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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-K


þ		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the fiscal year ended December 31, 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 incorporation or organization)		(I.R.S. Employer Identification No.)

138 Bartlett Street Marlboro, Massachusetts		01752 (Zip Code)
(Address of principal executive offices)

(508) 357-2221

(Registrant’s Telephone Number, Including Area Code)

(Former Name, Former Address And Former Fiscal Year, If Changed Since Last Report)

Securities registered pursuant to Section 12(g) of the Act:

None

Securities registered pursuant to Section 12(b) of the Act:

Common Stock, Par Value $.01 Per Share

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes þ No o

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes o No þ

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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer (as defined in Exchange Act, 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 þ Accelerated Filed o Non-accelerated filer o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No þ

The aggregate market value of the registrant’s voting and non-voting common equity held by non-affiliates as of July 1, 2006 was approximately $857 million.

As of February 15, 2007, there were 69,246,376, shares of the registrant’s Common Stock, $.01 par value per share, outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

The registrant intends to file a definitive proxy statement pursuant to Regulation 14A within 120 days of the end of the fiscal year ended December 31, 2006. Portions of such proxy statement are incorporated by reference into Part III of this Annual Report on Form 10-K.

Forward-Looking Statements

This Annual Report on Form 10-K, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7, 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 future growth, revenue, earnings and gross margins improvement; future warranty expenses; benefits and expenses resulting from EverQ; contributions by our strategic partners Q-Cells AG and Renewable Energy Corporation to EverQ and the successful integration of our proprietary technologies; our future equity ownership position in EverQ; 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; shifts in our geographic product revenue mix; international expansion of strategic partnerships, manufacturing operations and distribution networks; operating efficiency of manufacturing facilities including increases in manufacturing scale and technological improvements; the occurrence of and the use of proceeds from sales of our securities; the sufficiency of our cash, cash equivalents, marketable securities and borrowings available under our revolving credit facility to satisfy our anticipated cash requirements; 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 the EverQ facility; 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-2 facility or other facilities becoming fully operational; the expected demand for solar energy; expectations regarding product performance and cost and technological competitiveness; expectations regarding future silicon supply from Renewable Energy Corporation and the Company’s ability to enter into additional contracts to secure its 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 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 are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements may be identified with such words as “we expect”, “we believe”, “we anticipate” or similar indications of future expectations. These statements are neither promises nor guarantees and involve risks and uncertainties, which could cause our actual results to differ materially from such forward-looking statements. Such risks and uncertainties may include, among other things, macroeconomic and geopolitical trends and events, the execution and performance of contracts by customers, suppliers and partners, and other risks and uncertainties described herein, including but not limited to the items discussed in “Risk Factors” in Item 1A of 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 Annual Report, which speak only as of the date of this Annual 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.


ITEM 1.	*BUSINESS.*

OVERVIEW

We develop, manufacture and market solar power products enabled by our proprietary String Ribbon^tm 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 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 Europe and the United States.

Our product sales are currently constrained by our manufacturing capacity at our Marlboro manufacturing facility. Despite having an installed capacity of approximately 15 MW in our Marlboro facility, it is our intention to dedicate at least 10% of this capacity to developing new technologies with the goal of further improvements in operations and product performance, 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 its manufacturing capacity, rather, such expenditures will be used to demonstrate improved technologies.

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. In November 2005, Renewable Energy Corporation ASA, or REC, based in Hovik, Norway and one of the world’s largest manufacturer of solar-grade silicon and multicrystalline wafers, joined the EverQ partnership. REC had agreed in November 2005 to provide 60 metric tons of silicon to Evergreen Solar and 190 metric tons of silicon to EverQ at market based pricing.

The purpose of EverQ is to operate facilities to manufacture 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. On September 29, 2006, in conjunction with the execution of a previously disclosed polysilicon supply agreement, which became effective on December 19, 2006, following regulatory approval, the Company, Q-Cells and REC also entered into an amendment to the existing Master Joint Venture Agreement whereby the Company, REC and Q-Cells became equal partners in EverQ.

EverQ currently expects to ramp production capacity from about 30MW in 2006 to approximately 300MW by 2010. To support EverQ’s growth to approximately 300MW by 2010, REC has agreed to provide an additional supply of silicon at market based pricing for a seven-year period. EverQ began its expansion in Thalheim, Germany with the construction of a second integrated wafer, cell and module factory with an expected capacity of approximately 60MW during the third quarter of 2006, and production is expected to begin in the first half of 2007 and reach full capacity by year-end 2007.

funding for EverQ, to secure raw materials and/or necessary technologies. We do not know whether we will be able to raise additional capital on terms favorable to us. If adequate capital is not available or is 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.

Accounting for EverQ

On December 19, 2006, the Company, Q-Cells and REC became equal partners in EverQ, with each sharing equally in its prospective net income or loss. As a result of our reduction in ownership to one-third, we were required to account for our ownership interest using the “equity method of accounting” changing from consolidating those results as we have in the past. Under the equity method of accounting, we will report our one-third share of EverQ’s net income or loss as a single line item in our income statement and our investment in EverQ as a single line item in our balance sheet. We applied the equity method as of December 20, 2006.

Under the new agreements with EverQ and its partners, we will continue to market and sell all solar modules manufactured by EverQ under the Evergreen Solar brand, as well as manage customer relationships and contracts. We will receive fees from EverQ for these services and will no longer report gross revenue or cost of goods sold resulting from the sale of EverQ’s solar module production. During 2007, we will receive a fee of 1.7% of gross EverQ revenue as a sales and marketing fee which represents a reimbursement for the majority of our sales and marketing expenses. In addition, we will receive royalty payments for our ongoing technology agreement with EverQ. Combined, the sales and marketing fee and royalty payments will total approximately 5.4% of gross EverQ revenue in 2007. We also expect to receive payments from EverQ as a reimbursement of certain research and development costs we may incur that could benefit EverQ. Income statement classification of these research and development reimbursement payments will depend on how we are reimbursed. A best efforts arrangement allows for the reimbursement to offset expenses whereas a specific performance arrangement requires us to record both revenue and an offsetting cost of revenue. We believe that the majority of these reimbursements will be best efforts in nature and therefore will be shown as a reduction of our expenses.

While these revenue streams are based on current expansion and financial expectations of EverQ, as well as expected future technology developments, they are subject to periodic review and adjustment by the shareholders of EverQ and could vary widely from these estimates.

RECENT DEVELOPMENTS

On January 2, 2007, the Company announced that Michael El-Hillow, a member of Evergreen’s Board of Directors since August 2004 and Chairman of the Company’s Board of Directors since October 2005, had been appointed to the position of Chief Financial Officer and Secretary. Effective with the appointment of Mr. El-Hillow, Mr. Donald Muir resigned as Chief Financial Officer. In connection with his appointment as Chief Financial Officer of the Company, Mr. El-Hillow resigned from Evergreen’s Board of Directors. Richard M. Feldt, Evergreen’s President and Chief Executive Officer, will serve as Chairman of the Board of Directors and Edward C. Grady will serve as the lead outside director.

On January 5, 2007, at a special meeting of shareholders held in Marlboro, Massachusetts, the Company’s stockholders approved an amendment to the Company’s Certificate of Incorporation to increase the number of shares of Common Stock, par value $0.01, that the Company is authorized to issue from 100,000,000 shares to 150,000,000 shares.

HISTORICAL MILESTONES

We were incorporated in August 1994 and, to date, we have achieved the following milestones along our product development and commercialization schedule:


October	1994	Evergreen Solar founded with four employees in a 2,500 square foot laboratory.
October	1995	First String Ribbon wafers produced.
April	1997	9,400 square foot pilot manufacturing facility operational.
October	1997	First commercial sale of solar panels produced using String Ribbon technology.
June	1999	Total sales of solar panels of 2,500 units and 100 kilowatts achieved.
March	2000	Leased 56,250 square foot manufacturing and headquarters facility located in Marlboro, Massachusetts.
August	2000	Renovation of our Marlboro manufacturing facility and headquarters begun.
June	2001	First shipment of solar panels from our new Marlboro manufacturing facility.
November	2001	New distribution relationships in the U.S. and Europe.
December	2001	Shipment of our 10,000th solar panel.
June	2002	Achieved first quarterly $1.0 million in product sales.
December	2002	Demonstration of double ribbon growth to boost productivity.
December	2002	Solar system installed on White House.
December	2003	Richard M. Feldt appointed as new Chief Executive Officer
January	2004	Shipment of our 50,000th solar panel
January	2004	Demonstrated quad-ribbon growth process
June	2004	Close of $18.8 million private equity financing, net of $1.2 million in financing costs
November	2004	Shipment of our 100,000 solar panal
December	2004	Demonstrated 150 micron thick wafer growth capability
December	2004	Achieved positive gross margins for the first time in Company history
January	2005	Formed EverQ, a 30-megawatt solar wafer, cell and module manufacturing plant partnership with Q-Cells AG
February	2005	Completed a $62.3 million common stock public financing
June	2005	Completed a $90.0 million convertible subordinated note financing
September	2005	Shipment of our 200,000th solar panel
November	2005	Signed $70 million sales agreement with PowerLight Corporation
November	2005	Announced addition of REC, a leading silicon supplier, to EverQ
February	2006	Signed $100 million sales agreement with S.A.G. Solarstrom AG
February	2006	Signed $88 million sales agreement with Global Resource Options, Inc.
March	2006	Signed $125 million sales Agreement with Donauer Solartechnik
April	2006	Introduction of Spruce line of solar panels
April	2006	Volume shipments begin from EverQ
June	2006	Official opening of the new EverQ solar plant in Germany
July	2006	Signed $200 million sales agreement with SunEdison LLC
October	2006	Signed $100 million sales agreement with Mainstream Energy, LLC
October	2006	EverQ signed Polysilicon supply agreement with Renewable Energy Corp. of Norway
October	2006	Construction begins at second EverQ German plant
December	2006	German regulatory authorities approve amendment to EverQ joint venture agreement, equal ownership for Evergreen Solar, Q-Cells and Renewable Energy Corp.

INDUSTRY BACKGROUND

At approximately $1 trillion per year in global revenues, the electric power industry is one of the world’s largest industries. Furthermore, electricity accounts for a growing share of overall energy use. We believe that deregulation, economic, environmental and national security pressures, and technological innovations are creating significant opportunities for new entrants and technologies within the electric power industry, just as these changes have created similar opportunities in other regulated industries such as telecommunications, banking and transportation.

Electric power is an increasingly vital component of the global economy, accounting for a greater share of overall energy use as reliance on electricity-dependent technology grows. According to the U.S. Department of Energy’s International Energy Outlook 2005, worldwide demand for electricity is expected to nearly double over the next two decades, from 14.3 trillion kilowatt hours, or kWh, in 2002 to 26.0 trillion kWh in 2025. Demand is expected to grow at 4% per year over this time period in the emerging economies, including China, which currently accounts for only one-third of all electricity consumption and where reliable electricity is critical to economic growth. Electricity consumption is expected to grow annually at 1.5% to 2.0% in North America, Europe and industrialized Asia.

Sources of fuel for electricity generation include coal, natural gas, oil, nuclear power and renewable sources, such as solar, hydroelectric and wind power. We estimate that in 2006, coal fuels 39% of worldwide electricity generation, natural gas 18%, nuclear 18%, oil 8%, and renewable sources, chiefly hydroelectric, 18% of global electricity generation. Solar and other non-hydroelectric renewable sources account for approximately 2% of global electricity generation. Electric power producers face several challenges in meeting anticipated growth in electricity demand:


	•	Environmental regulations. Environmental regulations addressing global climate change and air quality seek to limit emissions by existing fossil fuel-fired generation plants and new generating facilities. Countries that are parties to international treaties such as the Kyoto Protocol have voluntarily submitted to reducing emissions of greenhouse gases. National and regional air pollution regulations also restrict the release of carbon dioxide and other gases by power generation facilities.

	•	Infrastructure reliability. Investment in electricity transmission and distribution infrastructure has not kept pace with increase in demand, resulting in major service disruptions in the United States, such as the Northeast blackout in August 2003. Updating the aging infrastructure to meet capacity constraints will be capital intensive, time consuming and may be restricted by environmental concerns.

	•	Fossil fuel supply constraints and cost pressures. The supply of fossil fuels is finite. While an adequate supply of coal, natural gas and oil exists for the foreseeable future, continued depletion of the fossil fuels over this century may impact prices and infrastructure requirements. For example, the U.S. domestic supply of liquefied natural gas, or LNG, is not expected to meet consumption requirements by 2025. Significant investments in LNG shipping terminal infrastructure are already being made to support imported fuel. Political instability, labor unrest, war and the threat of terrorism in oil producing regions has disrupted oil production, increased the volatility of fuel prices and raised concerns over foreign dependency in consumer nations.

As a result of these and other challenges, we believe that future demand for electricity will not be met through traditional fossil fuel-based generation technologies alone.

Distributed Generation and Renewable Energy

We believe that distributed generation and renewable energy are two of the most promising areas for growth in the global electric power industry, and solar power is both distributed and renewable. Distributed generation is defined as point-of-use electricity generation that either supplements or bypasses the electric utility grid and employs technologies such as solar power, micro-turbines and fuel cells. We believe capacity constraints, increased demand for power reliability and quality and the challenges of building new centralized generation and transmission facilities will drive the demand for distributed generation. Renewable energy is defined as energy supplies that derive from non-depleting sources such as solar, wind and certain types of

biomass. We believe that economic and security pressures to reduce dependence on imported and increasingly expensive oil and natural gas and growing environmental pressures will drive demand for renewable energy. Renewable energy, including solar and wind power, is the fastest growing segment of the energy industry worldwide.

We believe that environmentally benign, locally sourced renewable energy will become increasingly important for economic development, environmental policy and national security. We further believe that increasing attention to global warming, global energy policy and regional stability and development will support the deployment of distributed generation, particularly renewable energy.

Solar Power

Solar power generation uses interconnected photovoltaic cells to generate electricity from sunlight. Most photovoltaic cells are constructed using specially processed silicon, which, when exposed to sunlight, results in the generation of direct current. Many interconnected cells are packaged into solar modules, which protect the cells and collect the electricity generated. Solar power systems are comprised of multiple solar modules along with related power electronics. Solar power technology, first used in the space program in the late 1950s, has experienced growing worldwide commercial use for over 25 years in both on-grid and off-grid applications.


	•	On-grid. On-grid applications provide supplemental electricity to customers that are served by an electric utility grid, but choose to generate a portion of their electricity needs on-site. On-grid applications have been the fastest growing part of the solar power market. This growth is primarily driven by the worldwide trend toward deregulation and privatization of the electric power industry, as well as by government initiatives, including incentive programs to subsidize and promote solar power systems in several countries, including Japan, Germany and the United States. On-grid applications include residential and commercial rooftops, as well as ground-mounted mini-power plants.

	•	Off-grid. Off-grid applications serve markets where access to conventional electric power is not economical or physically feasible. Solar power products can provide a cost-competitive, reliable alternative for such power applications as highway call boxes, microwave stations, portable highway road signs, remote street or billboard lights, rural homes in developed and developing countries, water pumps and battery chargers for recreational vehicles and other consumer applications.

Solar power has emerged as one of the primary distributed generation technologies seeking to capitalize on the opportunities resulting from trends affecting the electric power industry. Relative to other distributed generation technologies, solar power benefits include:


	•	Modularity and scalability. From tiny solar cells powering a hand-held calculator, to an array of rooftop modules powering an entire home, to acres of modules on a commercial building roof or field, solar power products can be deployed in many sizes and configurations and can be installed almost anywhere in the world. Solar is among the best technologies for power generation in urban areas, environmentally sensitive areas and geographically remote areas in both developing and developed countries.

	•	Reliability. With no moving parts and no fuel supply required, solar power systems reliably power some of the world’s most demanding applications, from space satellites, to maritime applications, to remote microwave stations. Solar modules typically carry warranties as long as 25 years.

	•	Dual use. Solar modules are expected to increasingly serve as both a power generator and the skin of the building. Like architectural glass, solar modules can be installed on the roofs or facades of residential and commercial buildings.

	•	Environmentally cleaner. Solar power systems consume no fuel and produce no air, water or noise emissions.

Germany, Japan and the United States presently comprise the majority of world market sales for solar power systems. Government policies in these countries, in the form of both regulation and incentives, have accelerated the adoption of solar technologies by businesses and consumers. Internationally, Spain, Portugal,

Greece, France, Korea and Italy have recently developed new solar support programs. In the United States, the 2005 energy bill enacted a 30% investment tax credit for solar, and in January 2006 California approved the largest solar program in the country’s history, the $3 billion, 11-year California Solar Initiative.

