financial instruments by allowing them to be accounted for as a whole if the holder elects to account for the whole instrument on a fair value basis. SFAS 155 also clarifies and amends certain other provisions of SFAS 133 and SFAS 140. SFAS 155 is effective for all financial instruments acquired, issued or subject to a remeasurement event occurring in fiscal years beginning after September 15, 2006. Earlier adoption is permitted, provided the Company has not yet issued financial statements, including for interim periods, for that fiscal year. The Company does not expect the adoption of SFAS 155 to have a material impact on its consolidated financial position, results of operations or cash flows.
In June 2006, the FASB issued FASB Interpretation (FIN) 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with FASB Statement of Financial Accounting Standards (SFAS) 109, “Accounting for Income Taxes.” This Interpretation defines the minimum recognition threshold a tax position is required to meet before being recognized in the financial statements. FIN 48 is effective for fiscal years beginning after December 15, 2006. The Company is currently evaluating the effect that the adoption of FIN 48 will have on its financial position and results of operations.
In June 2006, the FASB ratified the consensus reached by the EITF on Issue No. 06-3, How Taxes Collected from Customers and Remitted to Government Authorities Should Be Presented in the Income Statement (That is, Gross

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versus Net Presentation) (“EITF 06-3”). EITF 06-03 includes any tax assessed by a government authority that is directly imposed on a revenue-producing transaction between a seller and a customer and may include, but is not limited to, sales, use, value added, and some excise taxes. EITF 06-3 concludes that the presentation of taxes on either a gross (included in revenues and costs) or a net (excluded from revenues) basis is an accounting policy decision that should be disclosed. In addition, for any such taxes that are reported on a gross basis, a company should disclose the amounts of those taxes in interim and annual financial statements for each period for which an income statement is presented if those amounts are significant. The provisions of EITF 06-3 should be applied to financial reports for interim and annual reporting periods beginning after December 15, 2006, with earlier adoption permitted. The Company is currently evaluating the provisions of EITF 06-3.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Condensed Consolidated Financial Statements and the related notes that appear elsewhere in this document.
EXECUTIVE OVERVIEW
We develop, manufacture and market solar power products enabled by our proprietary String Ribbontm technology that provide reliable and environmentally clean electric power throughout the world. String Ribbon technology is an efficient process for manufacturing crystalline silicon wafers, which are the primary components of photovoltaic cells. Photovoltaic cells generate direct current electricity when exposed to sunlight. We believe that our proprietary and patented technologies offer significant design, cost and manufacturing advantages over competing solar power technologies.
Our revenues today are primarily derived from the sale of solar modules, which are assemblies of photovoltaic cells that have been electrically interconnected and laminated in a physically durable and weather-tight package. We sell our products using distributors, systems integrators and other value-added resellers, who often add value through system design by incorporating our modules with electronics, structures and wiring systems. Applications for our products include on-grid generation, in which supplemental electricity is provided to an electric utility grid, and off-grid generation for markets where access to conventional electric power is not economical or physically feasible. Our products are currently sold primarily in Germany and the United States.
Our product sales are currently constrained by our manufacturing capacity at our Marlboro and EverQ facilities. Despite having an installed capacity of approximately 15 MW in our Marlboro factory, it is our intention to dedicate a sizable portion of our Marlboro factory capacity to developing new technologies with the goal of further improvements in operations, and therefore, we do not expect to operate at the full manufacturing capacity at our Marlboro facility. Furthermore, despite expected substantial capital expenditures at our Marlboro facility, we do not expect to significantly expand our manufacturing capacity, rather, such expenditures will be used to demonstrate improved technologies on our Marlboro pilot production line.
In January 2005, we entered into a strategic partnership agreement with Q-Cells AG, or Q-Cells. Q-Cells is the world’s largest independent manufacturer of solar cells, whose crystalline silicon solar cells are among the highest efficiency polycrystalline solar cells commercially available. The agreement provided for the organization and capitalization of EverQ GmbH, or EverQ, which is a limited liability company incorporated under the laws of Germany and our consolidated subsidiary. In November 2005, Renewable Energy Corporation ASA, or REC, based in Hovik, Norway and one of the world’s largest manufacturers of solar-grade silicon and multicrystalline wafers, joined the EverQ partnership. The purpose of EverQ is to develop and operate facilities to manufacture, market and sell solar products based on our proprietary String Ribbon technology using fabrication processes that combine our, Q-Cells’ and REC’s manufacturing technologies. We believe that EverQ will accelerate the availability of wafer, cell and module manufacturing capacity based on String Ribbon technology and provide greater access to the European solar market. EverQ began production during the first quarter of 2006 and shipped its first product to customers in April 2006. We expect EverQ’s initial 30MW facility to be at full capacity by the fourth quarter of 2006.
On June 5, 2006, we announced the execution of a binding memorandum of understanding regarding new polysilicon supply agreements sufficient to allow EverQ to increase its solar module production capacity. EverQ currently expects to ramp production capacity from about 30MW in 2006 to approximately 300MW by 2010 and possibly as early as the second half of 2009. The supply agreements are expected to be finalized and become effective during the third quarter of 2006. EverQ expects to expand its Thalheim operations with the construction of a second integrated wafer, cell and module factory with a capacity of approximately 50MW. Subject to final approval of investment grants, construction of this facility is anticipated to commence in the third quarter of 2006. Production is expected to begin in the first half of 2007 and reach full capacity by year-end 2007. It is anticipated that the Company will continue to purchase all modules manufactured by EverQ.
In conjunction with the implementation of the new supply agreements and consistent with the existing joint venture documents, Evergreen Solar, Q-Cells and REC have agreed to become equal partners in EverQ. Subsequent to the execution of the definitive agreements contemplating the change in ownership structure of EverQ, we expect that we will account for our investment in EverQ under the equity method of accounting.

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CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of consolidated financial statements in accordance with generally accepted accounting principals requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities, if applicable. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. In addition to the critical accounting policies disclosed in our Annual Report on Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 2005, we believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements.
Warranty
Given our limited operating history, prior to the first quarter of 2005, we used historical industry solar panel failure rates, adjusted for the differences and uncertainties associated with our manufacturing process, as a basis for the accrued warranty costs. However, since we have not incurred any charges to date against our warranty accrual, we chose not to add to our warranty accrual this period as we believe that the accrual reflects our best estimate of warranty costs on products sold to date. We intend to maintain this policy until future evidence or claims history enables us to more accurately estimate our exposure. We engage in product quality programs and processes, including monitoring and evaluating the quality of component suppliers, in an effort to ensure the quality of our product and reduce our warranty exposure. Our warranty obligation will be effected not only by our product failure rates, but also the costs to repair or replace failed products and potentially service and delivery costs incurred in correcting a product failure. If our actual product failure rates, repair or replacement costs, service or delivery costs differ from these estimates, accrued warranty costs would be adjusted in the period that such events or costs become known.
Sales Discount Allowance
During the first quarter of 2005, we began offering certain customers early payment discounts as an incentive aimed at improving our short-term cash flow. We estimate the allowance for sales discounts based on actual and historical payment practices of customers, and record provisions at the time when revenue is recognized. While our methodology takes into account these uncertainties, adjustments in future periods may be required as our customers change their payment practices. During the first quarter of 2006, we discontinued offering such sales discounts to our customers. For the year-to-date period ended July 1, 2006, total sales discounts taken was $79,000.
Stock-based Compensation
On January 1 2006, we adopted the provisions of Statement of Financial Accounting Standards No. 123—revised 2004, “Share-Based Payment” and related interpretations (“SFAS 123R”). SFAS 123R requires entities to measure compensation cost arising from the grant of share-based payments to employees at fair value and to recognize such cost in income over the period during which the employee is required to provide service in exchange for the award, usually the vesting period. We selected the modified prospective method for implementing SFAS 123R and began applying the provisions to stock-based awards granted on or after January 1, 2006, plus any unvested awards granted prior to January 1, 2006. Stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense on a straight-line basis over the awards’ service periods, which is the vesting periods, less estimated forfeitures. The valuation provisions of SFAS 123R apply to new grants and to grants that were outstanding as of the date of adoption. Estimated compensation for grants that were outstanding as of the effective date will be recognized over the remaining service period using the compensation cost estimated for the SFAS 123R pro forma disclosures for prior periods. See Note 6 of our condensed consolidated financial statements for further information regarding our stock-based compensation assumptions and expenses, including pro forma disclosures for prior periods as if we had recorded stock-based compensation expense in accordance with SFAS 123R.
RESULTS OF OPERATIONS
Revenues. Total revenues for the Company consist of revenues from the sale of products and, to a lesser extent, research revenues. Product revenues consist of revenues from the sale of solar cells, panels and systems. 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

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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, compensation costs associated with the adoption of SFAS 123R, warranty costs, and other support expenses associated with the manufacture of our solar power products.
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, compensation costs associated with the adoption of SFAS 123R, consulting expenses, and prototype costs related to the design, engineering, development, testing and enhancement of our products, manufacturing equipment 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.
Selling, general and administrative expenses. Selling, general and administrative expenses consist primarily of salaries and related personnel costs, compensation costs associated with the adoption of SFAS 123R, professional fees, rent, insurance and other selling and administrative 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.
Minority interest. For the quarter and year-to-date period ended July 1, 2006, EverQ incurred losses from continuing operations of $2.6 million and $6.7 million, respectively, all of which are consolidated in our financial statements. However, $0.9 million and $2.4 million represent the portion of EverQ losses attributable to the Q-Cells and REC minority interest for the quarter and year-to-date period ended July 1, 2006, respectively.
Comparison of Quarters Ended July 1, 2006 and July 2, 2005
Revenues. Our product revenues for the quarter ended July 1, 2006 were $22.0 million, an increase of $11.4 million, or 106%, from $10.7 million for the quarter ended July 2, 2005. The increase in product revenues was due primarily to sales of product manufactured by EverQ, which accounted for approximately $10.7 million of total revenue. It is anticipated that we will continue to purchase all modules manufactured by EverQ, which will substantially increase product revenue for the foreseeable future. Research revenues for the quarter ended July 1, 2006 were $354,000, an increase of $354,000 from zero for the quarter ended July 2, 2005. We did not have any active research contracts during the second quarter of 2005; the current active research contract with the National Renewable Energy began during the third quarter of 2005.
Product sales to Germany accounted for approximately 62% of total revenues for the quarter ended July 1, 2006, and 61% for the quarter ended July 2, 2005. We anticipate that international sales will continue to account for a significant portion of our product revenues for the foreseeable future. Currently, all European sales are denominated in Euros, which increases our risk of incurring 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.

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The following table summarizes our concentration of total revenue:
                 
    Quarter Ended        
    July 2,     July 1,  
    2005     2006  
By geography:
               
U.S. distributors
    39 %     33 %
U.S. Government (research revenue)
    0 %     2 %
Germany
    61 %     62 %
All other
    0 %     3 %
 
           
 
    100 %     100 %
 
           
 
               
By customer:
               
Ralos Vertriebes
    0 %     20 %
Goldbeck Solar
    0 %     13 %
Donauer Solartechnik
    14 %     10 %
Krannich Solartechnik
    15 %     4 %
All other
    71 %     53 %
 
           
 
    100 %     100 %
 
           
Cost of product revenues and gross margin. Our cost of product revenues for the quarter ended July 1, 2006 was $21.1 million, an increase of $11.1 million, or 111%, from $10.0 million for the quarter ended July 2, 2005. Most of the increase was due to cost of product revenues associated production at EverQ, which accounted for approximately $11.0 million of total cost of product revenue. Cost of product revenues, in terms of absolute dollars, is expected to increase substantially for the foreseeable future as EverQ production increases. Product gross margin for the quarter ended July 1, 2006 was 4.1% versus 6.2% for the quarter ended July 2, 2005. The expected year-over-year decrease in product gross margin primarily resulted from (i) negative gross margin recorded by EverQ associated with incremental manufacturing start-up costs, (ii) incremental costs associated with completing the conversion to thin-wafer production in Marlboro and (iii) increased stock-based compensation expense related to the adoption of SFAS 123R.
Due to the relatively large component of fixed costs, product gross margins generated at our Marlboro facility are highly dependent on sales volumes and prices. We realize positive gross margins when our Marlboro manufacturing facility operates at near its target capacity of 15 megawatts. However, we expect that significant portions of manufacturing capacity at our Marlboro manufacturing facility will be dedicated to research and development programs for purposes of achieving faster commercialization of technology improvements, which will keep gross margins lower than could potentially be realized. Further improvements in gross margin will result from increases in manufacturing scale and technology improvements. For example, during 2006 we will demonstrate the capability of our quad-ribbon technology, which grows four wafers out of a single furnace compared to two wafers grown out of our current furnace technology and has the potential to significantly reduce the manufacturing cost of growing silicon wafers. Further capacity expansion beyond 15 megawatts as well as further process and technology improvements will be required to achieve overall profitability. We expect that EverQ will realize positive gross margin as the production facility approaches full capacity expected during the second half of 2006.
Research and development expenses. Our research and development expenses, for the quarter ended July 1, 2006 were $4.0 million, an increase of $1.3 million, or 50%, from $2.6 million for the quarter ended July 2, 2005. Approximately 87% of the increase was due mainly to increased labor, professional fees and materials costs associated with internal initiatives aimed to improve our manufacturing technology and activities associated with the planning for the next manufacturing capacity expansion, and most of the remainder of the increase was due to additional costs associated with expanded R&D office and laboratory space acquired during the first quarter of 2006.
Selling, general and administrative expenses. Our selling, general and administrative expenses for the quarter ended July 1, 2006 were $6.4 million, an increase of $3.4 million, or 114%, from $3.0 million for the quarter ended July 2, 2005. Approximately 48% of the increase was due to increased compensation costs associated with personnel and the adoption of SFAS 123R, approximately 36% of the increase was due to general and administration costs incurred by EverQ and most of the remainder was due to increases in legal fees, accounting fees and travel costs.
Other income. Other income for the period ended July 1, 2006 was comprised of $1.4 million in net foreign exchange gains, $1.3 million in interest income and $1.7 million in interest expense. Other income for the quarter

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ended July 2, 2005 consisted of $194,000 in net foreign exchange losses, $504,000 in interest income and $107,000 in interest expense. The increase in interest income was due to the larger cash, cash equivalents and marketable securities balances due to the 2005 common stock and subordinated convertible debt financings. Interest expense increased due to interest charges associated with the subordinated convertible debt issued in June 2005 and increased debt associated with the EverQ loan facility with Deutsche Bank.
Net loss. Net loss was $7.5 million and $4.5 million for the quarters ended July 1, 2006 and July 2, 2005, respectively.
Comparison of Year-to-Date Periods Ended July 1, 2006 and July 2, 2005
Revenues. Our product revenues for the year-to-date period ended July 1, 2006 were $33.6 million, an increase of $12.6 million, or 60%, from $21.0 million for the year-to-date period ended July 2, 2005. The increase in product revenues was due primarily to sales of product manufactured by EverQ, which accounted for approximately $10.7 million of total revenue. It is anticipated that we will continue to purchase all modules manufactured by EverQ, and as a result, will substantially increase our product revenue for the foreseeable future. Research revenues for the year-to-date period ended July 1, 2006 were $680,000, an increase of $445,000 from $235,000 for the year-to-date period ended July 2, 2005. Research revenue increased because the current active research contract with the National Renewable Energy began during the third quarter of 2005.
Product sales to Germany accounted for approximately 63% of total revenues for the year-to-date period ended July 1, 2006, and 65% for the year-to-date period ended July 2, 2005. We anticipate that international sales will continue to account for a significant portion of our product revenues for the foreseeable future. Currently, all European sales are denominated in Euros, which increases our risk of incurring 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.
The following table summarizes our concentration of total revenue:
                 
    Year-to-Date Period  
    July 2,     July 1,  
    2005     2006  
By geography:
               
   U.S. distributors
    34 %     33 %
   U.S. Government (research revenue)
    1 %     2 %
   Germany
    65 %     63 %
   All other
    0 %     2 %
 
           
 
    100 %     100 %
 
           
 
               
By customer:
               
   Ralos Vertriebes
    0 %     16 %
   Donauer Solartechnik
    16 %     12 %
   Krannich Solartechnik
    23 %     7 %
   All other
    61 %     65 %
 
           
 
    100 %     100 %
 
           
Cost of product revenues and gross margin. Our cost of product revenues for the year-to-date period ended July 1, 2006 was $34.1 million, an increase of $14.2 million, or 71%, from $20.0 million for the year-to-date periods ended July 2, 2005. Most of the increase was due to cost of product revenues associated with EverQ production, which accounted for approximately $13.5 million of total cost of product revenue. Cost of product revenues, in terms of absolute dollars, is expected to increase substantially for the foreseeable future as EverQ production increases. Product gross margin for the year-to-date period ended July 1, 2006 was negative 1.5% versus 4.8% for the year-to-date period ended July 2, 2005. The expected year-over-year decrease in product gross margin primarily resulted from (i) negative gross margin recorded by EverQ associated with incremental manufacturing start-up costs, (ii) incremental costs associated with completing the conversion to thin-wafer production in Marlboro and (iii) increased stock-based compensation expense related to the adoption of SFAS 123R.
Research and development expenses. Our research and development expenses, for the year-to-date period ended July 1, 2006 were $8.2 million, an increase of $3.4 million, or 72%, from $4.7 million for the year-to-date period ended July 2, 2005. Approximately 70% of the increase was due mainly to increased labor (including expenses related to the adoption of SFAS 123R), professional fees and materials costs associated with internal initiatives aimed to improve our manufacturing technology and activities associated with the planning for the next manufacturing capacity expansion