As a result of solar power’s benefits and government support, the solar power market has seen sustained and rapid growth. Unit shipments have increased over 20% per year on average for the past 20 years and over 40% for the past five years.

Solar Power Challenges

Although solar power can provide a cost-effective alternative for off-grid applications, we believe the principal challenge to widespread adoption of solar power for on-grid applications is reducing manufacturing and installation costs without impairing product reliability. We believe the following advancements in solar power technology are necessary to meet this challenge:


	•	Efficient material use. Reduce raw materials waste. Efficient use of silicon is imperative for the growth of the industry due to the limited supply and increasing cost of silicon raw material expected for the near future.

	•	Simplified and continuous processing. Reduce reliance on expensive, multi-step manufacturing processes.

	•	Reduced manufacturing capital costs. Decrease the costs and risks associated with new plant investments as a result of lower capital costs per unit of production.

	•	Improved product design and performance. Increase product conversion efficiency, longevity and ease of use. Conversion efficiency refers to the fraction of the sun’s energy converted to electricity.

We further believe the two principal solar power technologies, crystalline silicon and thin films, have not adequately addressed this challenge:


	•	Crystalline Silicon. Crystalline silicon technology was the earliest practiced solar wafer fabrication technology and continues to be the dominant technology for the market, accounting for approximately 94% of solar market sales in 2005, according to Solarbuzz, a leading solar industry trade journal. Conventional crystalline silicon technology involves sawing thin wafers from solid crystalline silicon blocks. Crystalline silicon products are known for their reliability, performance and longevity. However, factors such as high materials waste from sawing, complex processing procedures and high capital costs have limited the speed at which conventional crystalline silicon manufacturers can reduce manufacturing costs. Our patented string ribbon technology eliminates the sawing waste allowing us to use approximately 50% less silicon than conventional crystalline silicon manufacturers.

	•	Thin Films. While most major solar power manufacturers currently rely on crystalline silicon technology for their solar cell production, they, and other new entrants, are also developing alternative thin film technologies to achieve lower manufacturing costs. Thin film technology involves depositing several thin layers of silicon or more complex materials on a substrate to make a solar cell. Although thin film techniques generally use materials more efficiently than conventional crystalline silicon, we believe higher capital costs, lower manufacturing yields, lower conversion efficiency and reduced product performance and reliability have hindered commercial acceptance. According to Solarbuzz, the market share of thin films has declined from 12% in 1999 to approximately 6% in 2005. There will continue to be significant efforts to develop alternate solar technologies, such as amorphous silicon, CIS (copper indium diselenide), CIGS (copper indium gallium diselenide), CdTe (cadmium telluride), CSG (crystalline silicon on glass) and polymer and nano technologies. While these technologies have generally been slow to come to market, all of these efforts are important to broadening the base of products for solar to fit a greater number of market needs and niches.

OUR TECHNOLOGY SOLUTION

We believe our technologies and processes are unique among our competitors. Our technologies and processes have been designed to reduce manufacturing costs while improving product design. We have developed, and continue to develop technologies at the wafer, cell and module stages of manufacturing, and we hold patents and other intellectual property in all three areas. We believe our String Ribbon wafer manufacturing technology is our core technology and offers a substantial opportunity to reduce cost and otherwise advance our business through reduced materials cost, simpler processing and lower required economies of scale.

String Ribbon’s key advantage is forming a silicon wafer directly to the needed thickness, rather than slicing wafers from a solid block, thus significantly reducing material use and processing steps. In the String Ribbon technique, strings are pulled vertically through a shallow pool of molten silicon, and the silicon solidifies between the strings to form a continuous ribbon of crystalline silicon. The ribbon is then cut and prepared for cell fabrication. The use of strings to aid in the simplified growth of a silicon ribbon is what distinguishes our proprietary String Ribbon technology from other advanced crystalline silicon wafer technologies that do not involve sawing.

We believe our String Ribbon technology for the growth of solar wafers has the following significant advantages:


	•	Efficient materials use. Unlike conventional bulk crystalline silicon wafer technology, in which solid blocks of silicon are sawed into thin wafers at significant expense and silicon waste, our technology grows a continuous, flat ribbon to the desired thickness. Since our technology does not involve sawing solid blocks and our wafer thickness is at the industry’s leading edge and below industry average, we believe we use less silicon per watt of output than any of our crystalline silicon competitors. We currently use approximately half as much silicon as the industry average and we believe we can further reduce silicon use in the future through production of thinner wafers and other manufacturing improvements. Not only is this an advantage in material costs, it allows us to produce more power from the same amount of silicon feedstock than other manufacturers using crystalline silicon. As long as the supply of silicon remains limited and expensive, higher yield from raw silicon is even more critical to the growth of the industry.

	•	Continuous processing. Our technology permits the continuous growth of crystalline silicon ribbon, which can lead to high automation, efficient equipment use and improved productivity.

	•	Energy and environmental benefits. String Ribbon uses less energy and substantially reduces the use of hazardous materials, particularly acids and cutting oils, relative to bulk crystalline technology.

Our Business Strategy

Our business strategy is to develop, manufacture and market solar power products that use our technologies in commercial applications around the world. We presently are focused on the following steps to implement our business strategy:


	•	Maintain our technology leadership through continuous innovation. We believe that our String Ribbon technology provides critical competitive advantages. While our license to the underlying patents directed to the String Ribbon technology has expired, we own other patents directed to various aspects of the String Ribbon technology as well as significant trade secrets, and we will continue to invest in research and development to extend our technology leadership while vigorously protecting our intellectual property. Our Marlboro, Massachusetts facility has approximately 40,000 square feet dedicated to research and development and contains equipment to support the development, fabrication and evaluation of new solar power products and technologies. During 2006, we completely shifted our manufacturing processes in the U.S. and at EverQ in Germany, to approximately 200 micron thick ribbons from the prior platform of approximately 300 microns. We are developing a fourth generation technology termed quad ribbon, which allows us to grow four silicon ribbons simultaneously from a single furnace and may potentially double the output of new furnaces. We have also made recent


		advances and expect to continue to improve the conversion efficiency of our solar cells. Together these developments could dramatically reduce product and capital costs and increase efficiency of raw material usage. We intend to continually invest in improving our proprietary technologies and their commercial applications with the goal of reducing manufacturing costs without impairing product performance or reliability.


	•	Lower our manufacturing costs and increase our capacity. We have focused on manufacturing process improvements to increase output capacity and lower cost. In 2004, we transitioned all single ribbon furnaces to double ribbon technology. In 2006, we introduced thin ribbon to commercial production in the Marlboro and EverQ facilities and advanced the development of quad ribbon furnaces and higher cell conversion efficiency. We believe that these capabilities when integrated into the full production line will further lower manufacturing costs and enable the String Ribbon technology to have among the most efficient silicon utilization rates for production of crystalline photovoltaic products. Having validated the cost and product performance of our technology, we are rapidly scaling String Ribbon technology through a manufacturing expansion at EverQ that has tripled String Ribbon capacity in 2006 and will also double it again in 2007.

	•	Accelerate our cost reduction and capacity expansion through strategic partnerships. We intend to quicken the expansion pace, secure critical supply chain and leverage our technology and manufacturing capabilities through strategic partnerships with other participants in the solar power industry. Beyond the core String Ribbon technology, we have generated significant experience and know-how in the handling of thin and fragile wafers and cells. This expertise is important in solar manufacturing and is therefore potentially attractive to strategic partners as other manufacturers attempt to move to thinner wafers. We have demonstrated that our technology is rapidly scalable and commercially successful though our EverQ partnership. Our EverQ partners, Q-Cells and REC, add size, operations expertise, local European presence, provide a secure silicon supply, global market reach and financial depth to the String Ribbon expansion through EverQ.

	•	Expand our market reach through strategic partnerships. We intend to increase our addressable markets, boost sales and solidify our brand through strategic partnerships with best practice distribution and system integration partners worldwide. Like most manufacturers in the solar power business, we sell our modules through distributors and system integrators, which integrate our modules with other structural and electrical components and sell complete systems to end-users. To date, we have worked with a small number of these value-added resellers on a year-by-year purchase order basis. On November 4, 2005, we announced a four-year, $70 million sales agreement with PowerLight Corporation, a leader in developing innovative solar electric technologies and large-scale, grid-connected projects for customers worldwide. On February 21, 2006, the Company announced a four-year supply contract with S.A.G. Solarstrom AG (S.A.G.), based in Freiburg, Germany. The agreement calls for approximately $100 million of photovoltaic modules to be shipped to S.A.G. over the next four years. On February 21, 2006, the Company announced a multi-year supply contract with Global Resource Options, Inc. (GRO), a Vermont-based solar power distributor and system integrator. The agreement calls for approximately $88 million of photovoltaic modules to be shipped to GRO over the next four years. On March 15, 2006, the Company announced a multi-year supply contract with Donauer Solartechnik (Donauer), a German-based solar power distributor. The agreement calls for approximately $125 million of photovoltaic modules to be shipped to Donauer over the next four years. On July 19, 2006, the company announced a multi-year supply agreement with SunEdison LLC (SunEdison), a Maryland based system integrator. The agreement calls for approximately $200M of photovoltaic modules to be shipped to SunEdison over the next four years. On October 16, 2006, the Company announced a multi-year supply contract with Mainstream Energy, LLC (Mainstream), a California based solar power distributor and system integrator. The agreement calls for approximately $100M of photovoltaic modules to be shipped to Mainstream over the next four years. We expect to develop additional market partnerships to support our expected aggressive sales growth. We expect to meet the requirements under these contracts with product manufactured by EverQ as well as from our Marlboro facility. Through December 19, 2006, we consolidated the financial results of EverQ and recognized


		revenues associated with the sale of EverQ product. As of December 20, 2006, we no longer consolidate the financial results of EverQ and accordingly, do not recognize revenues associated with the sale of EverQ product. However, under our sales agreement with EverQ, we will continue to market and sell all solar modules manufactured by EverQ under the Evergreen Solar brand, as well as manage customer relationships and contracts.


	•	Diversify and differentiate our product lines. In addition to core wafer and cell technology, our technology related to module manufacturing processes and components allows us to differentiate future products to meet market demands. We have patented methods for producing modules which do not require aluminum frames as is common practice. Such modules would be thinner and lighter than current standard module designs, thereby lending themselves to uses in ways not common today.

OUR PRODUCTS

Solar power products in general are built-up through four stages of production:


	•	Wafers. A crystalline silicon wafer is a flat piece of crystalline silicon that can be processed into a solar cell. Our rectangular wafers currently measure 80 millimeters by 150 millimeters and are less than 200 microns thick.

	•	Cells. A solar cell is a device made from a wafer that converts sunlight into electricity by means of a process known as the photovoltaic effect. Each of our solar cells currently produces approximately 1.7 watts of power.

	•	Modules. A solar module is an assembly of solar cells that have been electrically interconnected and laminated in a physically durable and weather-tight package. The most common modules in the market are in the range of 160 to 200 watts each with some specialty modules smaller and larger. Our current solar modules range up to 190 watts in power.

	•	Systems. A solar system is an assembly of one or more solar modules that have been physically mounted and electrically interconnected, often with batteries or power electronics, to produce electricity. Typical residential on-grid systems produce 2,000 to 6,000 watts of power.

Solar modules are our primary product, although we may in the future also sell wafers, cells, or systems. We believe our modules are competitive with other products in the marketplace and are certified to international standards of safety, reliability and quality. If our development programs are successful, we expect to continue to increase the conversion efficiency and power of our solar modules as we expand our manufacturing capacity.

Sales, Marketing and Distribution

We bring our solar power products to market using distributors, system integrators, project developers and other value-added resellers. Our distributors often add value through system design by incorporating our modules with inverters, associated electronics, structures and wiring systems. Most of our resellers have a geographic or applications focus. Our channel partners include companies that are exclusively solar resellers as well as others for whom solar power is an extension of their core business, such as engineering design firms or other energy product marketers.

We expect to collaborate closely with a relatively small number of resellers throughout the world. We currently have approximately 20 main resellers worldwide and are actively working to refine our distribution partners by very careful addition of a few new accounts and channel partners. We intend to selectively pursue additional strategic relationships with other companies worldwide for the joint marketing, distribution and manufacturing of our products. These resellers are expected to range from large, multinational corporations to small, development-stage companies, each chosen for their particular expertise. We believe that these relationships will enable us to leverage the marketing, manufacturing and distribution capabilities of other companies, explore opportunities for additional product development and more easily and cost-effectively enter new geographic markets, attract new customers and develop advanced solar power applications.

We currently work with a relatively small number of resellers who have particular expertise in a selected geographic or applications market segment. As we continue to expand manufacturing capacity and sales volumes, we anticipate developing relationships with additional customers and decreasing our dependence on any single customer. During fiscal year 2006, we had one customer with sales greater than 10% of our total revenue, Donauer Solartechnik, a German distributor comprised 13% of our total revenues. Additional information regarding the geographic distribution of our revenue and our reportable segments may be found under Note 12 to the Financial Statements included with this Annual Report on Form 10-K. Additional information regarding risks attendant to our foreign operations can be found under heading “Risk Factors” included in Part I, Item 1A of this Annual Report on Form 10-K.

In addition, we market our products through trade shows, on-going customer communications, promotional material, our web site, direct mail and advertising. Our staff provides customer service and applications engineering support to our distribution partners while also gathering information on current product performance and future product requirements.

Information regarding our government contracts can be found under the heading “Research and Development” below.

MANUFACTURING

Our principal manufacturing objective is to provide for large-scale manufacturing of our solar power products at low costs thereby enabling us to penetrate price-sensitive solar power markets. We currently have two adjacent facilities, totaling approximately 100,000 square feet, dedicated to manufacturing and research development. The Marlboro facilities include a complete line of equipment to manufacture String Ribbon wafers, fabricate and test solar cells, and laminate and test modules with a total capacity of approximately 15 megawatts per year if operated at full capacity. Going forward, however, we expect Marlboro to continue to both manufacture and to test, pilot, validate and benchmark new manufacturing and product platforms therefore, we expect actual production from Marlboro to be in the range of 12-14 megawatts.

Our EverQ partnership will substantially increase the manufacturing capacity of our String Ribbon technology. EverQ currently expects to ramp production capacity from about 30MW in 2006 to approximately 300MW by 2010. EverQ began its expansion in Thalheim, Germany with the construction of a second integrated wafer, cell and module factory with a capacity of approximately 60MW during the third quarter of 2006, and production is expected to begin in the first half of 2007 and reach full capacity by year-end 2007.

Because the market opportunity for solar power encompasses numerous applications in both developed and developing nations worldwide, we expect a significant portion of our future sales will be made outside the United States. Over time, we expect that our manufacturing will become increasingly global, as well. We believe there are several advantages to manufacturing close to local markets, including reduced shipping costs, reduced currency exposure, enhanced brand recognition, avoidance of import tariffs and access to local private or public sector financing.

RESEARCH AND DEVELOPMENT

We believe that continuously improving our technology is an important part of our overall strategy. Therefore we have maintained and intend to maintain a strong research and development effort. To this end, our Marlboro, Massachusetts facility has approximately 40,000 square feet of space dedicated to research and development and contains equipment to support the development, fabrication and evaluation of new solar power products and technologies.

Our research and development expenses for the year ended December 31, 2006 were $19.1 million, an increase of $8.0 million, or 72%, from $11.1 million for the same period in 2005.

INTELLECTUAL PROPERTY

Patents

We believe that our commercial success will significantly depend on our ability to protect our intellectual property rights underlying our proprietary technologies. We seek United States and international patent protection for major components of our technology platform, including our crystalline silicon wafers, solar cells and solar modules. We own nineteen United States patents, six Indian patents, and four granted European patent applications that have each been validated with enforceable rights in ten foreign jurisdictions in the solar power field. These patents begin to expire in 2016 and will all expire by 2022. In addition, we have thirteen United States patent applications pending and twenty-nine foreign patent applications pending. We devote substantial resources to building a strong patent position and we intend to continue to file additional United States and foreign patent applications to seek protection for technology we deem important to our commercial success. Our patents cover the following areas:


	•	Crystalline Silicon Wafers. Dr. Emanuel Sachs, a tenured Professor of Mechanical Engineering at the Massachusetts Institute of Technology, developed our core String Ribbon technology. Dr. Sachs has been awarded three United States patents for the String Ribbon technology. An additional patent for a related technology, invented by two employees of the United States National Renewable Energy Laboratory, formerly the Solar Energy Research Institute, was assigned to Dr. Sachs in 1984. In September 1994, Dr. Sachs granted us an irrevocable, worldwide, royalty-bearing license to practice the String Ribbon technology and related patents under a license and consulting agreement. The patents underlying this agreement expired during 2003 and 2004 and the agreement is now terminated. We have been awarded seven United States patents, one Indian patent and have eight United States patent applications pending as well as three granted European patent applications that have each been validated with enforceable rights in ten foreign jurisdictions and sixteen foreign patent applications pending on our own, internally developed inventions related to String Ribbon and wafer fabrication, including methods for automated, high-yield production techniques.