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and most of the remainder of the increase was due to additional costs associated with expanded R&D office and laboratory space acquired during the first quarter of 2006.
Selling, general and administrative expenses. Our selling, general and administrative expenses for the year-to-date period ended July 1, 2006 were $10.8 million, an increase of $5.8 million, or 118%, from $5.0 million for the year-to-date period ended July 2, 2005. Approximately 45% of the increase was due to increased compensation costs associated with personnel and the adoption of SFAS 123R, approximately 32% of the increase was due to general and administration costs incurred by EverQ and most of the remainder was due to increases in legal fees, accounting fees and travel costs.
Other income. Other income for the period ended July 1, 2006 was comprised of $2.0 million in net foreign exchange gains, $2.6 million in interest income and $3.1 million in interest expense. Other income for the year-to-date periods ended July 2, 2005 consisted of $86,000 in net foreign exchange gains, $750,000 in interest income and $195,000 in interest expense. The increase in interest income was due to the larger cash, cash equivalents and marketable securities balances due to the 2005 common stock and subordinated convertible debt financings. Interest expense increased due to interest charges associated with the subordinated convertible debt issued in June 2005 and increased debt associated with the EverQ loan facility with Deutsche Bank.
Net loss. Net loss was $15.6 million and $7.7 million for the year-to-date periods ended July 1, 2006 and July 2, 2005, respectively.
Liquidity and Capital Resources
We have historically financed our operations and met our capital expenditure requirements primarily through sales of our capital stock, issuance of debt and, to a lesser extent, product revenues. Research and development expenditures have historically been partially funded by government research contracts. At July 1, 2006, we had working capital of $101.3 million, including cash, cash equivalents and marketable securities of $92.8 million.
Net cash used in operating activities was $20.8 million for the year-to-date period ended July 1, 2006, as compared to $2.0 million for the year-to-date period ended July 2, 2005. Cash used in operating activities in the period ended July 1, 2006 was due primarily to net losses of $15.6 million offset by non-cash changes of $6.3 million, increases in accounts receivable of $14.2 million, increases in other current assets of $8.1 million and increases in inventory of $8.0 million, offset by increases in accounts payable and accrued expenses of $15.7 million, net decrease in grants of $6.4 million. The use of cash for operating activities in the year-to-date period ended July 2, 2005 was due primarily to losses from operations of $7.7 million and an increase in prepaid inventory of $1.5 million, offset by increases in accounts payable of $5.0 million and depreciation expense of $1.9 million.
We have not experienced any significant trends in accounts receivable other than changes relative to the increase in revenue. Fluctuations in accounts receivable from period to period relative to changes in revenue are a result of timing of customer invoicing and receipt of payments from customers. For the second quarter of 2006, Days Sales Outstanding (DSO) was approximately 75 days and approximately 32 days for the fourth quarter of 2005. The increase in DSO in the second quarter of 2006 was due mainly to a large proportion of shipments occurring towards the end of the quarter.
Net cash used in investing activities was $23.5 million for the year-to-date period ended July 1, 2006, as compared to $18.1 million for the year-to-date period ended July 2, 2005. The increase in net cash used in investing activities was due primarily to purchases of equipment associated with the construction of the EverQ factory offset by proceeds from the sale of marketable securities.
Net cash provided by financing activities was $39.6 million for the year-to-date period ended July 1, 2006, as compared to $153.4 million for the year-to-date period ended July 2, 2005. Net cash provided by financing activities for the quarter ended July 1, 2006 was due to proceeds from increased outstanding debt associated with the EverQ loan facilities and proceeds from the exercise of stock options and warrants. The cash provided by financing activities during the year-to-date period ended July 2, 2005 primarily represented net proceeds from common stock issued in conjunction with the common stock public offering completed in February 2005 as well as the Convertible Subordinated Debt issuance in June 2005 and capital contributions to EverQ from the minority interest holder.
Capital expenditures were $39.6 million (net of $7.2 million in reclassification of deposits on fixed assets under construction) for the year-to-date period ended July 1, 2006 as compared to $7.9 million for the year-to-date period ended July 2, 2005. Capital expenditures for the period ended July 1, 2006 were primarily for equipment needed for

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our manufacturing facility and equipment for EverQ. As of July 1, 2006, outstanding commitments for capital expenditures for both Evergreen and EverQ were approximately $13 million. Nearly all of our commitments for capital expenditures are associated with infrastructure improvements and equipment purchases for our and EverQ’s manufacturing facilities.
As contemplated by the memorandum of understanding to increase the capacity of EverQ, the second silicon supply agreement that will be provided by REC and expected to be executed during the third quarter of 2006, will require EverQ to make a total prepayment of $87 million. The EverQ capacity expansion, including the $87 million prepayment associated with the second silicon supply agreement, will be funded by capital increases of REC, Q-Cells and us, as well as expected funds from government grants and debt facilities secured with external banks.
We believe that our current cash, cash equivalents and marketable securities will be sufficient to fund our planned capital programs, fund our expected commitments with EverQ’s second 50 megawatt facility contemplated by the memorandum of understanding to increase the capacity EverQ and to fund our operating expenditures over the next twelve months. We may be required to raise additional capital to 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, further develop and expand our manufacturing operations and distribution network, or otherwise respond to competitive pressures would be significantly limited.
Off-Balance Sheet Arrangements
Other than our subordinated convertible notes which holders may convert into shares of our common stock at any time, we do not have any other special purpose entities or off-balance sheet financing arrangements. Except as discussed above, there have been no material changes since December 31, 2005 to 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, 2005, as filed with the Securities and Exchange Commission on March 16, 2006.
Contractual Obligations
There have been no material changes since December 31, 2005 to our contractual obligations reported in Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2005 as filed with the Securities and Exchange Commission on March 16, 2006.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
INTEREST RATE RISK
We do not use derivative financial instruments to manage interest rate risk. Interest income earned on our cash, cash equivalents and marketable securities 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 immediate available liquidity or short-term nature of these financial instruments. For these reasons, a hypothetical 100-basis point adverse change in interest rates would not have a material effect on our consolidated financial position, results of operations or cash flows.
FOREIGN CURRENCY EXCHANGE RATE RISK
For the year-to-date period ended July 1, 2006, all of our product sales into Europe were denominated in Euros, which exposes us to foreign exchange gains or losses. Product sales into Europe accounted for approximately 63% of total revenues for the year-to-date period ended July 1, 2006. Since our Euro-denominated sales represent a significant portion of our total revenue, a hypothetical 10 percent strengthening in exchange rates against the U.S. dollar would have had a material effect on our consolidated financial position, reducing revenue and earnings by approximately 6%. 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 will be exposed to currency gains or losses. Additionally, EverQ is exposed to changes in foreign currency exchange rates primarily related to purchases of goods and services denominated in currencies other than the Euro.
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 defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) 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 are effective, in all material respects, to ensure that information required to be disclosed in

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the reports that we file and submit under the Exchange Act (i) is recorded, processed, summarized and reported as and when required and (ii) is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Internal Control Over Financial Reporting
During the second quarter of 2006, there have been no significant 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.
Limitations Inherent in all Controls
The Company’s management, including the Chief Executive Officer and Chief Financial Officer, recognize that our disclosure controls and our internal control over financial reporting (discussed above) cannot prevent all errors or all attempts at fraud. Any controls system, no matter how well crafted and operated, can only provide reasonable, and not absolute, assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Because of the inherent limitations in any control system, no evaluation or implementation of a control system can provide complete assurance that all control issues and all possible instances of fraud have been or will be detected.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are not a party to any material legal proceedings within the meaning of Item 103 of Regulation S-K.
ITEM 1A. RISK FACTORS
Certain Factors Which May Affect Future Results
The factors discussed below are cautionary statements that identify important factors that could cause actual results to differ materially from those anticipated by the forward-looking statements contained in this report. For more information regarding the forward-looking statements contained in this report, see “Concerns Regarding Forwarding Looking Statements” at the beginning of this report. You should carefully consider the risks and uncertainties described below, together with all of the other information included in this report, in considering our business and prospects. The risks and uncertainties described below are not the only ones facing Evergreen Solar. Additional risks and uncertainties not presently known to us also may impair our business operations. The occurrence of any of the following risks could adversely affect our business, financial condition or results of operations.
Risks Relating to Our Industry, Products, Financial Results and Operations
Evaluating our business and future prospects may be difficult due to the rapidly changing market landscape.
There is limited historical information available about our company upon which you can base your evaluation of our business and prospects. Although we were formed in 1994 to research and develop crystalline silicon technology for use in manufacturing solar power products and began shipping product from our pilot manufacturing facility in 1997, we first shipped commercial products from our Marlboro manufacturing facility in September 2001. Relative to the entire solar industry, we have shipped only a limited number of solar power modules and have recognized limited revenues.
The market we are addressing is rapidly evolving and is experiencing technological advances and new market entrants. Our future success will require us to scale our manufacturing capacity significantly beyond the capacity of our Marlboro, Massachusetts manufacturing facility, and our business model and technology are unproven at significant scale. Moreover, EverQ, our strategic partnership with Q-Cells and REC, is only in the early stages of development and we have limited experience upon which to predict whether it will be successful. As a result, 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.