	•	Solar Cell Fabrication. We have been awarded four United States patents and have two United States patent applications pending, relating to our solar cell processing technology as well as two foreign patent applications pending. The United States patents relate to methods for forming wrap-around contacts on solar cells and methods for processing solar cells.

	•	Solar Modules. We have been awarded eight United States patents, five Indian patents, and one granted European patent application that has been validated with enforceable rights in ten foreign jurisdictions, and we have three United States patent application and thirteen foreign patent applications pending relating to advanced solar module designs. The United States patents relate to solar cell modules with an improved backskin, solar cell modules with an interface mounting system, an encapsulant material for solar cell modules, and a solar cell roof tile system.

Trademarks and Copyrights

We have three United States trademark registrations and eight foreign trademark registrations associated with our business, including registrations for the trademarks Evergreen Solar, the Evergreen Solar logo and Cedar Line. Furthermore, we have a number of common law trademarks and service marks, including the trademark String Ribbon. We are working to increase, maintain and enforce our rights in our trademark portfolio, the protection of which is important to our reputation and branding. We also own copyrights relating to our products, services and business, including copyrights in the software we have developed, in our marketing materials and in our product manuals.

Trade Secrets and Other Confidential Information

We rely on trade secret protection and confidentiality agreements to protect our interests with respect to, among other things, proprietary know-how that is not patentable and processes for which patents are difficult to enforce. We believe that several elements of our solar power products and manufacturing processes involve proprietary know-how, technology or data, which are not covered by patents or patent applications, including

selected materials, technical processes, equipment designs, algorithms and procedures. We have taken security measures to protect our proprietary know-how, technologies and confidential data, and we continue to explore additional methods of protection. While we require all employees, key consultants and other third parties to enter into confidentiality agreements with us, we cannot be assured that proprietary information will not be disclosed inappropriately, that others will not independently develop substantially equivalent proprietary information and techniques or otherwise gain access to our trade secrets, or that we can meaningfully protect our trade secrets. Any material leak of confidential or proprietary information into the public domain or to third parties could result in the loss of a competitive advantage in the solar power market.

COMPETITION

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 secure our supply chain, attract and retain customers and establish a successful distribution network for our solar power products, we may be unable to increase our sales and market share. There are over 50 companies in the world that produce solar power products, including BP Solar, Kyocera Corporation, Mitsubishi, Solar World AG, Sharp Corporation, Sun Tech, SunPower, Schott 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.

We believe that the cost and performance of our technology will have advantages compared to competitive technologies. Our products offer the reliability, efficiency and market acceptance of other crystalline silicon products. We believe our technology provides lower manufacturing costs resulting from significantly more efficient material usage and fewer processing steps, particularly in wafer fabrication. Compared to thin film products, our products offer generally higher performance and greater market acceptance. Some thin film technologies, such as cadmium telluride, use toxic materials that inhibit their market acceptance, where others, such as copper indium diselenide, rely on raw materials in short supply, such as indium. Other technologies, including all of the polymer and nanomaterial technologies, are still very developmental and have not yet reached the commercialization stage.

The entire solar industry also faces competition from other power generation sources, both conventional sources as well as other emerging technologies. Solar power has certain advantages and disadvantages when compared to other power generating technologies. The advantages include the ability to deploy products in many sizes and configurations, to install products almost anywhere in the world, to provide reliable power for many applications, to serve as both a power generator and the skin of a building and to eliminate air, water and noise emissions. Whereas solar generally is cost effective for off-grid applications, the high up-front cost of solar relative to most other solutions is the primary market barrier for on-grid applications. Furthermore, unlike most conventional power generators, which can produce power on demand, solar power cannot generate power where sunlight is not available, although it is often matched with battery storage to provide highly reliable power solutions.

ENVIRONMENTAL REGULATIONS

We use, generate and discharge toxic, volatile or otherwise hazardous chemicals and wastes in our research and development and manufacturing activities. We are subject to a variety of foreign, federal, state and local governmental regulations related to the storage, use and disposal of hazardous materials.

We believe that we have all environmental permits necessary to conduct our business. We believe that we have properly handled our hazardous materials and wastes and have not contributed to any contamination at any of our past or current premises. We are not aware of any environmental investigation, proceeding or action by foreign, federal or state agencies involving our past or current facilities. If we fail to comply with present or future environmental regulations, we could be subject to fines, suspension of production or a cessation of operations. Any failure by us to control the use of or to restrict adequately the discharge of hazardous

substances could subject us to substantial financial liabilities, operational interruptions and adverse publicity, any of which could materially and adversely affect our business, results of operations and financial condition. In addition, under some foreign, federal and state statutes and regulations, a governmental agency may seek recovery and response costs from operators of property where releases of hazardous substances have occurred or are ongoing, even if the operator was not responsible for the release or otherwise was not at fault.

EMPLOYEES

As of December 31, 2006, we had approximately 330 full-time employees, including approximately 61 engaged in research and development and approximately 242 engaged in manufacturing. Approximately 39 of our employees have advanced degrees, including 14 with Ph.D.s. None of our employees are represented by any labor union nor are they organized under a collective bargaining agreement. We have never experienced a work stoppage and believe that our relations with our employees are good.

AVAILABLE INFORMATION

Our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports are made available free of charge though our internet website (http://www.evergreensolar.com) as soon as practicable after such material is electronically filed with, or furnished to, the Securities and Exchange Commission. Except as otherwise stated in these documents, the information contained on our website or available by hyperlink from our website is not incorporated by reference into this report or any other documents we file with or furnish to the SEC.


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 “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 expansion and we have limited experience upon which to predict whether it will continue to 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.

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 a net loss of $26.7 million for the year ended December 31, 2006. Principally as a result of ongoing operating losses, we had an accumulated deficit of $119.7 million as of December 31, 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.

We believe that our current cash, cash equivalents and marketable securities, combined with our ability to access capital markets, will be sufficient to fund our planned capital programs, fund our current commitments with EverQ and fund our operating expenditures over the next twelve months. We may be required to secure additional capital to respond to competitive pressures, and/or acquire complementary businesses provide further funding for EverQ, secure silicon and other raw materials, or necessary technologies. We do not know whether or not we will be able to secure 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.

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:


	•	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 facility 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;

	•	as we only own one-third of EverQ, Q-Cells and REC will have the ability to influence the strategic direction of EverQ and other material decisions of EverQ; as a result, we may be unable to take certain actions that we believe would be in our best interests, which, given the expected materiality of EverQ to our combined operations, could significantly harm our business; further, we may be liable to third parties for the material decisions and actions of Q-Cells and REC in EverQ, which actions may harm EverQ and our business;

	•	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;

	•	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.

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 so on reasonable terms or at all, and which could be dilutive to our existing stockholders;

	•	the build-out of any additional facility will be subject to the risks inherent in the development of a new manufacturing facility, including risks of delays and cost overruns as a result of a number of factors, many of which may be out of our control, such as delays in government approvals or problems with supplier relationships;

	•	we may be required to depend on third parties or strategic partnerships that we establish in the development and operation of a facility, which may subject us to risks that such third parties do not fulfill their obligations to us under our arrangements with them; 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 a limited number of suppliers for a number of specialized materials, including silicon and string, 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 a limited number of 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 the manufacture of our solar power products, which could result in customer dissatisfaction and decreased revenues (and inhibit our ability to commit to expand our manufacturing capabilities). 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. 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.

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 our fiscal year ended December 31, 2006, we sold our solar power products to approximately 25 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 December 31, 2006, approximately 67% of our product sales have been made to distributors outside of the United States. Sales outside of the United States constituted approximately 63% of our total product sales for the period ended December 31, 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, 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

	•	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.

Our strategy includes establishing local manufacturing facilities in international markets. 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.

As of December 31, 2006, approximately 33%, 15%, 14% and 11% of our total accounts receivable were outstanding from NVT, LLC, PowerLight, Donauer Solartechnick and AEE Solar, respectively. 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.

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 two-year warranty period for defects in material and workmanship and a 25-year warranty period for declines in power performance. We believe our warranty periods are consistent with industry practice. Due to the long warranty period, we bear the risk of extensive warranty claims long after we have shipped product and recognized revenues. Although we have sold solar modules since 1997, none of these modules has been operating more than ten 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 could 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 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 330 employees as of December 31, 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 manufacturing facilities. 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, 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. 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.

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;

	•	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. Many of 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, SunPower Corporation, SunTech, First Solar, 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;

	•	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

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 and diversion of the attention of management from our technology efforts. 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 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.

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.

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 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.

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

If we fail to comply with present or future environmental laws or regulations 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 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. 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 $7.16 to $17.24 for the 52-week period ended February 15, 2007. 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;

	•	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;

	•	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.

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 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;

	•	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 1B.	*UNRESOLVED STAFF COMMENTS.*

None.


ITEM 2.	*PROPERTIES.*

Our headquarters is currently located in a leased space in Marlboro, Massachusetts, where we currently occupy approximately 125,000 square feet of administrative, research and development and manufacturing space in three buildings. Our leases expire on various dates between June 2010 and January 2013. As of December 31, 2006, we were productively utilizing substantially all of the space in our facilities. We believe that our facilities are suitable and adequate for our present needs and we periodically evaluate whether additional facilities are necessary.


ITEM 3.	*LEGAL PROCEEDINGS.*

We are not a party to any material legal proceedings.


ITEM 4.	*SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.*

No matters were submitted to a vote of security holders during the quarter ended December 31, 2006.

PART II


ITEM 5.	*MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES:*

Market for Our Common Stock

Our common stock is traded on the Nasdaq Global Market under the symbol “ESLR”. The following table sets forth for the calendar periods indicated, the high and low sales price of our common stock on the Nasdaq Global Market.


	High		Low

Year ended December 31, 2005
First Quarter	$	8.05	$	4.00
Second Quarter	$	8.23	$	4.68
Third Quarter	$	9.54	$	5.73
Fourth Quarter	$	12.84	$	7.74
Year ended December 31, 2006
First Quarter	$	17.50	$	11.85
Second Quarter	$	16.25	$	10.00
Third Quarter	$	13.50	$	7.90
Fourth Quarter	$	9.80	$	7.27

On February 15, 2007, the last reported sale price for our common stock on the Nasdaq Global Market was $8.28 per share.

Holders

As of February 15, 2007, there were 69,246,376 shares of our common stock outstanding held by approximately 350 holders of record.

Dividends

Information about dividends accrued and paid with respect to our Series A preferred stock can be found under Part II, Item 7 of this Annual Report on Form 10-K under the heading “Results of Operations — Description of Our Revenues, Costs and Expenses,” and under Note 6 to the Financial Statements included with this Annual Report on Form 10-K.

STOCK PERFORMANCE GRAPH

The following graph compares the cumulative total stockholder return on our common stock against the cumulative total return of (i) the Hemscott Weighted Nasdaq Index (the “NASDAQ Market Index”) and (ii) an SIC Index that includes all organizations in the Hemscott Group 836 Code Index — Diversified Electronics (the “SIC Code Index”) for the five fiscal years beginning January 1, 2002 and ending December 31, 2006. The comparison assumes $100 was invested at the close of business on December 31, 2001, the last trading day before the beginning of the Company’s fifth preceding fiscal year, in our common stock and in each of the foregoing indices and assumes any dividends were reinvested, if any. The comparisons are provided in response to SEC disclosure requirements and are not intended to forecast or be indicative of future performance.

COMPARISON OF CUMULATIVE TOTAL RETURN AMONG
EVERGREEN SOLAR, INC., SIC CODE INDEX
AND NASDAQ MARKET INDEX

ASSUMES $100 INVESTED ON DEC. 31, 2001
ASSUMES DIVIDEND REINVESTED
FISCAL YEAR ENDING DEC. 31, 2006


	12/31/01		12/31/02		12/31/03		12/31/04		12/31/05		12/31/06
Evergreen Solar, Inc.	$	100.00	$	37.94	$	49.41	$	128.53	$	313.24	$	222.65
SIC Code Index	$	100.00	$	63.20	$	99.20	$	97.50	$	96.28	$	104.81
NASDAQ Market Index	$	100.00	$	69.75	$	104.88	$	113.70	$	116.19	$	128.12


(1)	The preceding Stock Performance Graph is not deemed filed with the Securities and Exchange Commission and shall not to be incorporated by reference in any of our filings under the Securities Act of 1933 or the Securities Exchange Act of 1934, whether made before or after the date hereof and irrespective of any general incorporation language in any such filing.

(2)	Information used on the graph was obtained from Hemscott, Inc., a source believed to be reliable, but we are not responsible for any errors or omissions in such information.


ITEM 6.	*SELECTED FINANCIAL DATA:*

You should read the data set forth below in conjunction with our financial statements and related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” appearing elsewhere in this filing. The statement of operations data presented below for the fiscal years ended December 31, 2004, 2005, and 2006 and the balance sheet data at December 31, 2005 and 2006 have been derived from our audited financial statements which appear elsewhere in this filing. The statement of operations data presented below for the years ended December 31, 2002 and 2003, and the balance sheet data at December 31, 2002, 2003 and 2004 have been derived from our audited financial statements, which are not included in this filing. The balance sheet data as of December 31, 2005 includes the consolidated accounts of EverQ, of which we owned 64% at the time. As of December 31, 2006, and as a result of our ownership interest in EverQ being reduced to one-third, our balance sheet excludes the consolidated accounts of EverQ, since as of December 20, 2006 we accounted for our interest in EverQ under the equity method. Through December 19, 2006, we consolidated the financial results of EverQ and recognized revenues and costs associated with the sale of EverQ product. As of December 20, 2006, we no longer consolidate the financial results of EverQ and accordingly, do not recognize revenues and costs associated with the sale of EverQ product or consolidate the assets and liabilities of EverQ. 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”), which resulted in total equity based compensation expense of approximately $5.1 million for the year ended December 31, 2006.


	Year Ended December 31,
	2002			2003			2004			2005			2006

STATEMENT OF OPERATIONS DATA:
Revenues:
Product	$	5,296		$	7,746		$	22,240		$	43,627		$	102,252
Research		1,448			1,565			1,296			405		$	894

Total revenues		6,744			9,311			23,536			44,032			103,146

Cost of revenue:
Product revenue costs		12,405			15,379			29,717			39,954		$	90,310
Research revenue costs		1,448			1,565			1,296			405			894

Total cost of revenue		13,853			16,944			31,013			40,359			91,204

Gross profit		(7,109	)		(7,633	)		(7,477	)		3,673			11,942
Operating Expenses:
Research and development		2,244			2,226			3,635			11,056			19,064
Selling, general and administrative		4,520			5,337			7,797			12,274			21,216
Loss on disposal of fixed assets		—			—			—			—			1,526

Total operating expenses		6,764			7,563			11,432			23,330			41,806

Operating loss		(13,873	)		(15,196	)		(18,909	)		(19,657	)		(29,864	)
Other income (loss), net		674			222			(454	)		1,146			1,851

Loss from operations before minority interest		(13,199	)		(14,974	)		(19,363	)		(18,511	)		(28,013	)
Minority interest in EverQ		—			—			—			1,195			849
Equity income from interest in EverQ		—			—			—			—			495

Net loss before accretion		(13,199	)		(14,974	)		(19,363	)		(17,316	)		(26,669	)
Accretion, dividends and conversion premiums on Series A convertible preferred stock		—			(13,498	)		(2,904	)		—			—

Net loss attributable to common stockholders	$	(13,199	)	$	(28,472	)	$	(22,267	)	$	(17,316	)	$	(26,669	)

Net loss per share (basic and diluted)	$	(1.16	)	$	(2.39	)	$	(0.67	)	$	(0.29	)	$	(0.41	)
Weighted average shares used in computing basic and diluted net loss per share		11,405			11,899			33,204			59,631			65,662


	December 31,
	2002		2003		2004		2005		2006

BALANCE SHEET DATA:
Cash, cash equivalents and marketable securities	$	8,483	$	20,340	$	11,942	$	116,207	$	49,421
Investment in and advances to EverQ		—		—		—		—		70,460
Working capital		12,544		22,039		14,281		124,404		57,590
Total assets		31,963		45,976		49,721		228,959		207,251
Subordinated convertible notes		—		—		—		90,000		90,000
Convertible preferred stock		—		27,032		—		—		—
Total stockholder’s equity		29,913		16,944		41,520		87,450		92,847


ITEM 7.	*MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.*

EXECUTIVE OVERVIEW

We develop, manufacture, market and sell solar power products enabled by our proprietary String Ribbon^tm 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 primary components of photovoltaic cells. Photovoltaic cells generate direct and 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 product sales are currently constrained by our manufacturing capacity at our Marlboro, Massachusetts’ facility. Despite having an installed capacity of approximately 15 MW in our Marlboro facility, it is our intention to dedicate a sizable portion this capacity to developing new technologies with the goal of further improvements in operations and product performance, 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 its manufacturing capacity, rather, such expenditures will be used to demonstrate improved technologies.

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. 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. On September 29, 2006, in conjunction with the execution of a previously disclosed polysilicon supply agreement, which became effective on December 19, 2006, following regulatory approval,

the Company, Q-Cells and REC also entered into an amendment to the existing Master Joint Venture Agreement whereby the Company, REC and Q-Cells became equal partners in EverQ. As a result of the capital contribution to EverQ made by Q-Cells and REC to increase their ownership interest, we recorded a gain on our investment in EverQ of approximately $8.5 million that was recorded as an increase in additional Paid in Capital.

EverQ currently expects to ramp production capacity from about 30MW in 2006 to approximately 300MW by 2010. EverQ began its expansion in Thalheim, Germany with the construction of a second integrated wafer, cell and module factory with a capacity of approximately 60MW during the third quarter of 2006, and production is expected to begin in the first half of 2007 and reach full capacity by year-end 2007.

We expect that the combined production of our Marlboro facility and EverQ will be used to satisfy the requirements of the sales agreements that we have entered into over the past 18 months. On November 4, 2005, we announced a four-year, $70 million sales agreement with PowerLight Corporation, a leader in developing innovative solar electric technologies and large-scale, grid-connected projects for customers worldwide. On February 21, 2006, we announced that we had entered into a four-year supply contract with S.A.G. Solarstrom AG (S.A.G.), based in Freiburg, Germany. The agreement calls for approximately $100 million of photovoltaic modules to be shipped to S.A.G. over the next four years. On February 21, 2006, we announced that we had entered into a multi-year supply contract with Global Resource Options, Inc. (GRO), a Vermont-based solar power distributor and system integrator. The agreement calls for approximately $88 million of photovoltaic modules to be shipped to GRO over the next four years. On March 15, 2006, we announced that we had entered into a multi-year supply contract with Donauer Solartechnik (Donauer), a German-based solar power distributor. The agreement calls for approximately $125 million of photovoltaic modules to be shipped to Donauer over the next four years. On July 19, 2006, we announced that we had entered into a multi-year supply agreement with SunEdison LLC (SunEdison), a Maryland based system integrator. The agreement calls for approximately $200M of photovoltaic modules to be shipped to SunEdison over the next four years. On October 16, 2006, we announced that we had entered into a multi-year supply contract with Mainstream Energy, LLC (Mainstream), a California based solar power distributor and system integrator. The agreement calls for approximately $100M of photovoltaic modules to be shipped to Mainstream over the next four years. Three of these agreements each have bilateral termination penalties ranging from $1.0 million to $5.0 million. We expect to meet the requirements under these contracts primarily with product manufactured by EverQ. EverQ may be required to incur further capital expenditures in order to meet the future requirements of these contracts. Through December 19, 2006, we consolidated the financial results of EverQ and recognized revenues associated with the sale of EverQ product. As of December 20, 2006, we no longer consolidate the financial results of EverQ and accordingly, do not recognize gross revenues or cost of goods sold associated with the sale of EverQ product. However, under our sales agreement with EverQ, we will continue to market and sell all solar modules manufactured by EverQ under the Evergreen Solar brand, as well as manage customer relationships and contracts. As a result, our reported product revenues will be significantly lower in 2007. We expect to develop additional market partnerships to support the expected aggressive sales growth of EverQ.

We believe that our current cash, cash equivalents, marketable securities coupled with our ability to access the capital markets, will be sufficient to fund our planned capital programs, our current commitments with EverQ and our operating expenditures over the next twelve months. We may be required to raise additional capital to respond to competitive pressures, to acquire complementary businesses, to provide further funding for EverQ, to secure silicon and other raw materials and/or necessary technologies. We do not know whether we will be able to raise additional capital on terms favorable to us. If adequate capital is not available or is 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.

Accounting for EverQ

On December 19, 2006, the Company, Q-Cells and REC became equal partners in EverQ and now share equally in its prospective net income or loss. As a result of our reduction in ownership to one-third, we were

required to account for our interest in EverQ under the “equity method of accounting”, changing from consolidating its operating results as we have in the past. Under the equity method of accounting, we will report our one-third share of EverQ’s net income or loss as a single line item in our income statement and our investment in EverQ as a single line item in our balance sheet. We have applied the equity method as of December 20, 2006.

Under the new agreements with EverQ and its partners, we will continue to market and sell all solar modules manufactured by EverQ under the Evergreen Solar brand, as well as manage customer relationships and contracts. We will receive fees from EverQ for reimbursement of our expenses and will no longer report gross revenue or cost of goods sold resulting from the sale of EverQ’s solar modules. During 2007, we will receive a fee of 1.7% of gross EverQ revenue relating to the sales and marketing fee. In addition, we will receive royalty payments associated with our ongoing technology agreement with EverQ. Combined, the sales and marketing fee and royalty payments will total approximately 5.4% of gross EverQ revenue. We also expect to receive payments from EverQ as a reimbursement of certain research and development costs we will incur that could benefit EverQ. Income statement classification of these research and development reimbursement payments will depend on how we are reimbursed. A best efforts arrangement allows for the reimbursement to offset expenses whereas a specific performance arrangement requires us to record both revenue and an offsetting cost of revenue. We believe that the majority of these reimbursements will be best efforts in nature and therefore will be shown as a reduction of our expenses.

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. We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements:

Revenue Recognition and Allowance for Doubtful Accounts

We recognize product revenue if there is persuasive evidence of an agreement with the customer, shipment has occurred, risk of loss has transferred to the customer, the sales price is fixed or determinable, and collectibility is reasonably assured. The market for solar power products is emerging and rapidly evolving. 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 throughout the world. For new customers requesting credit, we evaluate creditworthiness based on credit applications, feedback from provided references, and credit reports from independent agencies. For existing customers, we evaluate creditworthiness based on payment history and known changes in their financial condition.

We also evaluate the facts and circumstances related to our customers and consider whether risk of loss has not passed to the customer upon shipment. We consider whether our customer is purchasing our product for stock, and whether contractual or implied rights to return the product exist or whether our customer has an end user contractually committed. To date, we have not offered rights to return our products other than for normal warranty conditions.

We maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. If the financial condition of our customers were to deteriorate, such that their ability to make payments was impaired, additional allowances could be required.

Revenue from research grants is recognized as services are rendered to the extent of allowable costs incurred.

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. We have provided for estimated future warranty costs of approximately $705,000 as of December 31, 2006, representing our best estimate of the likely expense associated with fulfilling our obligations under such warranties. 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.

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. Total equity compensation expense recognized during the year ended December 31, 2006 was approximately $5.1 million. 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 are the vesting periods, less estimated forfeitures. 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. The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option valuation model with the following weighted-average assumptions:


	2004	2005	2006

Expected options term	7	7	6.25
Risk-free interest rate	4.0%	4.0%	4.9%-5.1%
Expected dividend yield	None	None	None
Volatility	90%	90%	130%

See Note 7 of our 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.

Inventory

Inventory is valued at the lower of cost or market. Certain factors may impact the realizable value of our inventory including, but not limited to, technological changes, market demand, changes in product mix strategy, new product introductions and significant changes to our cost structure. Estimates of obsolescence are based on the product on hand and its expected net realizability. If actual market conditions are less favorable or other factors arise that are significantly different than those anticipated by management, additional inventory write-downs or increases in obsolescence reserves may be required. We consider lower of cost or market adjustments and inventory reserves as an adjustment to the cost basis of the underlying inventory. Accordingly, favorable changes in market conditions are not recorded to inventory in subsequent periods.

Long-lived Assets

Our policy regarding long-lived assets is to evaluate the recoverability or usefulness of these assets when the facts and circumstances suggest that these assets may be impaired. This analysis relies on a number of factors, including changes in strategic direction, business plans, regulatory developments, economic and budget projections, technological improvements, and operating results. The test of recoverability or usefulness is a comparison of the asset value to the undiscounted cash flow of its expected cumulative net operating cash flow over the asset’s remaining useful life. If such a test indicates that an impairment is required, then the asset is written down to its estimated fair value. Any write-downs would be treated as permanent reductions in the carrying amounts of the assets and an operating loss would be recognized. To date, we have had recurring operating losses and the recoverability of our long-lived assets is contingent upon executing our business plan that includes further reducing our manufacturing costs and significantly increasing sales. If we are unable to execute our business plan, we may be required to write down the value of our long-lived assets in future periods. All of our long-lived assets are located in the United States.

Income Taxes

We are required to estimate our income taxes in each of the jurisdictions in which we operate as part of our consolidated financial statements. This involves estimating the actual current tax in addition to assessing temporary differences resulting from differing treatments for tax and financial accounting purposes. These differences together with net operating loss carryforwards and tax credits may be recorded as deferred tax assets or liabilities on the balance sheet. A judgment must then be made of the likelihood that any deferred tax assets will be recovered from future taxable income. To the extent that we determine that it is more likely than not that deferred tax assets will not be utilized, a valuation allowance is established. Taxable income in future periods significantly different from that projected may cause adjustments to the valuation allowance that could materially increase or decrease future income tax expense.

Results of Operations

Description of Our Revenues, Costs and Expenses

Revenues. Total revenues for the Company consist of revenues from the sale of products and to a lesser extent, research revenue. Product revenues consist of revenues from the sale of solar cells, panels and systems. Research revenues consist of revenues form various state and federal government agencies to fund our ongoing research, development, testing and enhancement of our products and manufacturing technologies. Our current intention is not to pursue research contracts that are not part of our ongoing research activities. Product revenues represented 99%, 99% and 94% of total revenues, in 2006, 2005 and 2004, respectively. International product sales accounted for approximately 63%, 71% and 74% of total product revenues for the years ended December 31, 2006, 2005 and 2004, respectively. During 2006, we had one active multi-year research contract with the National Renewable Energy Laboratory.

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:


% of Total Revenue	2004			2005			2006

By geography:
United States		25	%		28	%		37	%
Germany		69	%		63	%		48	%
Spain		—	%		—	%		13	%
All other		6	%		9	%		2	%

		100	%		100	%		100	%

By customer:
Krannich Solartechnik		44	%		20	%		3	%
Donauer Solartechnik		19	%		19	%		13	%
PowerLight Corporation		0	%		—	%		10	%
All other		37	%		61	%		74	%

		100	%		100	%		100	%

Cost of product revenues. Cost of product revenues consists primarily of salaries and related personnel costs, materials expenses, depreciation expenses, maintenance, rent, compensation cost associated with the adoption of SFAS 123R 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.

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, accounting and legal 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. However, future increases in selling expenses may be reimbursed by EverQ.

Other income (loss). Other income consists of interest income primarily from interest earned on the holding of short-term marketable securities, bond premium amortization (or discount accretion), interest on outstanding debt and net foreign exchange gains and losses.

Equity income in EverQ. As of December 20, 2006, we began accounting for our share of EverQ’s results under the equity method of accounting, which requires us to record our one-third share of EverQ’s net income or loss as one line item in our consolidated statement of operations. During the period from December 20, 2006 to December 31, 2006, EverQ recorded approximately $1.5 million in net income, of which we recorded approximately $495,000 in our consolidated statement of operations.

Minority interest. Through December 19, 2006, we consolidated the financial results of EverQ in our financial statements. Through December 19, 2006, EverQ incurred losses of $2.4 million, which are consolidated in our financial statements. However, $849,000 of those losses represent the portion of EverQ losses attributable to the Q-Cells and REC minority interests for the period ended December 19, 2006.

Accretion, dividends and conversion premiums on Series A convertible preferred stock. On May 15, 2003, we issued 26,227,668 shares of Series A convertible preferred stock at a per share purchase price of $1.12 to several purchasers. Outstanding shares of Series A convertible preferred stock were entitled to a compounding

dividend of 10% per annum, paid quarterly, in cash, or at our election to be added to the liquidation preference of the series A convertible preferred stock on a quarterly basis, which would result in an increase in the number of shares of common stock issuable upon conversion of the Series A convertible preferred stock. On June 21, 2004, holders of all outstanding shares of Series A convertible preferred stock agreed to convert all of their shares of Series A convertible preferred stock into shares of our common stock in connection with our private placement financing. During the first quarter of 2004, the Series A convertible preferred stock earned a dividend of approximately $0.7 million, which we elected to add to the liquidation preference of the Series A convertible preferred stock. As an inducement to convert their shares into common stock in connection with our June 2004 private placement financing, the remaining Series A preferred stockholders received the dividend earned for the period between April 1, 2004 and June 21, 2004 in cash, which totaled approximately $0.5 million. In addition, the Series A convertible preferred stockholders received a cash conversion premium of 7% of the accreted value as of March 31, 2004, which totaled $1.7 million. Therefore, the total dividend and conversion premium charge we recorded for the period ended December 31, 2004 was approximately $2.9 million.

Net loss attributable to common stockholders. Net loss attributable to common stockholders consists of net losses and dividends earned by the Series A convertible preferred stockholders.

COMPARISON OF YEARS ENDED DECEMBER 31, 2006 AND 2005

Revenues. Our product revenues for the year ended December 31, 2006 were $102.3 million, an increase of $58.6 million, or 134%, from $43.6 million for the same period in 2005. The increase in product revenues was due primarily to sales of product manufactured by EverQ, which began shipping product in 2006 and accounted for approximately $57.3 million of total revenue. The first EverQ factory was completed in 2006 and reached its full capacity run rate by the fourth quarter of 2006.

Research revenues for the year ended December 31, 2006 were $894,000, an increase of $489,000 or 121%, from $405,000 for the same period in 2005. The current active research contract with National Renewable Energy began during the third quarter of 2005.

Through December 19, 2006, we consolidated the financial results of EverQ and recognized revenues associated with the sale of EverQ products. After December 19, 2006, we no longer consolidate the financial results of EverQ and accordingly, do not recognize revenues associated with the sale of EverQ product. However, under our sales agreement with EverQ, we will continue to market and sell all solar modules manufactured by EverQ under the Evergreen Solar brand, as well as manage customer relationships and contracts. We will receive fees from EverQ for reimbursement of our expenses, and will no longer report gross revenue or cost of goods sold resulting from the sale of EverQ’s solar module production. As a result, our reported product revenues will be significantly lower in 2007. However, worldwide sales of product manufactured using our string ribbon technology, which includes products manufactured at our Marlboro facility, as well as EverQ products, should increase substantially as EverQ’s second factory is completed during the first half of 2007.

Cost of product revenues and gross margin. Our cost of product revenues for the year ended December 31, 2006 was $90.3 million, an increase of $50.3 million, or 126%, from $40.0 million for the same period in 2005. The increase was due to the cost of product revenues associated with production at EverQ, which accounted for approximately $48.1 million of total cost of product revenue. Gross margin for the year ended December 31, 2006 was 11.6% versus 8.3% for the year ended December 31, 2005. The year-over-year improvement in product gross margin primarily resulted from improving gross margins of EverQ as manufacturing reached full capacity at its first manufacturing facility. Further improvements in gross margin may result from increases in manufacturing scale and technology improvements.

Research and development expenses. Our research and development expenses for the year ended December 31, 2006 were $19.1 million, an increase of $8.0 million, or 72%, from $11.1 million for the same period in 2005. Approximately 54% of the increase was due to increased labor costs (including $1.6 million of expense related to the adoption of SFAS 123R) and approximately 23% of the increase was due to increases in material costs associated with internal initiatives aimed at improving our manufacturing technology.

Loss on disposal of fixed assets. During the year, as a result of the successful introduction of new manufacturing technology, we disposed of existing equipment in order to replace them with more technologically advanced equipment expected to improve operational performance of our technology. Equipment with a total net book value of $1.5 million was disposed of.

Selling, general and administrative expenses. Our selling, general and administrative expenses for the year ended December 31, 2006 were $21.2 million, an increase of $8.9 million, or 73%, from $12.3 million in 2005. Approximately 51% of the increase was due to increased compensation costs associated with additional personnel (including $3.0 million of expense related to the adoption of SFAS 123R, net of terminations), approximately 25% of the increase was due to general and administrative costs incurred by EverQ which are included in our consolidated statement of operations through December 19, 2006, approximately 9% related to increased legal and accounting expenses and most of the remainder was due to an increase in sales and marketing expenses incurred to support the increase in worldwide sales.