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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 $15.6 million for the year-to-date period ended July 1, 2006. Principally as a result of ongoing operating losses, we had an accumulated deficit of $108.6 million as of July 1, 2006. We expect to incur substantial losses for the foreseeable future, and we may never become profitable. Even if we do achieve profitability, we may be unable to sustain or increase our profitability in the future which could materially decrease the market value of our common stock. We expect to continue to make significant capital expenditures and anticipate that our expenses will increase substantially in the foreseeable future as we seek to:
    expand our manufacturing operations, whether domestically or internationally, including EverQ;
 
    develop our distribution network;
 
    continue to research and develop our products and manufacturing technologies;
 
    implement internal systems and infrastructure in conjunction with our growth; and
 
    hire additional personnel.
We 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.
We may need to raise significant additional capital in order to fund our operations and to continue to grow our business, which subjects us to the risk that we may be unable to maintain or grow our business as planned and that our stockholders may be subject to substantial additional dilution.
In order to satisfy our existing capital requirements and to fund continuing capacity expansion, we raised $62.3 million, net of offering costs of approximately $4.4 million, from the public sale of our common stock in February 2005. Additionally, we issued Convertible Subordinated Debt with a principal amount of $90 million, providing us with approximately $86.9 million net of issuance costs of $3.1 million. We believe that our current cash, cash equivalents and marketable securities will be sufficient to fund our planned capital programs, fund our expected commitments with regard to EverQ’s second 50 megawatt facility as contemplated by the memorandum of understanding and fund our operating expenditures over the next twelve months. We may be required to raise additional capital to 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 on acceptable terms, our ability to fund our operations, further develop and expand our manufacturing operations and distribution network, or otherwise respond to competitive pressures would be significantly limited. In such a case, our stock price would likely be materially and adversely impacted.
In addition, if we raise additional funds through the issuance of equity or convertible or exchangeable 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.
Our ability to expand our manufacturing capacity and therefore to increase revenue and achieve profitability depends to a large extent upon the success of EverQ. EverQ is subject to numerous risks, many of which are outside of our control, and we cannot assure you that EverQ will achieve its objective or otherwise be successful. If EverQ is not successful, our business would be materially and adversely harmed and our stock price would decline.
We have the ability to terminate EverQ if we, Q-Cells or REC are unable to finance EverQ. As a result, EverQ remains subject to the risk that the parties may be unable to finance, both directly and through government or third party sources, the costs of building additional facilities or operating existing facilities. A delay in EverQ’s ability to expand its manufacturing capacity would negatively affect our ability to significantly grow revenues and achieve profitability. In addition, EverQ subjects us to the risks inherent in complex strategic partnership transactions with third parties located in international markets, including the following:
    EverQ will be highly dependent on Q-Cells’ expertise in the rapid development of solar product

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      manufacturing facilities in Germany; therefore, if for any reason, Q-Cells does not devote the personnel necessary to assist us in the development of facilities in Germany, EverQ may experience delays and cost-overruns or may be unsuccessful in the establishment of the operation;
 
    EverQ contemplates that each of the EverQ partners will continue to contribute certain technologies to EverQ in order to establish novel manufacturing processes based on a combination of our respective technologies; as such, the success of EverQ depends on our ability to integrate our respective technologies and manufacturing processes in order to produce competitive solar products in the world marketplace; such integration is unproven and if we are unable to integrate our technologies and manufacturing processes, the prospects for EverQ would be limited;
 
    government grants that have been approved may be subject to forfeiture or repayment in whole or in part if EverQ fails to continue to meet the conditions for such grants or if such grants for any reason become unavailable from German or European Union sources;
 
    the establishment of the facilities may result in cost overruns, delays, equipment problems and construction, start-up and other operating difficulties, any of which could adversely affect the ability of EverQ to achieve or grow revenue on the timeframe we expect;
 
    Q-Cells and REC have the ability to influence the strategic direction of EverQ and other material decisions of EverQ; as a result, we may be unable to take certain actions that we believe would be in our best interests, which, given the expected materiality of EverQ to our combined operations, could significantly harm our business; further, we may be liable to third parties for the material decisions and actions of Q-Cells and REC in EverQ, which actions may harm EverQ and our business;
 
    EverQ requires significant management attention and places significant strain on our ability to manage effectively both our operations in Marlboro and the operations of EverQ in Germany;
 
    EverQ may subject us to multiple, conflicting and changing laws, regulations and tax schemes;
 
    EverQ may be unable to obtain, maintain or enforce adequate intellectual property rights and protection due to limited or unfavorable intellectual property protection and may be subject to claims or suits alleging infringement of third party intellectual property rights;
 
    under certain circumstances, if we exit EverQ, EverQ will continue to have certain rights to our proprietary technologies that we are licensing to it and thereby compete with us;
 
    two years after the termination of the master joint venture agreement, Q-Cells and REC may engage in ribbon technology-related activities in competition with us;
 
    limitations on dividends or restrictions against repatriation of earnings may limit our ability to capitalize on earnings from EverQ;
 
    the operation of the manufacturing facility may experience seasonal reductions in productivity common in certain foreign countries, such as the summer months in Europe;
 
    EverQ may be subject to increases in tariffs, duties, price controls or other restrictions on foreign currencies or trade barriers imposed by foreign countries;
 
    EverQ may be unable to successfully hire and retain the additional personnel necessary to operate the facility or future facilities;
 
    we will be exposed to fluctuations in currency exchange rates; and
 
    we may experience difficulties in staffing and managing international operations, including the difficulty in managing a geographically dispersed workforce in compliance with diverse local laws and customs.
As a result, there can be no assurance that EverQ will be successful in establishing additional facilities or, once established, that EverQ will attain the manufacturing capacity or the financial results that we currently expect.

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EverQ subjects us to a risk that in the future we may be unable to consolidate EverQ’s financial results into our financial statements.
Through the second quarter of 2006, we have consolidated the financial statements of EverQ in accordance with the provisions of FASB FIN 46, “Consolidation of Variable Interest Entities, an interpretation of ARB No. 51.” Subsequent to the execution of the definitive agreements for the expansion of EverQ, which are expected during the third quarter of 2006, we expect to no longer consolidate EverQ’s financial statements and will account for our share of EverQ’s financial results under the equity method of accounting. As a result, we are subject to the risk that period-to-period comparisons of our financial statements in the future may be difficult to interpret.
Our future success substantially depends on our ability to significantly increase our manufacturing capacity through the development of additional manufacturing facilities. We may be unable to achieve our capacity expansion goals, which would limit our growth potential, impair our operating results and financial condition and cause our stock price to decline.
Our future success depends on our ability to increase our manufacturing capacity through the development of additional manufacturing facilities. If we are unable to do so, we may not be able to achieve the production volumes and per unit costs that will allow us to meet customer demand, maintain our competitive position and achieve profitability. Our ability to develop additional manufacturing facilities is subject to significant risk and uncertainty, including:
    we may need to continue to raise significant additional capital through the issuance of equity or convertible or debt securities in order to finance the costs of development of any additional facility, which we may be unable to do on reasonable terms or at all, and which could be dilutive to our existing stockholders;
 
    the build-out of any additional facility will be subject to the risks inherent in the development of a new manufacturing facility, including risks of delays and cost overruns as a result of a number of factors, many of which may be out of our control, such as delays in government approvals or problems with supplier relationships;
 
    our manufacturing processes, particularly those that incorporate improvements to our String Ribbon technology, are unproven at a large scale and may prove difficult to implement in any new facility;
 