Other income. Other income for the period ended December 31, 2006 was comprised of $3.3 million in net foreign exchange gains, $4.6 million in interest income and $6.1 million in interest expense. Other income for the period ended December 31, 2005 consisted of $5,000 in foreign exchange gains, $527,000 gain on the sale of a portion of our EverQ interest to REC, $3.1 million in interest income and $2.5 million in interest expense. The increase in interest income was due to the larger average cash, cash equivalents and marketable securities balances during 2006 due to the 2005 common stock and subordinated convertible debt financings. Interest expense increased due to interest charges associated with increased debt incurred by EverQ as well as the impact of a full year’s worth of interest expense related to the convertible notes.

Net loss. Net loss was $26.7 million and $17.3 million for the years ended December 31, 2006 and December 31, 2005, respectively. The increase in net loss was due primarily to the overall increase in net operating losses associated with the scale-up of EverQ operations as well as the impact of recognizing $5.1 million in expense related to the adoption of SFAS 123R.

COMPARISON OF YEARS ENDED DECEMBER 31, 2005 AND 2004

Revenues. Our product revenues for the year ended December 31, 2005 were $43.6 million, an increase of $21.4 million, or 96%, from $22.2 million for the same period in 2004. The increase in product revenues was due primarily to the doubling of production capacity at our manufacturing facility in Marlboro, Massachusetts. Research revenues for the year ended December 31, 2005 were $405,000, a decrease of $891,000, or 69%, from $1.3 million for the same period in 2004. Research revenue decreased because our last active research contract with the National Renewable Energy Laboratory expired during the first quarter of 2005, and our current research contract with the National Renewable Energy Laboratory began in July 2005.

Cost of product revenues. Our cost of product revenues for the year ended December 31, 2005 was $40.0 million, an increase of $10.2 million, or 34%, from $29.7 million for the same period in 2004. Substantially all of the increase was due to increases in materials and labor costs associated with the increased production of the Marlboro manufacturing facility. Product gross margin improved to 8.3% primarily due to improvements in yield and efficiency, increased sales volume and favorable exchange rates.

Research and development expenses. Our research and development expenses for the year ended December 31, 2005 were $11.1 million, an increase of $7.4 million, or 204%, from $3.6 million for the same period in 2004. Approximately 41% of the increase was due to increased labor costs associated with additional personnel, approximately 20% of the increase was due to increases associated with internal initiatives aimed to improve our manufacturing technology (including the thin ribbon and quad furnace technologies) and activities associated with the planning for the next manufacturing capacity expansion, and approximately 26% of the increase was due to engineering costs associated with the development of the manufacturing process of EverQ.

Selling, general and administrative expenses. Our selling, general and administrative expenses for the year ended December 31, 2005 were $12.3 million, an increase of $4.5 million, or 57%, from $7.8 million in 2004. Approximately 58% of the increase was due to general and administrative costs incurred by EverQ, approximately 7% of the increase was due to increased compensation costs associated with added personnel,

and most of the remainder of the increase was due to increased costs associated with the requirement to comply with various aspects of the Sarbanes-Oxley Act, most notably Section 404 regarding reporting on internal controls over financial reporting.

Other income (loss). Other income for the period ended December 31, 2005 was comprised of $5,000 in net foreign exchange gains, $527,000 from the gain on the sale of a portion of our initial interest in EverQ to REC, $3.1 million in interest income and $2.5 million in interest expense. Other loss for the period ended December 31, 2004 consisted of $618,000 in foreign exchange losses, $238,000 in interest income and $74,000 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.

Net loss. Net loss was $17.3 million and $22.3 million for the years ending December 31, 2005 and December 31, 2004, respectively. The decrease in net loss was due to a decrease in the combined accretion and dividend charges associated with the conversion to common shares of the Series A preferred stock, partially offset by an overall increase in net operating losses associated with the scale-up of our operations.

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 December 31, 2006, we had working capital of $57.6 million, including cash, cash equivalents and marketable securities of $49.4 million.

Net cash used in operating activities was $15.3 million, $7.3 million and $10.3 million for the years ended December 31, 2004, 2005 and 2006, respectively. The use of cash for operating activities in the year ended December 31, 2006 was due primarily to losses from operations of $26.7 million, increases in accounts receivable of $17.4 million and increases in inventory of $11.0 million offset by a net increase in deferred grants funding of $19.0 million, increases in accrued expenses of $15.3 million and depreciation expense and losses on fixed assets disposals of $11.7 million. In general, net cash used in operating activities for the year ended December 31, 2006 was primarily due to supporting the increase in working capital requirements of EverQ as the first manufacturing facility ramped to full production by the end of the third quarter of 2006. Since we consolidated the cash flows of EverQ through December 19, 2006, the increase in working capital requirements are included in our consolidated statements of cash flows. The use of cash for operating activities in the year ended December 31, 2005 was due primarily to losses from operations of $17.3 million and an increase in other current assets of $2.7 million, offset by increases in accounts payable of $9.3 million, a decrease in accounts receivable of $2.1 million and depreciation and losses on fixed asset disposals of $4.2 million. The use of cash for operating activities in the year ended December 31, 2004 was due primarily to losses from operations of $19.4 million and an increase in accounts receivable of $5.2 million, offset by increases in accounts payable and accrued expenses of approximately $4.3 million and depreciation and losses on fixed asset disposals of $5.5 million.

Net cash used in investing activities was $2.1 million, $137.3 million and $85.5 million for the years ended December 31, 2004, 2005 and 2006, respectively. Net cash used in investing activities for the years ended December 31, 2004, 2005 and 2006 was primarily due to purchases of equipment and marketable securities, partially offset by proceeds from the sale and maturity of marketable securities. As of December 31, 2006, we no longer consolidate the balance sheet of EverQ and therefore, our cash balance at December 31, 2006 excludes EverQ’s cash balances, and the decrease in EverQ’s cash balance is reflected as a use of cash in investing activities of $22.3 million.

Net cash provided by financing activities was $18.1 million, $171.2 million and $75.0 million for the years ended December 31, 2004, 2005 and 2006, respectively. The cash provided by financing activities for the year ended December 31, 2006 primarily represents an increase in EverQ debt through December 19, 2006 and cash received upon the exercise of stock options and warrants. The cash provided by financing activities

for the year ended December 31, 2005 primarily represents 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. The cash provided by financing activities during the year ended December 31, 2004 represents net proceeds from common stock issued in conjunction with the common stock private placement, offset by dividends and conversion premiums paid to the Series A convertible preferred shareholders.

Capital expenditures were $10.9 million, $57.7 million (which includes $8.2 million of deposits for the manufacture of fixed assets) and $107.7 million (which includes $7.0 million of deposits for the manufacture of fixed assets) for the years ended December 31, 2004, 2005 and 2006, respectively. Capital expenditures for the year ended December 31, 2004 were primarily for equipment needed for our Marlboro manufacturing facility. Capital expenditures for the year ended December 31, 2005 and for the year ended December 31, 2006 were primarily for equipment needed for our manufacturing facility and equipment for EverQ. As of December 31, 2006, we had outstanding commitments for capital expenditures of approximately $6.3 million. Nearly all of our commitments for capital expenditures are associated with infrastructure improvements and equipment purchases for our Marlboro facility, including the build-out of our research and development facility in Marlboro.

In February 2005, we completed a $62.3 million common stock offering, net of offering costs of approximately $4.4 million, to satisfy existing capital requirements and to fund the continuing capacity expansion of our Marlboro, Massachusetts manufacturing and development facilities and the expenditures necessary for the initial build-out and initial operation of EverQ. For this common stock offering, we issued 13,346,000 shares of our common stock. The shares of common stock were sold at a per share price of $5.00 (before deducting underwriting discounts), which represented a 6% discount to the $5.30 closing price of shares of our common stock as reported on the Nasdaq Global Market as of the close of business on February 3, 2005.

In June 2005, we issued convertible subordinated notes (“Notes”) in the aggregate principal amount of $90.0 million, and we received proceeds of $86.9 million, net of offering costs. A portion of the proceeds from the financing was used to increase research and development spending on promising next generation technologies, to explore further expansion opportunities and to fulfill our commitments with EverQ. 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 our common 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, we 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

We may redeem the Notes on or after July 6, 2008 and prior to July 1, 2010 only if the closing price of our 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 we provide notice of redemption. We 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 our 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, we may under certain circumstances be required to pay a premium on redemption which will be a number of additional shares of our common stock as determined by our stock price and the effective date of the change in control.

The Notes are subordinate in right of payment to all of our existing and future senior debt.

We incurred financing costs of approximately $3.1 million which are being amortized ratably over the seven year term of the Notes. For the year ended December 31, 2006, we recorded $3.9 million in interest expense associated with the Notes.

EverQ Debt Guarantee

EverQ entered into a 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”). 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. The Facility A interest rate is the Euro 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 December 31, 2006, EverQ had total obligations outstanding under this Credit Agreement of 7.0 million Euro ($9.2 million at December 31, 2006 exchange rates).

Evergreen Solar Loans to EverQ

In November 2005, we entered into a Shareholder Loan Agreement to provide EverQ with a loan totaling 8.0 million Euro. During 2006, we provided EverQ with additional loans to help fund the initial financing requirement of the first two factories currently under construction. Additional loans may be required by the shareholders of EverQ to partially finance future EverQ expansions. The table below summarizes the principal and terms of all outstanding loans provided by the Company:


Date of Loan	Principal		Principal (USD)		Interest Rate			Date Due

November 23, 2005	€	4,000,000	$	5,278,800		5.40	%	June 30, 2010
February 2, 2006	€	4,000,000	$	5,278,800		5.40	%	June 30, 2010
April 18, 2006	€	850,000	$	1,121,745		5.86	%	January 31, 2007
April 27, 2006	$	4,343,500	$	4,343,500		8.02	%	January 31, 2007
June 8, 2006	€	3,825,000	$	5,047,853		5.72	%	January 31, 2007
June 30, 2006	€	1,700,000	$	2,243,490		5.81	%	January 31, 2007
August 28, 2006	$	9,800,000	$	9,800,000		8.00	%	January 31, 2007
November 21, 2006	$	6,350,000	$	6,350,000		5.75	%	January 31, 2007

			$	39,464,188

We believe that our current cash, cash equivalents, marketable securities, coupled with our ability to access the capital markets, will be sufficient to fund our planned capital programs, our current commitments with EverQ and our operating expenditures over the next twelve months. We may be required to raise additional capital to respond to competitive pressures, to acquire complementary businesses, to provide further funding for EverQ, to secure raw materials and/or necessary technologies. We do not know whether we will be able to raise additional capital on terms favorable to us. If adequate capital is not available or is 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, other than routine operating leases associated with our Marlboro facilities.

Contractual Obligations

The following table summarizes our contractual obligations as of December 31, 2006 and the effect such obligations are expected to have on our liquidity and cash flow in future periods (in thousands):


	Total		Less Than
	Years		1 Year		1-3 Years		4-5 Years		After 5 Years

Non-cancelable operating lease	$	4,539	$	991	$	2,858	$	676	$	14
Maturity of Convertible Debt		90,000		—		—		—		90,000
Interest expense associated with Convertible Debt		25,595		3,938		11,813		7,875		1,969
Capital expenditure obligations		6,269		6,269		—		—		—
Raw materials purchase commitments		4,116		4,116		—		—		—

Total contractual cash obligations	$	130,519	$	15,314	$	14,671	$	8,551	$	91,983

INCOME TAXES

As of December 31, 2006, we had federal and state net operating loss carryforwards estimated to be approximately $89.5 million and $67.9 million, respectively, available to reduce future taxable income and tax liabilities which begin to expire in 2010 and 2007, respectively. In addition, we have excess tax deductions of approximately $8.9 million relating to equity compensation for which the benefit, when realized, will be recognized in our financial statements when it results in a reduction of taxes payable with a corresponding credit to additional paid in capital of approximately $3.0 million in accordance with SFAS 123R. We also have federal and state research and development tax credit carryforwards of approximately $1.1 million and $1.0 million, respectively, which begin to expire in 2010 and state Investment Tax Credit carryforwards of approximately $1.2 million which began to expire in 2006, available to reduce future tax liabilities.

We have evaluated the positive and negative evidence bearing upon the realization of our deferred tax assets. We have considered our history of losses and, in accordance with the applicable accounting standards, have fully reserved the deferred tax asset.

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. 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 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 does not expect the adoption of EITF 06-03 to have a material impact on its consolidated financial position, results of operations or cash flows.

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (SFAS No. 157). SFAS No. 157 establishes a common definition for fair value to be applied to US GAAP guidance requiring use of fair value, establishes a framework for measuring fair value, and expands disclosure about such fair value measurements. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007. The Company is currently assessing the impact of SFAS No. 157 on its consolidated financial position and results of operations.


ITEM 7A.	*QUANTITATIVE AND QUALITATIVE DISCLOSURES 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 liquidity and 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 ended December 31, 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 62% of revenues for the year ended December 31, 2006. Since our Euro-denominated sales represent a significant portion of our total revenue, a hypothetical 10 percent adverse change in exchange rates 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.

In 2004, we began to manage our foreign exchange risk through the use of derivative financial instruments. These financial instruments served to protect cash flows against the impact of the translation into U.S. dollars of foreign exchange denominated transactions. As of December 31, 2004, we had forward currency contracts denominated in foreign currencies totaling 8.5 million Euro. At December 31, 2004, the fair market value of outstanding forward exchange contracts was $11.6 million. We recorded unrealized losses of approximately $683,000 for the year ended December 31, 2004, in connection with the marking to market of these forward contracts. All contracts outstanding at December 31, 2004 were settled during the first quarter of 2005 and we had no outstanding forward contracts as of December 31, 2005 and 2006.


ITEM 8.	*FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.*

The Company’s Financial Statements and related Notes and the Report of the Independent Registered Public Accounting Firm are included beginning on page F-1 of this Annual Report on Form 10-K.


ITEM 9.	*CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.*

None.


ITEM 9A.	*CONTROLS AND PROCEDURES.*

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective.

Internal Control Over Financial Reporting

During the fiscal quarter ended December 31, 2006, there has been no change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Management’s Report on Internal Control Over Financial Reporting.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Our internal control system was designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation and fair presentation of published financial statements.

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under the framework in Internal Control — Integrated Framework, our management concluded that our internal control over financial reporting was effective as of December 31, 2006.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions and that the degree of compliance with the policies or procedures may deteriorate.

Our management’s assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2006 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which is included herein.


ITEM 9B.	*OTHER INFORMATION.*

The Company expects to hold its 2007 Annual Meeting of Stockholders on or about June 15, 2007.

PART III


ITEM 10.	*DIRECTORS, EXECUTIVE OFFICERS OF THE REGISTRANT AND CORPORATE GOVERNANCE MATTERS.*

Information regarding the Company’s named executive officers and its directors is set forth under “Compensation and Other Information Concerning Officers and Directors” in the 2007 Proxy Statement, which information is incorporated herein by reference.

Information regarding Section 16 reporting compliance is set forth under “Section 16(a) Beneficial Ownership Reporting Compliance” in the 2007 Proxy Statement, which information is incorporated herein by reference.

Our Board of Directors has adopted a Code of Business Conduct and Ethics (the “Code of Ethics”) for the Company’s Chief Executive Officer, Chief Financial Officer and all other members of management, all directors and all employees and agents of the Company. The Code of Ethics is intended to promote the highest standards of honest and ethical conduct throughout the Company, full, accurate and timely reporting, and compliance with law, among other things. A copy of the Code of Ethics is posted on our website at www.evergreensolar.com.

The Code of Ethics prohibits any waiver from the principles of the Code of Ethics without the prior written consent of our Board of Directors. To date, there have been no waivers under our Code of Ethics. We will post any waivers, if and when granted, of our Code of Ethics on our website at www.evergreensolar.com, in accordance with the rules of the Securities and Exchange Commission.


ITEM 11.	*EXECUTIVE COMPENSATION.*

Information required by this item regarding the Company’s compensation of its named executive officers and its directors is set forth under “Compensation and Other Information Concerning Officers and Directors” in the 2007 Proxy Statement, which information is incorporated herein by reference.


ITEM 12.	*SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.*

Information required by this item concerning security ownership of certain beneficial owners, directors and executive officers is set forth under “Securities Ownership of Certain Beneficial Owners and Management” and “Equity Compensation Plans” in the 2007 Proxy Statement, which information is incorporated herein by reference.


ITEM 13.	*CERTAIN RELATIONSHIPS, RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE.*

Information required by this item regarding certain relationships and related transaction is set forth under “Certain Relationships and Related Transactions” in the 2007 Proxy Statement, and is incorporated herein by reference.


ITEM 14.	*PRINCIPAL ACCOUNTANT FEES AND SERVICES.*

The information required under this item may be found under the caption “Independent Registered Public Accounting Firm” in the 2007 Proxy Statement, and is incorporated herein by reference.

PART IV


ITEM 15.	*EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.*

(a) The following documents are filed as part of this Annual Report on Form 10-K:

1. All Financial Statements. The financial statements included in Item 8 of Part II which appear beginning on page F-1 of this Annual Report on Form 10-K.

2. All other schedules are omitted as the required information is inapplicable or the information is presented in the Consolidated Financial Statements and notes thereto in Item 8 of Part II which appear beginning on page F-1 of this Annual Report on Form 10-K.

3. Exhibits. See Item 15(b) of this Annual Report on Form 10-K below.

(b) The following exhibits


Exhibit
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)
	3	.6(14)	Certificate of Amendment of Third Amendment and Restated Certificate of Incorporation filed with the Secretary of State of Delaware on January 8, 2007. (Exhibit 3.1)
	4	.1(10)	Indenture, dated as of June 29, 2005, between the Registrant and U.S. Bank National Association, as Trustee. (Exhibit 4.4)
	4	.2(10)	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(13)*	Amended and Restated 2000 Stock Option and Incentive Plan. (Exhibit 99.1)
	10	.4(13)*	Amended and Restated 2000 Employee Stock Purchase Plan. (Exhibit 99.2)
	10	.5(2)	Lease Agreement between Registrant and W9/TIB Real Estate Limited Partnership dated as of January 31, 2000, as amended. (Exhibit 10.5)
	10	.6(2)	Form of Indemnification Agreement between Registrant and each of its directors and executive officers. (Exhibit 10.9)
	10	.7(6)	Stock and Warrant Purchase Agreement dated as of March 21, 2003. (Exhibit 10.1)
	10	.8(6)	Form of Registration Rights Agreement. (Exhibit 10.3)
	10	.9(5)	Voting Agreement dated as of March 21, 2003. (Exhibit 10.2)
	10	.10(8)	Stock and Warrant Purchase Agreement dated June 16, 2004. (Exhibit 10.1)
	10	.11(8)	Warrant Agreement dated June 21, 2004. (Exhibit 10.2)
	10	.12(8)	Form of Warrants. (Exhibit 10.3)


Exhibit
Number			Description

	10	.13(8)	Registration Rights Agreement dated June 21, 2004. (Exhibit 10.4)
	10	.14(8)	Conversion, Consent, Voting and Lock-Up Agreement dated June 21, 2004. (Exhibit 10.5)
	10	.15(9)†	Master Joint Venture Agreement entered into as of November 24, 2005 by and among Evergreen Solar, Inc., Q-Cells AG, Renewable Energy Corporation and EverQ GmbH. (Exhibit 10.17)
	10	.16(9)†	License and Technology Transfer Agreement by and between Evergreen Solar, Inc. and EverQ GmbH, dated November 24, 2005. (Exhibit 10.18)
	10	.17(9)†	Technology Co-Operation Agreement by and between Renewable Energy Corporation and Evergreen Solar, Inc. dated November 24, 2005. (Exhibit 10.19)
	10	.18(7)*	Evergreen Solar, Inc. Management Incentive Policy. (Exhibit 10.20)
	10	.19(12)	Purchase Agreement, dated June 23, 2005 between the Registrant and SG Cowen & Co., LLC, as representatives of the Initial Purchasers. (Exhibit 10.24)
	10	.20(10)	Registration Rights Agreement, dated June 29, 2005, between the Registrant and SG Cowen & Co., LLC, as representative of the Initial Purchasers. (Exhibit 10.21)
	10	.21(11)†	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)
	10	.22(13)†	Amendment to the Master Joint Venture Agreement entered into as of September 29, 2006, by and among Q-Cells AG, the Company, Renewable Energy Corporation, REC Solar Grade Silicon LLC and EverQ GmbH. (Exhibit 10.26)
	10	.23(13)†	Sales Representative Agreement by and between the Company and EverQ GmbH dated September 29, 2006. (Exhibit 10.27)
	10	.24(13)†	Amended and Restated License and Technology Transfer Agreement by and between the Company and EverQ GmbH, dated September 29, 2006. (Exhibit 10.18)
	14	.1(15)	Code of Business Conduct and Ethics of Evergreen Solar, Inc. (Exhibit 14.1)
	23	.1	Consent of PricewaterhouseCoopers LLP, an Independent Registered Public Accounting Firm.
	23	.2	Consent of Leipzig, Germany PricewaterhouseCoopers AG
	24	.1	Power of Attorney. (included on Page II-1)
	31	.1	CEO Certification 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	CFO Certification 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	CEO Certification pursuant to Rule 13a-14(b) and Rule 15d-14(b) of the Securities Exchange Act of 1934, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
	32	.2	CFO Certification pursuant to Rule 13a-14(b) and Rule 15d-14(b) of the Securities Exchange Act of 1934, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
	99	.1	EverQ GmbH balance sheet for the period ended December 31, 2006.
	99	.2	EverQ GmbH income statement for the period December 20 to December 31, 2006.
	99	.3	EverQ GmbH cash flow for the period December 20 to December 31, 2006.
	99	.4	EverQ GmbH notes to the financial statements for the period December 20 to December 31, 2006.


†		Confidential treatment granted 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 7, 2005. 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, filed on August 4, 2000. 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. 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. 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 filed on March 24, 2003. 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 March 24, 2003. 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 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.

(8)		Incorporated herein by reference to the exhibits to the Company’s Current Report on Form 8-K dated June 22, 2004. 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 for the period ended December 31, 2005 filed on March 16, 2006. 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 Current Report on Form 8-K dated June 29, 2005. The number given in parenthesis indicates the corresponding exhibit number in such Form 8-K.

(11)		Incorporated herein by reference to the exhibits to the Company’s Current Report on Form 8-K dated June 9, 2006. The number given in parenthesis indicates the corresponding exhibit number in such Form 8-K.

(12)		Incorporated herein by reference to the exhibits to the Company’s Current 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.

(13)		Incorporated herein by reference to the exhibits to the Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2006 filed on November 7, 2006. The number given in parenthesis indicates the corresponding exhibit number in such Form 10-Q.

(14)		Incorporated herein by reference to the exhibits to the Company’s Current Report on Form 8-K dated January 8, 2007. The number given in parenthesis indicates the corresponding exhibit number in such Form 8-K.

(15)		Incorporated herein by reference to the exhibits to the Company’s Annual Report on Form 10-K/A dated April 29, 2004. The number given in parenthesis indicates the corresponding exhibit number in such Form 10-K/A.

The Company hereby files as part of this Annual Report on Form 10-K the exhibits listed in Item 15(b) set forth above. Exhibits which are incorporated herein by reference may be inspected and copied at the public reference facilities maintained by the SEC at the SEC’s Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the SEC’s regional offices located at 233 Broadway, New York, New York 10279, and at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60611-2511. Copies of such material may be obtained by mail from the Public Reference Section of the SEC at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The public may obtain information on the operation of the Public Reference Room by calling 1-800-SEC-0330. The SEC also maintains a web site that contains reports, proxy and information statements and other information regarding registrants that file electronically with the SEC at the address http://www.sec.gov.

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of

Evergreen Solar, Inc.:

We have completed integrated audits of Evergreen Solar, Inc.’s consolidated financial statements and of its internal control over financial reporting as of December 31, 2006 in accordance with the standards of the Public Company Accounting Oversight Board (United States). Our opinions, based on our audits, are presented below.

Consolidated financial statements and financial statement schedule

In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of Evergreen Solar, Inc. and its subsidiaries at December 31, 2006 and 2005, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2006 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statements schedule listed in the accompanying index presents fairly, in all materials respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit of financial statements includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

As discussed in Note 7 to the consolidated financial statements, the Company changed the manner in which it accounts for share-based compensation in 2006.

Internal control over financial reporting

Also, in our opinion, management’s assessment, included in the accompanying Management’s Report on Internal Control Over Financial Reporting appearing in Item 9A, that the Company maintained effective internal control over financial reporting as of December 31, 2006 based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), is fairly stated, in all material respects, based on those criteria. Furthermore, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2006, based on criteria established in Internal Control — Integrated Framework issued by the COSO. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express opinions on management’s assessment and on the effectiveness of the Company’s internal control over financial reporting based on our audit. We conducted our audit of internal control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. An audit of internal control over financial reporting includes obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we consider necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail,

F-2

accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

PricewaterhouseCoopers LLP

Boston, Massachusetts

February 27, 2007

F-3

EVERGREEN SOLAR, INC.

CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2005 AND 2006


	December 31,			December 31,
	2005			2006
	(In thousands, except share data)

ASSETS
Current assets:
Cash and cash equivalents	$	30,742		$	6,828
Marketable securities		85,465			42,593
Accounts receivable, net of allowance for doubtful accounts and sales discounts of $65 and $150 at December 31, 2005 and December 31, 2006, respectively		4,124			25,278
Grants Receivable		16,295			—
Inventory		3,634			4,767
Interest receivable		541			675
Other current assets		4,052			1,853

Total current assets		144,853			81,994
Investment in and advances to EverQ		—			70,460
Deposits		8,217			1,433
Restricted cash		1,582			414
Deferred financing costs		2,877			2,434
Fixed assets, net		71,430			50,516

Total assets	$	228,959		$	207,251


LIABILITIES, MINORITY INTEREST AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	12,210		$	18,465
EverQ short term borrowings		4,131			—
Other accrued expenses		1,625			2,443
Accrued employee compensation		1,778			2,791
Accrued warranty		705			705

Total current liabilities		20,449			24,404
Subordinated convertible notes		90,000			90,000
EverQ deferred grants		16,284			—
Other long-term debt — EverQ		3,553			—

Total liabilities		130,286			114,404
Commitments and contingencies (Note 11)
Minority interest in EverQ		11,223			—
Stockholders’ equity:
Common stock, $0.01 par value, 100,000,000 shares authorized, 61,965,231 and 68,066,204 issued and outstanding at December 31, 2005 and December 31, 2006, respectively		620			681
Additional paid-in capital		182,345			211,053
Accumulated deficit		(93,009	)		(119,678	)
Deferred compensation		(1,036	)		—
Accumulated other comprehensive income (loss)		(1,470	)		791

Total stockholders’ equity		87,450			92,847

Total liabilities, minority interest and stockholders’ equity	$	228,959		$	207,251

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

F-4

EVERGREEN SOLAR, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS


	For the Years Ended December 31,
	2004			2005			2006
	(In thousands, except per share data)

Revenues:
Product revenues	$	22,240		$	43,627		$	102,252
Research revenues		1,296			405			894

Total revenues		23,536			44,032			103,146

Cost of revenue:
Product revenue costs		29,717			39,954			90,310
Research revenue costs		1,296			405			894

Total cost of revenue		31,013			40,359			91,204

Gross profit (loss)		(7,477	)		3,673			11,942
Operating expenses:
Research and development		3,635			11,056			19,064
Selling, general and administrative		7,797			12,274			21,216
Loss on disposal of fixed assets		—			—			1,526

Total operating expenses		11,432			23,330			41,806

Operating loss		(18,909	)		(19,657	)		(29,864	)
Other income:
Foreign exchange gains (losses), net		(618	)		5			3,322
Gain on investment in EverQ		—			527			—
Interest income		238			3,140			4,613
Interest expense		(74	)		(2,526	)		(6,084	)

Other income (loss), net		(454	)		1,146			1,851

Loss from operations before minority interest		(19,363	)		(18,511	)		(28,013	)
Minority interest in EverQ		—			1,195			849
Equity income from interest in EverQ		—			—			495

Net loss		(19,363	)		(17,316	)		(26,669	)
Accretion, dividends and conversion premiums on Series A convertible preferred stock		(2,904	)		—			—

Net loss attributable to common stockholders	$	(22,267	)	$	(17,316	)	$	(26,669	)

Net loss per share attributable to common stockholders (basic and diluted)	$	(0.67	)	$	(0.29	)	$	(0.41	)
Weighted average shares used in computing basic and diluted net loss per share attributable to common stockholders		33,204			59,631			65,662

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

F-5

EVERGREEN SOLAR, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY


														Accumulated
					Additional									Other			Total
	Common Stock				Paid-In			Deferred			Accumulated			Comprehensive			Stockholders’			Comprehensive
	Shares		Amount		Capital			Compensation			Deficit			Income (Loss)			Equity			Loss
	(In thousands)

Balance at January 1, 2004		15,126	$	151	$	73,239		$	(89	)	$	(56,330	)	$	(27	)	$	16,944
Issuance of common stock pursuant to exercise of options		18		—		22												22
Shares of common stock issued under ESPP		2		—		11												11
Conversion of Series A convertible preferred stock to common stock		24,733		247		27,457												27,704
Compensation expense associated with stock options						58			89									147
Issuance of common stock in connection with private equity financing, net of offering costs		7,663		77		18,694												18,771
Dividend on Series A convertible preferred stock						(2,904	)											(2,904	)
Issuance of common stock warrant to Silicon Valley Bank						187												187
Comprehensive loss:
Net loss												(19,363	)					(19,363	)	$	(19,363	)
Unrealized gains on marketable securities															1			1			1

Comprehensive loss																				$	(19,362	)

Balance at December 31, 2004		47,542		475		116,764			—			(75,693	)		(26	)		41,520
Issuance of common stock pursuant to exercise of options		750		8		1,709												1,717
Issuance of common stock pursuant to exercise of warrants		224		2		606												608
Shares of common stock issued under ESPP		3				23												23
Restricted Stock grant		100		1		1,042			(1,043	)								—
Compensation expense associated with restricted stock									7									7
Issuance of common stock in connection with private equity financing, net of offering costs		13,346		134		62,201												62,335
Comprehensive loss:
Net loss												(17,316	)					(17,316	)	$	(17,316	)
Unrealized losses on marketable securities															(43	)		(43	)		(43	)

Foreign currency translation adjustment															(1,401	)		(1,401	)		(1,401	)

Comprehensive loss																				$	(18,760	)

Balance at December 31, 2005		61,965		620		182,345			(1,036	)		(93,009	)		(1,470	)		87,450
Issuance of common stock pursuant to exercise of options		988		10		2,480												2,490
Issuance of common stock pursuant to exercise of warrants		4,007		40		13,406												13,446
Shares of common stock issued under ESPP		45		—		341												341
Reclassification on adoption of SFAS No. 123R						(1,036	)		1,036									—
Gain on investment in EverQ by REC and Q-Cells						8,466												8,466
Compensation expense associated with equity compensation plans, including restricted share grants		1,061		11		5,051												5,062
Comprehensive loss:																		—
Net loss												(26,669	)					(26,669	)	$	(26,669	)
Unrealized gains on marketable securities															71			71		$	71
Foreign currency translation adjustment															2,190			2,190			2,190

Comprehensive loss																				$	(24,408	)

Balance at December 31, 2006		68,066	$	681	$	211,053		$	—		$	(119,678	)	$	791		$	92,847

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

F-6

EVERGREEN SOLAR, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS


	For the Years Ended December 31,
	2004			2005			2006
	(In thousands)

Cash flows from operating activities:
Net loss	$	(19,363	)	$	(17,316	)	$	(26,669	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation expense		3,455			4,134			9,311
Amortization of deferred grant credits		—			—			(2,004	)
Loss on disposal of fixed assets		2,093			56			2,383
Minority interest in EverQ		—			(1,195	)		(849	)
Gain on investment in EverQ		—			(527	)		—
Equity income from EverQ		—			—			(495	)
Bad debt expense and provision for early payment discounts		28			(19	)		85
Amortization of deferred debt financing costs		—			224			443
Amortization (accretion) of bond premiums		357			(595	)		(955	)
Compensation expense associated with employee equity awards		147			7			5,062
Changes in operating assets and liabilities:
Accounts receivable		(5,211	)		2,062			(17,444	)
Grants		—			—			18,962
Inventory		(887	)		(729	)		(10,958	)
Interest receivable		97			(484	)		(134	)
Other current assets		(681	)		(2,685	)		(1,623	)
Accounts payable		2,169			9,317			(728	)
Accrued expenses		2,092			927			15,285
Deferred revenue		440			(440	)		—

Net cash used in operating activities		(15,264	)		(7,263	)		(10,328	)

Cash flows from investing activities:
Purchases of fixed assets and deposits on assets under construction		(10,851	)		(57,729	)		(107,667	)
Decrease in cash related to conversion of EverQ consolidated entity to equity method affiliate		—			—			(22,274	)
Decrease (increase) in restricted cash		—			(1,194	)		891
Decrease in EverQ loan		—			—			(389	)
Purchases of marketable securities		(2,418	)		(119,300	)		(63,290	)
Proceeds from sale and maturity of marketable securities		11,218			40,950			107,186

Net cash used in investing activities		(2,051	)		(137,273	)		(85,543	)

Cash flows from financing activities:
Proceeds from issuance of common stock, net of offering costs		18,771			62,335			—
Proceeds from convertible debt financing, net of offering costs		—			86,899			—
Increase in EverQ debt		—			7,687			58,708
Capital contributions to EverQ from minority interest holder		—			9,331			—
Proceeds from the sale of EverQ interest to REC		—			4,060			—
Dividend and conversion premium paid on Series A convertible preferred stock		(2,230	)		—			—
Increase (decrease) in short-term borrowings		1,500			(1,500	)		—
Proceeds from exercise of warrants		—			—			13,446
Proceeds from exercise of stock options and shares purchased under Employee Stock Purchase Plan		33			2,348			2,831

Net cash provided by financing activities		18,074			171,160			74,985

Effect of exchange rate changes on cash and cash equivalents		—			(1,261	)		(3,028	)

Net increase (decrease) in cash and cash equivalents		759			25,363			(23,914	)
Cash and cash equivalents at beginning of year		4,620			5,379			30,742

Cash and cash equivalents at end of year	$	5,379		$	30,742		$	6,828

Supplemental cash flow information:
Interest paid		27			2,526			5,201
Non-cash Series A convertible preferred stock dividends earned		674			—			—
Non-cash conversion of Series A convertible preferred stock to common stock		27,704			—			—
Issuance of common stock warrant to Silicon Valley Bank		187			—			—
Gain on investment in EverQ by Q-Cells and REC		—			—			8,466

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

F-7

EVERGREEN SOLAR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.	NATURE OF BUSINESS

Evergreen Solar, Inc. (the “Company”), incorporated in August 1994, develops, manufactures and markets solar power products, including solar cells, panels and systems. In April 1997, the Company commenced product sales. The Company has incurred losses since inception and has an accumulated deficit, which has been funded by issuing debt and equity securities. The Company has historically financed its operations and met its capital expenditure requirements primarily through sales of its capital stock, issuance of debt and, to a lesser extent, product revenues.