    we may be required to depend on third parties or strategic partnerships that we establish in the development and operation of a facility, which may subject us to risks that such third parties do not fulfill their obligations to us under our arrangements with them;
 
    the establishment of any new facility will require significant management attention, and our management team, which has limited experience in the development of such facilities, may be unable to execute the expansion plan effectively; and
 
    if a new facility is established internationally, we may encounter legal restrictions and liability, encounter commercial restrictions and incur taxes and other expenses to do so and otherwise be subject to the risks inherent in conducting business in a foreign jurisdiction as described elsewhere in this section.
If we are unable to develop and successfully operate additional manufacturing facilities, or if we encounter any of the risks described above, we may be unable to scale our business to the extent necessary to achieve profitability, which would cause our stock price to decline. Moreover, there can be no assurance that if we do expand our manufacturing capacity that we will be able to generate customer demand for our solar power products at these production levels or that we will increase our revenues or achieve profitability.
Because we depend on single and sole source suppliers for a number of specialized materials, including silicon, necessary to manufacture our solar power products, we are susceptible to supplier and industry-wide supply shortages and price volatility, which could adversely affect our ability to meet existing and future customer demand for our products and cause us to make fewer shipments, generate lower than anticipated revenues and manufacture our products at higher than expected costs.
We have single and sole source suppliers for a number of specialized materials, including silicon and string, necessary to manufacture our solar power products, which makes us susceptible to quality issues, shortages and price changes for these materials. Demand for and pricing of silicon has increased significantly over the past few years. Further increases in the demand for silicon may cause us to encounter shortages or delays in obtaining silicon to be used in

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the manufacture of our solar power products, which could result in customer dissatisfaction and decreased revenues. Additionally, further increases in the price of available silicon could negatively impact our results of operations in any given period.
Our dependence on a limited number of third party suppliers for raw materials, key components for our solar power products and custom-built equipment for our operations could prevent us from delivering our products to our customers within required timeframes, which could result in order cancellations and loss of market share.
We manufacture all of our solar power products using materials and components procured from a limited number of third-party suppliers. If we fail to develop or maintain our relationships with these or our other suppliers, we may be unable to manufacture our products or our products may be available only at a higher cost or after a long delay, which could prevent us from delivering our products to our customers within required timeframes and we may experience order cancellation and loss of market share. We currently do not have contracts with 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 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. Certain of the capital equipment used in the manufacture of our solar power products has been developed and made specifically for us, is not readily available from multiple vendors and would be difficult to repair or replace if it were to become damaged or stop working. Consequently, any damage to or break down of our manufacturing equipment at a time we are manufacturing commercial quantities of our products may have a material adverse impact on our business. For example, 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.
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 that are under development and not yet commercially available. If we fail to successfully develop our new solar power products or technologies, we will likely be unable to recover the losses we 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 new 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 that compete favorably against other solar power products on the basis of cost, quality and performance;
 
    our failure to produce solar power products that compete favorably against conventional energy sources and alternative distributed generation technologies, such as wind and biomass, on the basis of cost, quality and performance;
 
    whether or not customers will accept our new module 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.

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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 uncompetitive or 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 uncompetitive or 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 a variety of competing solar power technologies are under development by other companies that could result in lower manufacturing costs or higher product performance 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.
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. During the year-to-date period ending July 1, 2006, we sold our solar power products to approximately 20 distributors, system integrators and other value-added resellers. If we are unable to successfully refine 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 July 1, 2006, approximately 70% of our product sales have been made to distributors outside of the United States. Sales in Germany constituted approximately 63% of our total product sales for the year-to-date period ended July 1, 2006. 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, which could increase upon the establishment and operation of EverQ, will continue to be significant. 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 expose 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, maintain or enforce intellectual property rights;
 
    encountering trade barriers such as export requirements, tariffs, taxes and other restrictions and expenses, which could affect the competitive pricing of our solar power products and reduce our market share in some countries;
 
    fluctuations in currency exchange rates relative to the U.S. dollar;
 
    difficulty in recruiting and retaining individuals skilled in international business operations;
 
    increased costs associated with maintaining international marketing efforts;
 
    difficulty of enforcing revenue collection internationally; and

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    inability to develop, manufacture, market and sell our products and services in German and other international markets due to, for example, third-party intellectual property rights.
We expect that a portion of our international sales will be 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. For the foreseeable future, market conditions will require us to denominate a majority of our sales in local currencies, principally Euro, which will further expose us to foreign exchange gains or losses.
Our strategy includes establishing local manufacturing facilities in international markets, such as the EverQ factory currently under construction in Germany. As we implement our strategy, we may encounter legal restrictions and liability, encounter 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 July 1, 2006, our three largest resellers accounted for approximately 48% of our product sales and our 10 largest resellers accounted for approximately 74% of our product sales. Historically all of our sales to these resellers are made through purchase orders without long-term commitments, including under arrangements that may be cancelled without cause on short notice and that generally do not require them to make minimum purchases. Consequently, our resellers are generally permitted to obtain products from other providers of solar power products without further obligation to us. The concentration of our product sales also exposes us to credit risks associated with the financial viability of these resellers. As of July 1, 2006, approximately 26% of our total accounts receivable were outstanding from Ralos Vertriebs GmbH, one of our German distributors, and approximately 20% was outstanding from Goldbeck Solar, another German distributor. 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 material fluctuations or declines in our product revenues and negatively impact our operating results:
    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.
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 particularly as we introduce new technologies such as Thin Ribbon and larger modules.
As is consistent with standard practice in our industry, the duration of our product warranties is lengthy relative to expected product life and has recently been increasing. Our current standard product warranty includes a one-year warranty period for defects in material and workmanship and a 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 solar modules since 1997, none of these modules has been operating more than seven years, and a majority of them have been operating less than two years. The possibility of future product failures could cause us to incur substantial expense to repair or replace defective products. Furthermore, widespread product failures may damage our market reputation and reduce our market share and cause sales to decline.
Our success in the future may depend on our ability to establish and maintain strategic alliances, and any failure on our part to establish and maintain such relationships would adversely affect our market penetration and revenue growth.
We intend to continue to establish strategic relationships with third parties in the solar power industry, particularly in international markets. Our ability to establish strategic relationships will depend on a number of factors, many of

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which are outside our control, such as the competitive position of our technology and our products relative to our competitors. We can provide no assurance that we will be able to establish other strategic relationships in the future.
In addition, other strategic alliances that we establish, will subject us to a number of risks, including risks associated with sharing proprietary information, loss of control of operations that are material to our business and profit-sharing arrangements. Moreover, strategic alliances may be expensive to implement and subject us to the risk that the third party will not perform its obligations under the relationship, which may subject us to losses over which we have no control or expensive termination arrangements. As a result, even if our strategic alliances with third parties are successful, our business may be adversely affected by a number of factors that are outside of our control, which would in turn cause our stock price to decline.
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 Richard M. Feldt, 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 do not carry key person life insurance on any of our senior management or other key personnel.
We had approximately 317 employees as of July 1, 2006, and we 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 as well as the EverQ manufacturing facility under construction in Germany. EverQ had approximately 250 employees as of July 1, 2006. 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.
We may be affected by skilled labor shortages and labor disputes.
We require experienced engineers, technicians and machinists to conduct our business. No assurance can be given that the supply of these skilled persons will always be adequate to meet our requirements or that we will be able to attract an adequate number of skilled persons. Labor disputes could also occur at our manufacturing facilities, which may affect our business. While our employees are not currently represented by labor unions or organized under collective bargaining agreements, labor disputes could occur at any of our facilities, including our Marlboro facility as well as the EverQ manufacturing facility under construction in Germany, which could adversely impact our revenues and operations.
Extended business interruption at our manufacturing facilities could result in reduced sales.
We utilize highly flammable materials such as silane and methane in our manufacturing processes. We have significant experience in handling these materials and take precautions to handle and transport them in a safe manner. By utilizing these materials, we are subject to the risk of losses arising from explosions and fires. Our inability to fill customer orders during an extended business interruption could negatively impact existing customer relationships resulting in market share decreases.
Because our business relies upon a variety of computer systems to operate effectively, the failure or disruption of, or latent defects in these systems could have a material adverse effect on our business.
We are a highly automated company whose efficient and effective operation relies on a variety of information systems, including e-mail, enterprise resource planning and manufacturing execution systems. Disruption in the operation of these systems, or difficulties in maintaining or upgrading these systems, could have an adverse effect on our business. Difficulties that we have encountered, or may encounter, in connection with our implementation and use of our computer systems, including human error or our reliance on, or a failure or disruption of, or latent defects in, such systems, could adversely affect our order management and fulfillment, financial reporting and supply chain management processes, and any such difficulties could have a material adverse effect on our business.