In January 2005, the Company entered into a strategic partnership agreement with Q-Cells AG (“Q-Cells”). The agreement provided for the organization and capitalization of EverQ GmbH (“EverQ”), which is a limited liability company incorporated under the laws of Germany. In November 2005, Q-Cells and the Company entered into an agreement with Renewable Energy Corporation ASA (“REC”), whereby REC acquired from the Company and Q-Cells for 4.7 million Euro, a 15% ownership position in EverQ. REC obtained 11.1% of the outstanding equity of EverQ directly from the Company and 3.9% of the outstanding equity of EverQ directly from Q-Cells. The Company received $4.1 million from REC which resulted in a gain on the sale of EverQ interest of $527,000. In December 2006, REC and Q-Cells purchased additional shares of EverQ, which resulted in a reduction in the Company’s ownership interest in EverQ to one-third and an associated gain on an increase of the Company’s carrying value of its interest in EverQ’s net assets of approximately $8.5 million. This gain has been reported as an increase in paid-in-capital in the accompanying Consolidated Statements of Stockholders Equity. As a result of the December 2006 purchase, the Company, REC and Q-Cells each have equal ownership in EverQ. The purpose of EverQ is to operate facilities to manufacture, market and sell solar products based on the Company’s proprietary String Ribbon technology. The Company believes EverQ will accelerate the availability of wafer, cell and module manufacturing capacity based on String Ribbon technology and provide greater access to the European Union solar market.

Under the new agreements with EverQ and its partners, the Company will continue to market and sell all solar modules manufactured by EverQ under the Evergreen Solar brand, as well as manage customer relationships and contracts. The Company expects to fulfill the requirements of existing sales agreements primarily with product manufactured by EverQ, and to a lesser extent, with product manufactured in Marlboro. Three of the existing sales agreements each have bilateral contract termination penalties ranging from $1.0 million to $5.0 million. The Company will receive fees from EverQ for reimbursement of its expenses and will no longer report gross revenue or cost of goods sold resulting from the sale of EverQ’s solar modules. As of December 20, 2006, the Company receives a fee of 1.7% of gross EverQ revenue as a sales and marketing fee. In addition, the Company will receive royalty payments associated with its technology agreement to EverQ.

The Company believes that its current cash, cash equivalents, marketable securities, coupled with its ability to access to the capital markets, will be sufficient to fund its planned capital programs, fund its current commitments with EverQ and its operating expenditures over the next twelve months. The Company may be required to raise additional capital to respond to competitive pressures to acquire complementary businesses, to provide further funding for EverQ, to secure raw materials and/or necessary technologies. If adequate capital is not available or is not available on acceptable terms, the Company’s ability to fund its operations, further develop and expand its manufacturing operations and distribution network, or otherwise respond to competitive pressures would be significantly limited.

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, dependence on key or sole source suppliers for materials, protection of proprietary technology and compliance with government regulations. Any delay in the Company’s plan to scale up to full capacity may result in increased costs and could impair business operations.

F-8

EVERGREEN SOLAR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A summary of the major accounting policies followed by the Company in the preparation of the accompanying financial statements is set forth below.

BASIS OF PRESENTATION

The consolidated financial statements include the accounts of the Company’s wholly owned subsidiaries, Evergreen Solar Securities, Inc. and Evergreen Solar GmbH. All intercompany accounts and transactions have been eliminated. Through December 19, 2006, the Company owned 64% of EverQ and consolidated the financial statements of EverQ in accordance with the provisions of Financial Accounting Standards Board (FASB) FIN 46, “Consolidation of Variable Interest Entities, an interpretation of ARB No. 51.” As a result of the Company’s reduction in ownership in EverQ to one-third on December 19, 2006, the Company applied the equity method of accounting for it’s share of EverQ results from that date forward in accordance with APB 18 “Equity Method of Accounting for Investments in Common Stock.” Therefore, the Company’s Consolidated Statements of Operations and of Cash Flows include the consolidated results of operations of EverQ through December 19, 2006, and the Company’s one-third share of EverQ net income for the period December 20, 2006 through December 31, 2006. The Company’s Consolidated Balance Sheet at December 31, 2006, includes the Company’s investment in EverQ as a single line item, whereas the assets and liabilities of EverQ are included on a consolidated basis in the year ended December 31, 2005 with an associated minority interest. 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 period, and assets and liabilities are translated into U.S. dollars at the period-end rate of exchange.

CASH AND MARKETABLE SECURITIES

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

The Company’s marketable securities are classified as available-for-sale. At December 31, 2005 and 2006, the Company held US government agency bonds, treasury notes, municipal bonds, corporate bonds and commercial paper. The investments mature within one year from the date of purchase and are carried at market value. At December 31, 2005 and 2006, there were unrealized losses of $69,000 and $0, respectively, which are reported as part of stockholders’ equity.

The following table summarizes our cash, cash equivalents and marketable securities by type as of December 31, (in thousands):


	2005		2006

Cash	$	8,601	$	3,316
Money market funds		7,540		3,512
Certificates of deposits		16,235		5,498
Commercial paper		42,550		3,981
Corporate bonds		22,524		33,114
U.S. Agency notes		18,757		—

Total cash, cash equivalents and marketable securities	$	116,207	$	49,421

CONCENTRATION OF CREDIT RISK AND SIGNIFICANT CUSTOMERS

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash and cash equivalents, investments and accounts receivable. The Company places its

F-9

EVERGREEN SOLAR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

cash and cash equivalents and foreign exchange contracts with high quality financial institutions. With respect to accounts receivable, such receivables are primarily from distributors and integrators in the solar power industry located throughout the world. The Company performs ongoing credit evaluations of its customers’ financial conditions. The Company generally does not require collateral or other security against accounts receivable; however, it maintains reserves for potential credit losses and such losses have historically been within management’s expectations. The table below summarizes the Company’s concentration of credit risk for the years ended December 31, 2004, 2005 and 2006:


	2004			2005			2006

% of accounts receivable
Donauer Solartechnik		—			15	%		14	%
NVT, LLC		—			—			33	%
PowerLight Corporation		—			—			15	%
AEE Solar		—			—			11	%
Sun Farms		—			23	%		—
Krannich Solartechnik		50	%		8	%		—
Top 5 customers		75	%		64	%		81	%

INVENTORY

Inventory is valued at standard cost which approximates the lower of cost or market determined on a first-in, first-out basis. Certain factors may impact the realizable value of the Company’s inventory including, but not limited to, technological changes, market demand, changes in product mix strategy, new product introductions and significant changes to its cost structure. Estimates of reserves are made for obsolescence based on the current product mix on hand and its expected net realizability. If actual market conditions are less favorable or other factors arise that are significantly different than those anticipated by management, additional inventory write-downs or increases in obsolescence reserves may be required. The Company treats lower of cost or market adjustments and inventory reserves as an adjustment to the cost basis of the underlying inventory. Accordingly, favorable changes in market conditions are not recorded to inventory in subsequent periods.

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.”

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 approximately $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

F-10

EVERGREEN SOLAR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

rates, adjusted for the differences and uncertainties associated with its manufacturing process, as a basis for the accrued warranty costs. 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.

The following table summarizes the activity regarding the Company’s warranty accrual:


Balance at January 1, 2004	$	426,000
Accruals for warranties issued during 2004		279,000

Balance at December 31, 2004, 2005 and 2006		705,000

Indemnification Agreements

The Company enters into standard indemnification agreements in its ordinary course of business. Pursuant to these agreements, the Company indemnifies, holds harmless, and agrees to reimburse the indemnified party for losses suffered or incurred by the indemnified party, generally our business partners, customers, directors and officers. The term of these indemnification agreements is generally perpetual. 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, Q-Cells and REC have agreed to guarantee EverQ’s repayment obligations under the Credit Agreement. As of December 31, 2006, EverQ had total obligations outstanding under this Credit Agreement of 7.0 million Euro ($9.2 million at December 31, 2006 exchange rates).

Letters of Credit

The Company maintains a letter of credit for the benefit of the landlord of its manufacturing facility in Marlboro, Massachusetts for $414,000, which is required under the terms of the lease and will expire upon termination of the lease in 2010. The amount of cash guaranteeing the letter of credit is classified as restricted cash in the Company’s balance sheet.

F-11

EVERGREEN SOLAR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

FIXED ASSETS

Fixed assets are recorded at cost. Provisions for depreciation are based on their estimated useful lives using the straight-line method over three to seven years for all laboratory and manufacturing equipment, computers, and office equipment. Leasehold improvements are depreciated over the shorter of the remainder of the lease’s term or the life of the improvements. Upon retirement or disposal, the cost of the asset disposed of and the related accumulated depreciation are removed from the accounts and any gain or loss is reflected in income. Expenditures for repairs and maintenance are expensed as incurred.

IMPAIRMENT OF LONG-LIVED ASSETS

The Company’s policy regarding long-lived assets is to evaluate the recoverability or usefulness of these assets when the facts and circumstances suggest that these assets may be impaired. This analysis relies on a number of factors, including changes in strategic direction, business plans, regulatory developments, economic and budget projections, technological improvements, and operating results. The test of recoverability or usefulness is a comparison of the asset value to the undiscounted cash flow of its expected cumulative net operating cash flow over the asset’s remaining useful life. If such a test indicates that impairment is required, then the asset is written down to its estimated fair value. Any write-downs would be treated as permanent reductions in the carrying amounts of the assets and an operating loss would be recognized. To date, the Company has had recurring operating losses and the recoverability of its long-lived assets is contingent upon executing its business plan that includes further reducing its manufacturing costs and significantly increasing sales. If the Company is unable to execute its business plan, the Company may be required to write down the value of its long-lived assets in future periods. No impairments were required to be recognized during the years ended December 31, 2004, 2005 and 2006 for long-lived assets.

REVENUE RECOGNITION

The Company recognizes revenue if there is persuasive evidence of an agreement with the customer, shipment has occurred, risk of loss has transferred to the customer, sales price is fixed or determinable, and collectibility is reasonably assured. The market for solar power products is emerging and rapidly evolving. The Company currently sells its solar power products primarily to distributors, system integrators and other value-added resellers within and outside of North America, which typically resell its products to end users throughout the world. For new customers requesting credit, the Company evaluates creditworthiness based on credit applications, feedback from provided references, and credit reports from independent agencies. For existing customers, the Company evaluates creditworthiness based on payment history and known changes in their financial condition.

The Company also evaluates the facts and circumstances related to each sales transaction and considers whether risk of loss has passed to the customer upon shipment. The Company considers whether its customer is purchasing its product for stock, and whether contractual or implied rights to return the product exist or whether its customer has an end user contractually committed. The Company does not offer rights to return its product other than for normal warranty conditions and has had no history of product returns.

The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. If the financial condition of the Company’s customers were to deteriorate, such that their ability to make payments was impaired, additional allowances could be required.

Revenue from research grants is generally recognized as services are rendered to the extent of allowable costs incurred. These contracts are generally cost-shared between the funding agency and the Company with the Company’s share of the total contract cost historically ranging from approximately 30% to 70%. The contracts normally expire between six months and three years from their initiation. While the Company’s

F-12

EVERGREEN SOLAR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

accounting for research contract costs are subject to audit by the sponsoring agency, in the opinion of management, no material adjustments are expected as a result of such audits.

RESEARCH AND DEVELOPMENT

Research and development costs are expensed as incurred.

INCOME TAXES

The Company accounts for income taxes under the liability method, which requires recognition of deferred tax assets, subject to valuation allowances, and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting and income tax purposes. A valuation allowance is established if it is more likely than not that all or a portion of the net deferred tax assets will not be realized.

COMPREHENSIVE INCOME

Comprehensive income consists of unrealized gains and losses on available-for-sale securities and cumulative foreign currency translation adjustments. As of December 31, 2005 and 2006, accumulated other comprehensive loss was $1.5 million and other comprehensive income of $791,000, respectively. Other comprehensive income or loss is reflected in the Consolidated Statement of Stockholder’s Equity.

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 are the vesting periods, less estimated forfeitures. 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 7 for further 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 123. For the years ended December 31, 2004 and 2005, 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 and 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 at least equal to the fair market value of the underlying common stock on the date of the grant.

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

F-13

EVERGREEN SOLAR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

calculation of diluted net loss per common share for the years ended December 31, 2004, 2005 and 2006 does not include approximately 10.7 million, 22.9 million and 19.4 million potential shares of common stock equivalents outstanding at December 31, 2004, 2005 and 2006, respectively, as their inclusion would be antidilutive. Common stock equivalents include outstanding common stock options, common stock warrants, Series A convertible preferred stock and Convertible Debt.

SEGMENT REPORTING

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 information in this report is provided in accordance with the requirements of SFAS No. 131 and is consistent with how business results are reported internally to management.

The Company had 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 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 (See Note 12).

USE OF ESTIMATES

The preparation of financial statements in conformity with generally accepted accounting principals requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. The Company bases its estimates on historical experience and various other factors believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Estimates are used when accounting for the collectibility of receivables, realizability of finished goods inventory, estimated warranty costs, and deferred tax assets. Provisions for depreciation are based on their estimated useful lives using the straight-line method over three to seven years for all laboratory and manufacturing equipment, computers, and office equipment. Leasehold improvements are depreciated over the shorter of the remainder of the lease’s term or the life of the improvements. Some of these estimates can be subjective and complex and, consequently, actual results may differ from these estimates under different assumptions or conditions. While for any given estimate or assumption made by the Company’s management there may be other estimates or assumptions that are reasonable, the Company believes that, given the current facts and circumstances, it is unlikely that applying any such other reasonable estimate or assumption would materially impact the financial statements.

FAIR VALUE OF FINANCIAL INSTRUMENTS

Financial instruments, including cash equivalents, marketable securities, foreign exchange contracts, accounts receivable and accounts payable are carried in the consolidated financial statements at amounts that approximate fair value at December 31, 2005 and 2006. Fair values are based on market prices and assumptions concerning the amount and timing of estimated future cash flows and assumed discount rates, reflecting varying degrees of perceived risk. The fair market value of forward foreign exchange contracts is determined based on the fair value of similar contracts with similar terms and remaining maturities.

F-14

EVERGREEN SOLAR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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.

F-15

EVERGREEN SOLAR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Company is currently assessing the impact of SFAS No. 157 on its consolidated financial position and results of operations.


3.	INVENTORY

Inventory consisted of the following at December 31, 2005 and 2006 (in thousands):


	2005		2006

Raw materials	$	2,929	$	3,714
Work-in-process		519		804
Finished goods		186		249

	$	3,634	$	4,767

In July 2005, the Company paid $1.5 million to a key raw material supplier to secure a quantity of inventory. The prepayment was included in the Company’s balance sheet in current assets and was amortized to cost of product revenues as material was used. The balance of prepaid inventory was $784,000 and $0 at December 31, 2005 and 2006, respectively.