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If we fail to maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial results or prevent fraud. As a result, this could have a material adverse effect on our business.
Effective internal control over financial reporting is necessary for us to provide reliable financial reports and effectively prevent fraud. We have in the past discovered, and may in the future discover, areas of our internal control over financial reporting that need improvement. During 2005, we had a material error in our interim financial reports for the periods ended April 2, 2005 and July 2, 2005, which required a restatement of our condensed consolidated balance sheets and condensed consolidated statements of cash flows for those interim periods. Although we have implemented enhancements to our internal controls over financial reporting to properly prepare our financial statements, we cannot be certain that these measures will ensure that we will maintain adequate internal control over financial reporting in the future. Additionally, as we rapidly grow our business, including expansion related to EverQ, our internal control over financial reporting will become more complex and will require significantly more resources to ensure that they remain effective. Failure to design required new or improved controls, or difficulties encountered in their implementation, could harm our operating results or cause us to fail to meet our reporting obligations. If a material weakness is discovered the disclosure of that fact, even if quickly remediated, could have a material adverse effect on our business. In addition, future non-compliance with Section 404 of the Sarbanes-Oxley Act of 2002 could subject us to a variety of administrative sanctions, including the suspension or delisting of our common stock from the Nasdaq National Market and the inability of registered broker-dealers to make a market in our common stock.
Our management team may not be able to successfully implement our business strategies.
If our management team is unable to execute on its business strategies, 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. In addition, 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.
The reduction or elimination of government subsidies and economic incentives for on-grid applications could cause our revenues to decline.
We believe that the growth of the majority of our target markets, particularly the market for on-grid applications, depends on the availability and size of government subsidies and economic incentives. 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. Accordingly, the reduction or elimination of government subsidies and economic incentives would likely reduce the size of these markets and/or result in increased price competition, which could cause our revenues to decline.
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;

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    performance and reliability of solar power products as compared with conventional and non-solar alternative energy products;
 
    success of alternative distributed generation technologies such as fuel cells, wind power and micro turbines;
 
    fluctuations in economic and market conditions that impact the viability of conventional and non-solar alternative energy sources, such as increases or decreases in the prices of oil and other fossil fuels;
 
    capital expenditures by customers that tend to decrease when the United States or global economy slows;
 
    continued deregulation of the electric power industry and broader energy industry; and
 
    availability of government subsidies and incentives.
We face intense competition from other companies producing solar power and other energy generation products. If we fail to compete effectively, we may be unable to increase our market share and 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 a large number of companies in the world that produce solar power products, including BP Solar, Kyocera Corporation, Sharp Corporation, Mitsubishi, Solar World AG and Sanyo Corporation. We also expect that future competition will include new entrants to the solar power market offering new technological solutions. Further, many of our competitors are developing and are currently producing products based on new solar power technologies, including other crystalline silicon ribbon and sheet technologies, that they believe will ultimately have costs similar to, or lower than, our projected costs.
Most of our competitors are substantially larger than we are, have longer operating histories and have substantially greater financial, technical, manufacturing and other resources than we do. Our competitors’ greater size in some cases provides them with a competitive advantage with respect to manufacturing costs due to their ability to allocate fixed costs across a greater volume of production and purchase raw materials at lower prices. 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 resellers and their 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 products and services 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 and in developing, manufacturing, marketing and selling our products and services:
    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;
 
    given the costs of obtaining patent protection, we may choose not to protect certain innovations that later turn out to be important;
 
    our license, but not our right, to practice the String Ribbon technology terminated upon the expiration of the underlying patents, which occurred during 2003 and 2004, and our historical operating experience with String Ribbon technology and our related patented and proprietary manufacturing processes may not adequately protect our competitive advantage;

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    third parties may design around our patented technologies or seek to challenge or invalidate our intellectual property rights and there is no assurance that our intellectual property rights will deter infringement or misappropriation of our intellectual property;
 
    we may incur significant costs and diversion of management resources in prosecuting or defending intellectual property infringement suits;
 
    we may not be successful in prosecuting or defending intellectual property infringement suits and, as a result, may need to seek to obtain a license of the third party’s intellectual property rights, which may not be available to us, whether on reasonable terms or at all;
 
    the contractual provisions we rely on to protect our trade secrets and proprietary information, such as our confidentiality and non-disclosure agreements with our employees, consultants and other third parties, may be breached and our trade secrets and proprietary information may be disclosed to competitors, strategic partners and the public; and
 
    while our license to the underlying patents directed to the String Ribbon technology has expired, we own 7 United States patents, 7 pending United States patent applications, 2 granted European patent applications that have enforceable rights in 10 foreign jurisdictions and 19 pending foreign patent applications directed to various aspects of the String Ribbon technology; however, our historical operating experience with String Ribbon technology and our related patented and proprietary manufacturing processes may not adequately protect our competitive advantage now that the licensed patents have expired.
If we are subject to litigation and infringement claims, they could be costly and disrupt our business.
In recent years, there has been significant litigation involving patents and other intellectual property rights in many technology-related industries. There may be patents or patent applications in the United States or other countries that are pertinent to our business of which we are not aware. The technology that we incorporate into and use to develop and manufacture our current and future solar power products may be subject to claims that they infringe the patents or proprietary rights of others. The success of our technology efforts will also depend on our ability to develop new technologies without infringing or misappropriating the proprietary rights of others.
We may receive notices from third parties alleging patent, trademark or copyright infringement, claims regarding trade secrets or contract claims. Receipt of these notices could result in significant costs as a result of the diversion of the attention of management from our technology efforts. No third party has a current filed intellectual property lawsuit, arbitration or other proceeding against us. If a successful claim were brought against us, we would have to attempt to license the intellectual property right from the claimant or to spend time and money to design around or avoid the intellectual property. Any such license may not be available at reasonable terms, or at all.
We may, however, be involved in future lawsuits, arbitrations or other legal proceedings alleging patent infringement or other intellectual property rights violations. In addition, litigation, arbitration or other legal proceedings may be necessary to:
    assert claims of infringement or misappropriation of or otherwise enforce our intellectual property rights;
 
    protect our trade secrets or know-how; or
 
    determine the enforceability, scope and validity of our intellectual property rights or those of others.
We may be unsuccessful in defending or pursuing these lawsuits or claims. Regardless of the outcome, litigation can be very costly and can divert management’s efforts. An adverse determination may subject us to significant liabilities or require us to seek licenses to other parties’ intellectual property rights. We may also be restricted or prevented from developing, manufacturing, marketing or selling a solar power product or service that we develop. Further, we may not be able to obtain any necessary licenses on acceptable terms, if at all.
In addition, we may have to participate in proceedings before the United States Patent and Trademark office, or before foreign patent and trademark offices, with respect to our patents, patent applications, trademarks or trademark applications or those of others. These actions may result in substantial costs to us as well as a diversion of management attention. Furthermore, these actions could place our patents, trademarks and other intellectual property rights at risk and could result in the loss of patent, trademark or other intellectual property rights protection for the products and services on which our business strategy depends.

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We may be unable to adequately protect or enforce our proprietary information, which may result in its unauthorized use or reduced sales or otherwise reduce our ability to compete.
Our business and competitive position depend upon our ability to protect our proprietary technology, including any solar power products that we develop. Despite our efforts to protect this information, unauthorized parties may attempt to obtain and use information that we regard as proprietary. Any patents issued in connection with our efforts to develop new technology for solar power products may not be broad enough to protect all of the potential uses of the technology.
In addition, when we do not control the prosecution, maintenance and enforcement of certain important intellectual property, such as a technology in-licensed to us, the protection of the intellectual property rights may not be in our hands. If the entity that controls the intellectual property rights does not adequately protect those rights, our rights may be impaired, which may impact our ability to develop, market and commercialize the related solar power products.
Our means of protecting our proprietary rights may not be adequate, and our competitors may:
    independently develop substantially equivalent proprietary information, products and techniques;
 
    otherwise gain access to our proprietary information; or
 
    design around our patents or other intellectual property.
We pursue a policy of having our employees, consultants and advisors execute proprietary information and invention agreements when they begin working for us. However, these agreements may not provide meaningful protection for our trade secrets or other proprietary information in the event of unauthorized use or disclosure. If we fail to maintain trade secret and patent protection, our potential, future revenues may be decreased.
If the effective term of our patents is decreased due to changes in patent laws or if we need to refile some of our patent applications, the value of our patent portfolio and the revenues we derive from it may be decreased.
The value of our patents depends in part on their duration. A shorter period of patent protection could lessen the value of our rights under any patents that we obtain and may decrease the revenues we derive from our patents. For example, the United States patent laws were amended in 1995 to change the term of patent protection from 17 years after the date of a patent’s issuance to 20 years after the earliest effective filing date of the application for a patent, unless the application was pending on June 8, 1995, in which case the term of a patent’s protection expires either 17 years after its issuance or 20 years after its filing, whichever is later. Because the average time from filing of patent application to issuance of a patent there from is usually at least one year and, depending on the subject matter, may be more than three years, a 20-year patent term from the filing date may result in substantially shorter patent protection. Also, we may need to re-file some of our patent applications to disclose additional subject matter and, in these situations, the patent term will be measured from the date of the earliest priority application to which benefit is claimed in such a patent application. This would shorten our period of patent exclusivity and may decrease the revenues that we might obtain from the patents.
International intellectual property protection is particularly uncertain and costly, and we have not obtained or sought patent or trademark protection in many foreign countries where our solar power products and services may be developed, manufactured, marketed or sold.
Intellectual property law outside the United States is even more uncertain and costly than in the United States and is currently undergoing review and revision in many countries. Further, the laws of some foreign countries may not protect our intellectual property rights to the same extent as United States laws. Moreover, we have not sought, obtained or maintained patent and trademark protection in many foreign countries in which our solar power products and services may be developed, manufactured, marketed or sold by us or by others.
Existing regulations and changes to such regulations may present technical, regulatory and economic barriers to the purchase and use of solar power products, which may significantly reduce demand for our products.
The market for electricity generation products is heavily influenced by foreign, 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

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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. For example, utility companies commonly charge fees to larger, industrial customers for disconnecting from the electric grid or for having the capacity to use power from the electric grid for back-up purposes. These fees could increase the cost to our customers of using our solar power products and make them less desirable, thereby harming our business, prospects, results of operations and financial condition.
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. There is also a burden in having to track the requirements of individual states and design equipment to comply with the varying standards. Any new government regulations or utility policies pertaining to our solar power products may result in significant additional expenses to us and our resellers and their customers and, as a result, could cause a significant reduction in demand for our solar power products.
Our reliance on government contracts to partially fund our research and development programs could slow 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.
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 slow our ability to develop our solar power technologies. In addition, contracts involving government agencies may be terminated or modified 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 are subject to audit and 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. Moreover, the failure to provide these reports or to provide inaccurate or incomplete reports may provide the government with rights to any intellectual property arising from the related research. “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 United States government or government agency may grant the license itself. The United States government or government agency can exercise its march-in rights if it determines that action is necessary because we fail to achieve practical application of the technology or because action is necessary to alleviate health or safety needs, to meet requirements of federal regulations or to give the United States industry preference. Funding from government contracts also may limit when and how we can deploy our technology developed under those contracts.
Compliance with environmental regulations can be expensive, and noncompliance with these regulations may result in adverse publicity and potentially significant monetary damages and fines.
We are required to comply with all foreign, federal, state and local laws and regulations regarding protection of the environment. 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 laws or regulations, however, we may be required to pay substantial fines, incur significant capital expenditures, 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 generation of, or to restrict adequately the discharge or disposal of, hazardous substances or wastes could subject us to potentially significant monetary damages and fines, criminal proceedings, third party property damage or personal injury claims, cleanup costs or other costs, or suspensions in our business operations. In addition, under some foreign, federal and state statutes and regulations, a governmental agency may seek recovery and response costs from generators of the hazardous substances or operators of property where releases of hazardous substances have occurred or are ongoing, even if such party was not responsible for the release or otherwise at fault. While we are not aware of any outstanding, material environmental claims or obligations, future developments such as the implementation of new, more stringent laws and regulations, more aggressive enforcement policies, or the discovery of unknown environmental

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conditions may require expenditures that could have a material adverse effect on our business, results of operations or financial condition.
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 or not 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. The successful assertion of product liability claims against us could result in potentially significant monetary damages and if our insurance protection is inadequate to cover these claims, they could require us to make significant payments.
Risks Related to Our Common Stock
Substantial leverage and debt service obligations may adversely affect our cash flows.
In connection with our sale of the convertible subordinated notes in June 2005, we incurred new indebtedness of $90 million. As a result of this indebtedness, our principal and interest payment obligations increased substantially. The degree to which we are leveraged could, among other things:
    make it difficult for us to make payments on the notes;
 
    make it difficult for us to obtain financing for working capital, acquisitions or other purposes on favorable terms, if at all, including financing to fund the development or expansion of EverQ’s manufacturing operations;
 
    make us more vulnerable to industry downturns and competitive pressures; and
 
    limit our flexibility in planning for, or reacting to changes in, our business.
Our ability to meet our debt service obligations will depend upon our future performance, which will be subject to financial, business and other factors affecting our operations, many of which are beyond our control.
The price of our common stock has been volatile.
Our common stock is quoted on the Nasdaq Global Market. The trading price of our common stock has been and may continue to be volatile. The closing sale prices of our common stock, as reported by the Nasdaq Global Market, have ranged from $5.73 to $17.50 for the 52-week period ended July 1, 2006. 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. The Nasdaq Global 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. 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.
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, including:
    the size and timing of customer orders for or shipments of our products;

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    the rate and cost at which we are able to expand our manufacturing capacity to meet product demand, including the rate and cost at which we are able to implement advances in our String-Ribbon technology;
 
    our ability to establish and expand key customer and distributor relationships;
 
    our ability and the terms upon which we are able to raise capital sufficient to finance the expansion of our manufacturing capacity and our sales and marketing efforts;
 
    our ability to expand EverQ within budget and within the time frame that we expect;
 
    the extent to which Q-Cells and REC increase their ownership in EverQ in the future and thereby reduces our share of profits and losses of EverQ in future periods;
 
    the extent to which any change in the capital structure of EverQ in the future causes us to be unable to consolidate EverQ’s financial results;
 
    our ability to establish strategic relationships with third parties to accelerate our growth plans;
 
    the amount and timing of expenses associated with our research and development programs and our ability to develop enhancements to our manufacturing processes and our products;
 
    delays associated with the supply of specialized materials necessary for the manufacture of our solar power products;
 
    our ability to execute our cost reduction programs;
 
    one time charges resulting from replacing existing equipment or technology with new or improved equipment or technology as part of our strategy to expand our manufacturing capacity and to decrease our per unit manufacturing cost;
 
    developments in the competitive environment, including the introduction of new products or technological advancements by our competitors; and
 
    the timing of adding the personnel necessary to execute our growth plan.
In addition, the stock market in general, and the Nasdaq Global Market and the market for solar technology companies and us in particular, have experienced significant price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of those companies. These broad market and industry factors may seriously harm the market price of our common stock, regardless of our operating performance. In the past, following periods of volatility in the market price of a company’s securities, securities class action litigation has often been instituted. A securities class action suit against us could result in substantial costs, potential liabilities and the diversion of management’s attention and resources.
We anticipate that our operating expenses will continue to increase significantly, particularly as we develop our internal infrastructure to support our anticipated growth. If our product revenues in any quarter do not increase correspondingly, our net losses for that period will increase. Moreover, given that a significant portion of our operating expenses is largely fixed in nature and cannot be quickly reduced, if our product revenues are delayed or below expectations, our operating results are likely to be adversely and disproportionately affected. 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 it could decrease rapidly and substantially.
Because we do not intend to pay dividends, stockholders will benefit from an investment in our common stock only if it appreciates in value.
We have never declared or paid any cash dividends on our common stock. We anticipate that we will retain our earnings to support operations and to finance the growth and development of our business and do not expect to pay cash dividends in the foreseeable future. As a result, the success of an investment in our common stock will depend

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upon any future appreciation in its value. There is no guarantee that our common stock will appreciate in value or even maintain the price at which stockholders have purchased their shares.
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 and by-laws, as well as 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. Even in the absence of a takeover attempt, the existence of these provisions may adversely affect the prevailing market price of our common stock if they are viewed as discouraging takeover attempts in the future.
We can issue shares of preferred stock that may adversely affect the rights of a stockholder of our common stock.
Our certificate of incorporation authorizes us to issue up to 27,227,668 shares of preferred stock with designations, rights and preferences determined from time-to-time by our board of directors. Accordingly, our board of directors is empowered, without stockholder approval, to issue preferred stock with dividend, liquidation, conversion, voting or other rights superior to those of stockholders of our common stock. For example, an issuance of shares of preferred stock could:
    adversely affect the voting power of the stockholders of our common stock;
 
    make it more difficult for a third party to gain control of us;
 
    discourage bids for our common stock at a premium;
 
    limit or eliminate any payments that the stockholders of our common stock could expect to receive upon our liquidation; or
 
    otherwise adversely affect the market price of our common stock.
We have in the past and we may in the future issue additional shares of authorized preferred stock at any time.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its annual meeting of stockholders (the “Annual Meeting”) on June 8, 2006 in Marlboro, Massachusetts. At the Annual Meeting, stockholders ratified the appointment of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2006. There were 48,920,530 votes cast for the ratification, 206,681 cast against the ratification, 86,841 abstentions and zero broker non-votes.
ITEM 5. OTHER INFORMATION
None.

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ITEM 6. EXHIBITS
     
Number   Description
 
   
1.1 (1)
  Underwriting Agreement dated as of February 3, 2005, by and among the Company, SG Cowen & Co., LLC and First Albany Capital Inc. (Exhibit 1.1)
 
   
3.1 (2)
  Third Amended and Restated Certificate of Incorporation. (Exhibit 3.2)
 
   
3.2 (2)
  Second Amended and Restated By-laws. (Exhibit 3.4)
 
   
3.3 (3)
  Certificate of Amendment of Third Amended and Restated Certificate of Incorporation filed with the Secretary of State of the State of Delaware on May 15, 2003. (Exhibit 4.3)
 
   
3.4 (3)
  Certificate of the Powers, Designations, Preferences and Rights of the Series A Convertible Preferred Stock of the Company. (Exhibit 4.4)
 
   
3.5 (4)
  Certificate of Amendment of Third Amended and Restated Certificate of Incorporation filed with the Secretary of State of the State of Delaware on August 20, 2004. (Exhibit 4.5)
 
   
4.1 (5)
  Indenture, dated as of June 29, 2005, between the Registrant and U.S. Bank National Association, as Trustee. (Exhibit 4.4)
 
   
4.2 (5)
  Form of 4.375% Convertible Subordinated Notes due 2012. (Exhibit 4.4)
 
   
10.1 (2)*
  1994 Stock Option Plan. (Exhibit 10.1)
 
   
10.2 (2)*
  2000 Stock Option and Incentive Plan. (Exhibit 10.2)
 
   
10.3 (6)*
  Amended and Restated 2000 Stock Option and Incentive Plan. (Exhibit 99.1)
 
   
10.4 (6)*
  Amended and Restated 2000 Employee Stock Purchase Plan. (Exhibit 99.2)
 
   
10.5 (2)
  Lease Agreement between the Company and W9/TIB Real Estate Limited Partnership dated as of January 31, 2000, as amended. (Exhibit 10.5)
 
   
10.6 (2)+
  Agreement between the Company and Emanuel M. Sachs dated as of September 30, 1994, as amended. (Exhibit 10.7)
 
   
10.7 (2)
  Series D Preferred Stock Purchase Agreement dated as of December 28, 1999. (Exhibit 10.8)
 
   
10.8 (2)
  Form of Indemnification Agreement between the Company and each of its directors and executive officers. (Exhibit 10.9)
 
   
10.9 (7)
  Stock and Warrant Purchase Agreement dated as of March 21, 2003. (Exhibit 10.1)
 
   
10.10 (7)
  Form of Registration Rights Agreement. (Exhibit 10.3)
 
   
10.11 (7)
  Voting Agreement dated as of March 21, 2003. (Exhibit 10.2)
 
   
10.12 (8)
  Stock and Warrant Purchase Agreement dated June 16, 2004. (Exhibit 10.1)
 
   
10.13 (8)
  Warrant Agreement dated June 21, 2004. (Exhibit 10.2)
 
   
10.14 (8)
  Form of Warrants. (Exhibit 10.3)
 
   
10.15 (8)
  Registration Rights Agreement dated June 21, 2004. (Exhibit 10.4)

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Number   Description
 
10.16 (8)
  Conversion, Consent, Voting and Lock-Up Agreement dated June 21, 2004. (Exhibit 10.5)
 
   
10.17 (9)++
  Master Joint Venture Agreement entered into as of November 4, 2005 by and among the Company, Q-Cells AG, Renewable Energy Corporation and EverQ GmbH. (Exhibit 10.17)
 
   
10.18 (9)++
  License and Technology Transfer Agreement by and between the Company and EverQ GmbH, dated November 24, 2005. (Exhibit 10.18)
 
   
10.19 (9)++
  Technology Co-Operation Agreement by and between Renewable Energy Corporation and the Company dated November 24, 2005. (Exhibit 10.19)
 
   
10.20 (9)++
  Supply Agreement, dated November 24, 2005, by and between Solar Grade Silicon LLC and the Company. (Exhibit 10.20)
 
   
10.21 (9)++
  Supply Agreement, dated November 24, 2005, by and between Solar Grade Silicon LLC and EverQ GmbH. (Exhibit 10.21)
 
   
10.22 (10)*
  Evergreen Solar, Inc. Management Incentive Policy. (Exhibit 10.20)
 
   
10.23 (11)
  Purchase Agreement, dated June 23, 2005 between the Company and SG Cowen & Co., LLC, as representatives of the Initial Purchasers. (Exhibit 10.24)
 
   
10.24 (5)
  Registration Rights Agreement, dated June 29, 2005, between the Company and SG Cowen & Co., LLC, as representative of the Initial Purchasers. (Exhibit 10.21)
 
   
10.25 (12)++
  Memorandum of Understanding, dated June 5, 2006, by and among Evergreen Solar, Inc., Q-Cells AG, EverQ GmbH and Renewable Energy Corporation AS. (Exhibit 10.1)
 
   
31.1
  Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
   
31.2
  Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
   
32.1
  Certification of Chief Executive Officer Pursuant to 18 U.S.C. 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. 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
+   Confidential treatment granted as to certain portions.
 
++   Confidential treatment requested as to certain portions.
 
*   Indicates a management contract or compensatory plan, contract or arrangement.
 
(1)   Incorporated herein by reference to the exhibits to the Company’s Current Report on Form 8-K dated February 3, 2005 (File No. 000-31687). The number given in parenthesis indicates the corresponding exhibit number in such Form 8-K.
 
(2)   Incorporated herein by reference to the exhibits to the Company’s Registration Statement on Form S-1, as amended (File No. 333-43140). The number given in parenthesis indicates the corresponding exhibit number in such Form S-1.
 
(3)   Incorporated herein by reference to the exhibits to the Company’s Registration Statement on Form S-8 dated June 9, 2003, as amended (File No. 333-105963). The number given in parenthesis indicates the corresponding exhibit number in such Form S-8.
 
(4)   Incorporated herein by reference to the exhibits to the Company’s Registration Statement on Form S-3 filed on October 21, 2004 (File No. 333-119864). The number given in parenthesis indicates the corresponding exhibit number in such Form S-3.
 
(5)   Incorporated herein by reference to the exhibits to the Company’s Current Report on Form 8-K dated June 29, 2005 (File No. 000-31687). The number given in parenthesis indicates the corresponding exhibit number in such Form 8-K.
 
(6)   Incorporated herein by reference to the exhibits to the Company’s Current Report on Form 8-K dated July 15,

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    2005 (File No. 000-31687). The number given in parenthesis indicates the corresponding exhibit number in such Form 8-K.
 
(7)   Incorporated herein by reference to the exhibits to the Company’s Current Report on Form 8-K dated March 24, 2003 (File No. 000-31687). The number given in parenthesis indicates the corresponding exhibit number in such Form 8-K.
 
(8)   Incorporated herein by reference to the exhibits to the Company’s Current Report on Form 8-K dated June 21, 2004 (File No. 000-31687). The number given in parenthesis indicates the corresponding exhibit number in such Form 8-K.
 
(9)   Incorporated herein by reference to the exhibits to the Company’s Annual Report on Form 10-K dated March 16, 2006 (File No. 000-31687). The number given in parenthesis indicates the corresponding exhibit number in such Form 10-K.
 
(10)   Incorporated herein by reference to the exhibits to the Company’s Quarterly Report on Form 10-Q for the period ended April 2, 2005 filed on May 2, 2005. The number given in parenthesis indicates the corresponding exhibit number in such Form 10-Q.
 
(11)   Incorporated herein by reference to the exhibits to the Company’s Quarterly Report on Form 10-Q for the period ending July 2, 2005 filed on August 11, 2005. The number given in parenthesis indicates the corresponding exhibit number in such Form 10-Q.
 
(12)   Incorporated herein by reference to the exhibits to the Company’s Current Report on Form 8-K dated June 5, 2006 (File No. 000-31687). The number given in parenthesis indicates the corresponding exhibit number in such Form 8-K.

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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: August 9, 2006
       
 
       
 
  /s/ Donald M. Muir    
 
       
 
  Donald M. Muir    
 
  Chief Financial Officer, Vice President,    
 
  Treasurer and Secretary    
 
  (Principal Financial Officer)    

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