4.	FIXED ASSETS

Fixed assets consisted of the following at December 31, 2005 and 2006 (in thousands):


	Useful	December 31,			December 31,
	Life	2005			2006

Laboratory and manufacturing equipment	3-7 years	$	29,046		$	36,544
Computer and office equipment	3-7 years		1,235			910
Leasehold improvements	Lesser of 15 to 20 years or lease term		8,360			8,360
Assets under construction			43,199			18,002

			81,840			63,816
Less: Accumulated depreciation			(10,410	)		(13,300	)

		$	71,430		$	50,516

Depreciation expense for the years ended December 31, 2004, 2005 and 2006 was $3.5 million, $4.1 million and $9.3 million, respectively. During 2004, and as a result of the Company’s successful closing of the Common Stock Private Placement consummated on June 21, 2004, the Company disposed of several pieces of manufacturing equipment in order to replace them with more technologically advanced equipment expected to increase total manufacturing capacity in its Marlboro facility to a target level of 15 megawatts. Equipment with a net book value of $2.1 million was disposed. The loss on disposal of fixed assets is included in cost of product revenues. During 2006, as a result of the Company’s successful introduction of new manufacturing technology, the Company disposed of several pieces of existing equipment in order to replace them with more technologically advanced equipment expected to improve operational performance at its Marlboro facility. Equipment with a net book value of $2.4 million was disposed.

At December 31, 2005 and 2006, there were $8.2 million and $1.4 million, respectively, of deposits on fixed assets under construction consisting primarily of deposits on equipment currently under construction for our Marlboro facility, and are included in Deposits on the balance sheet.

F-16

EVERGREEN SOLAR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


5.	INCOME TAXES

Income taxes computed using the federal statutory income tax rate differ from the Company’s effective tax rate primarily due to the following for the years ended December 31, 2004, 2005 and 2006:


	2004			2005			2006

Income tax expense (benefit) at US federal statutory tax rate	$	(6,630,000	)	$	(5,904,000	)	$	(9,068,000	)
State income taxes, net of federal tax effect		(1,498,000	)		(1,363,000	)		(1,844,000	)
Permanent items		39,000			64,000			1,409,000
Other		(136,000	)		(347,000	)		(724,000	)
Change in deferred tax asset valuation allowance		8,225,000			7,550,000			10,227,000

	$	—		$	—		$	—

As of December 31, 2006, the Company had federal and state net operating loss carryforwards estimated to be approximately $89.5 million and $67.9 million, respectively, available to reduce future taxable income and tax liabilities which begin to expire in 2010 and 2007, respectively. In addition, the Company has excess tax deductions of approximately $8.9 million relating to equity compensation for which the benefit, when realized, will be recognized in the financial statements when it results in a reduction of taxes payable with a corresponding credit to additional paid in capital of approximately $3.0 million in accordance with SFAS 123R. The Company also had federal and state research and development tax credit carryforwards of approximately $1.1 million and $1.0 million, respectively, which begin to expire in 2010 and state Investment Tax Credit carryforwards of approximately $1.2 million which begin to expire in 2006, available to reduce future tax liabilities.

Since the Company’s formation, the Company has raised capital through the issuance of capital stock on several occasions, as well as transfers of common stock, which resulted in changes of control, as defined by Section 382 of the Internal Revenue Code. As a result of the ownership changes, portions of the Company’s net operating loss carryforward are subject to annual limitations under Section 382. Subsequent ownership changes, as defined in Section 382, could further limit the amount of net operating loss carryforwards and research and development credits that can be utilized annually to offset future taxable income.

Management of the Company has evaluated the positive and negative evidence bearing upon the realization of its deferred tax assets. Management has considered the Company’s history of losses and, in accordance with the applicable accounting standards, has fully reserved the deferred tax asset.

F-17

EVERGREEN SOLAR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Deferred tax assets consist of the following at December 31, 2005 and 2006 (in thousands):


	2005			2006

Gross deferred tax assets
Net operating loss carryforwards	$	18,736		$	34,676
Research and development credit carryforwards		976			1,748
Capitalized R&D expenses		8,071			10,660
Accrued expenses and deferred compensation		1,146			1,849
Other, net		431			0

Total gross deferred tax assets		29,360			48,933
Less: gross deferred tax liabilities
Depreciation		(414	)		(2,679	)
Basis difference in EverQ investment		0			(3,224	)
Other, net		0			(236	)
Deferred tax valuation allowance		(28,946	)		(42,794	)

Net deferred tax asset	$	—		$	—

The Company has not provided for U.S. income taxes on the unremitted earnings of its foreign subsidiaries as these earnings are considered to be indefinitely reinvested.


6.	CAPITAL STOCK

The Company has two classes of capital stock: common and preferred. As of December 31, 2006, the Company had 100,000,000 shares of common stock authorized and 27,227,668 shares of preferred stock authorized, of which 26,227,668 shares were designated Series A convertible preferred stock. In November 2006, the Company’s Board of Directors approved a resolution increasing the number of authorized shares of common stock from 100,000,000 to 150,000,000. The Company’s stockholder meeting was subsequently held on January 5, 2007. At this meeting, the stockholders approved a resolution increasing the number of authorized shares of common stock from 100,000,000 to 150,000,000.

In February 2005, the Company completed a $62.3 million common stock offering, net of offering costs of approximately $4.4 million, to satisfy existing capital requirements and to fund the continuing capacity expansion of its Marlboro, Massachusetts manufacturing and development facilities and the expenditures necessary for the build-out and initial operation of EverQ. A portion of the proceeds from the financing was also used to increase research and development spending on next generation technologies and to explore further expansion opportunities. The Company issued 13,346,000 shares of its common stock in the offering. The shares of common stock were sold at a per share price of $5.00 (before underwriting discounts), which represented a 6% discount to the $5.30 closing price of shares of its common stock as reported on the Nasdaq National Market as of the close of business on February 3, 2005.

In June 2004, in order to satisfy the Company’s capital requirements and to fund the continuing capacity expansion of its Marlboro, Massachusetts manufacturing facilities, the Company consummated a $18.8 million private placement financing transaction, net of offering costs of approximately $1.2 million, whereby the Company issued 7,662,835 shares of its common stock, and warrants to purchase up to 2,298,851 shares of its common stock, to certain institutional investors pursuant to a stock and warrant purchase agreement dated June 16, 2004, and a warrant agreement dated June 21, 2004 (“Common Stock Private Placement”). The shares of common stock were sold at a per share price of $2.61, which represented a 10% discount to the $2.90 closing price of shares of the Company’s common stock on the Nasdaq National Market as of the close of business on June 15, 2004. The warrants entitle the holders to shares of the Company’s common stock at an

F-18

EVERGREEN SOLAR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

exercise price of $3.34. The warrants are exercisable at any time on or after December 22, 2004 and prior to June 22, 2009.

At December 31, 2006, 10,650,000 shares of common stock were authorized for issuance under the Company’s Amended and Restated 2000 Stock Option and Incentive Plan and approximately 752,000 shares were reserved for issuance upon conversion of outstanding warrants issued in the Series A Private Placement and the Common Stock Private Placement.

Dividend Rights of Series A Convertible Preferred Stock

On June 21, 2004, holders of all outstanding shares of Series A convertible preferred stock agreed to convert all of their shares of Series A convertible preferred stock into shares of our common stock in connection with the Common Stock Private Placement. During the first quarter of 2004, the Series A preferred stock earned a dividend of approximately $700,000, which the Company elected to add to the liquidation preference of the Series A convertible preferred stock.

As an inducement to convert their shares into common stock in connection with the Common Stock Private Placement consummated on June 21, 2004, the remaining Series A preferred stockholders received the dividend earned for the period between April 1, 2004 and June 21, 2004 in cash, which totaled approximately $500,000. In addition, the Series A preferred stockholders received a cash conversion premium of 7% of the accreted value of the Series A Preferred Stock as of March 31, 2004, which totaled $1.7 million. Therefore, the total dividend charge recorded by the Company for the year ended December 31, 2004 was approximately $2.9 million.


7.	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”). The following table presents stock-based compensation expense included in the Company’s consolidated statements of operations under SFAS 123R (in thousands):


	Year Ended
	December 31,
	2006

Product revenue cost	$	420
Research and development expenses		1,593
Selling, general and administrative expenses		3,049

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 related to stock options as all options granted had an exercise price at least equal to the fair market value of the underlying common stock on the date of the grant.

F-19

EVERGREEN SOLAR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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 periods ended December 31, 2004 and 2005, as if the Company had applied the fair value recognition provisions of SFAS 123R to share-based employee awards:


	2004						2005
	Net Loss			Net Loss			Net Loss			Net Loss
	Attributable			Per			Attributable			Per
	to Common			Common			to Common			Common
	Stockholders			Share			Stockholders			Share

Net loss attributable to common stockholders, as reported	$	(22,267	)	$	(0.67	)	$	(17,316	)	$	(0.29	)
Add: Stock-based employee compensation expense included in reported results		89			—			7			—
Deduct: Total stock-based employee compensation expense determined under the fair value-based method for all awards		(2,556	)		(0.08	)		(3,625	)		(0.06	)

Pro forma net loss attributable to common stockholders	$	(24,734	)	$	(0.75	)	$	(20,934	)	$	(0.35	)

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.

F-20

EVERGREEN SOLAR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Stock option activity under the Plan is summarized as follows:


				Weighted-
				Average
	Shares			Exercise Price
	(in thousands)

Outstanding at January 1, 2004		5,264		$	2.42
Granted		823			2.83
Exercised		(17	)		1.19
Forfeited		(320	)		3.72

Outstanding at December 31, 2004		5,750		$	2.41
Granted		1,312			6.16
Exercised		(750	)		2.30
Forfeited		(262	)		4.11

Outstanding at December 31, 2005		6,050		$	3.15

Granted		643			14.42
Exercised		(988	)		2.51
Forfeited		(396	)		12.05

Outstanding at December 31, 2006		5,309		$	4.20

Summarized information about stock options outstanding at December 31, 2006 is as follows:


			Options Outstanding
			Weighted				Options Exercisable
			Average		Weighted				Weighted
			Remaining		Average				Average
	Number		Contractual		Exercise		Number		Exercise
Range of Exercise Prices	Outstanding		Life (Years)		Price		Exercisable		Price
	(in thousands)						(in thousands)

$ 0.65 $ 1.60		315		5.33	$	1.35		235	$	1.29
1.61 1.61		1,638		6.94		1.61		1,138		1.61
1.68 1.95		7		6.59		1.75		8		1.75
2.00 2.00		1,020		6.88		2.00		731		2.00
2.08 2.99		555		5.98		2.48		353		2.43
3.00 6.50		555		7.34		4.82		237		4.71
6.51 8.45		541		8.05		7.35		187		7.28
8.63 14.00		327		7.07		11.64		242		11.89
15.09 15.09		335		9.15		15.09		—		—
19.00 19.00		16		3.84		19.00		16		19.00

		5,309		7.02	$	4.20		3,147	$	3.22

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 stock 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 for the fiscal

F-21

EVERGREEN SOLAR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

years ended December 31, 2004, 2005 and 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 stock option grant is estimated on the date of grant using the Black-Scholes option valuation model with the following weighted-average assumptions:


	2004	2005	2006

Expected options term (years)	7	7	6.25
Risk-free interest rate	4.0%	4.0%	4.9%-5.1%
Expected dividend yield	None	None	None
Volatility	90%	90%	130%

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 stock 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.

The weighted average grant-date fair value of stock options granted during the year ended December 31, 2006 was $14.42. The aggregate intrinsic value of outstanding options as of December 31, 2006 was $22.0 million, of which $7.0 million were vested. The aggregate intrinsic value of outstanding options as of January 1, 2006 was $48.8 million, of which $23.9 million were vested. The intrinsic value of options exercised during the year ended December 31, 2006 was approximately $10.2 million. As of December 31, 2006, there was $10.6 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 1.4 years. Total cash received from the exercise of stock options were $22,000, $1.7 million and $2.5 million for the years ended December 31, 2004, 2005 and 2006, respectively.

Restricted stock activity is summarized as follows:


				Weighted-
				Average
				Grant Date
	Shares			Fair Value
	(in thousands)

Outstanding at January 1, 2005	$	—		$	—
Granted		100			10.42

Outstanding at December 31, 2005		100		$	10.42

Granted		1,116			14.45
Vested		(32	)		8.75
Forfeited		(55	)		14.45

Outstanding at December 31, 2006		1,129		$	14.25

For the year ended December 31, 2006, the Company also awarded 316,213 restricted shares of the Company’s common stock with a fair value of $4.2 million as part of its stock compensation plan. Additionally, on February 27, 2006, the Board of Directors of the Company authorized a grant of up to an

F-22

EVERGREEN SOLAR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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 annual 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 other annual pro rata 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 currently assumes that none of the 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. The aggregate intrinsic value of outstanding restricted stock awards, including performance based awards, as of December 31, 2006 was $8.5 million. During the year ended December 31, 2006, approximately 32,000 shares of restricted stock vested with an aggregate vest-date fair value of approximately $280,000.

Additionally, there was $4.0 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 3.2 years.


8.	EMPLOYEE STOCK PURCHASE PLAN

In September 2000, the Company’s Board of Directors adopted an 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 Company’s 2005 Annual Meeting of Stockholders was held on July 15, 2005. At this meeting, the stockholders approved a resolution which amended the ESPP to include the following material changes: (i) an increase to 500,000 in the number of shares of the Company’s common stock that may be issued under the 2000 ESPP, (ii) the elimination of the 25-share purchase limitation for each participant for a Purchase Period and the addition of a provision that instead would allow the Compensation Committee to establish a limit for each Purchase Period in its discretion and (iii) addition of a provision to give the Compensation Committee discretion to prospectively increase the discount to purchase shares under the 2000 ESPP.

During the year ended December 31, 2006, employees paid the Company approximately $341,000 to purchase approximately 45,000 shares of common stock and the Company recognized approximately $128,000 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 valuation model. As of December 31, 2006, there were approximately 53,000 shares issued under the ESPP.


9.	WARRANTS

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 period ended December 31, 2006, holders of warrants associated with the Company’s Common Stock Private Placement exercised their

F-23

EVERGREEN SOLAR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

warrants to purchase approximately 1.6 million shares of the Company’s common stock resulting in proceeds to the Company of approximately $5.3 million.


10.	EMPLOYEES’ SAVINGS PLAN

The Company established a 401(k) plan in 1996 for eligible employees. Under the provisions of the plan, eligible employees may voluntarily contribute a portion of their compensation up to the statutory limit. The Company’s 401(k) plan provides a matching contribution of 100% of participating employee contributions, up to a maximum of $750 per year. The Company made matching contributions of $110,000, $93,000 and $87,000 to participating employees during the fiscal years ending December 31, 2006, 2005, and 2004, respectively.


11.	COMMITMENTS

LEASES

On March 13, 2000, the Company entered into a ten-year lease commencing July 1, 2000, for office and manufacturing space in Marlboro, Massachusetts. Pursuant to the terms of the lease agreement, the Company will pay annual rent ranging from $464,000 in the first year to $534,000 during the last year of the lease. The Company recognizes rent expense using a straight-line convention. Rent is payable on the first day of each month and is collateralized by a $414,000 standby letter of credit. In connection with this arrangement, the Company invested in a certificate of deposit pledged to a commercial bank. This certificate of deposit was classified as “restricted cash” on the December 31, 2005 and 2006 balance sheet.

On January 24, 2004, the Company entered into a six and one-half year lease for additional office and warehouse space in Marlboro, Massachusetts. Pursuant to the terms of the lease agreement, the Company will pay annual rent of approximately $149,000. The lease was amended in December 2004 to assume more office space beginning in 2005 in consideration for a small increase in office rent.

In January 2006, the Company entered into a seven year lease for additional space dedicated mainly to research and development in Marlboro, Massachusetts. Pursuant to the terms of the lease agreement, the Company will pay annual rent ranging from $94,000 in the first year to $171,000 during the last year of the lease. The Company recognizes rent expense using a straight-line convention. In connection with leasing this additional space, the landlord agreed to provide the Company with an incentive towards build-out costs of approximately $400,000, which the Company has included as a deferred credit to be amortized over the remaining term of the lease.

In July 2006, the Company entered into a six and a half year lease for expansion of additional space dedicated mainly to research and development in Marlboro, Massachusetts. Pursuant to the terms of the lease agreement, the Company will pay annual rent ranging from $138,000 in the first year to $172,000 during the last year of the lease. The Company recognizes rent expense using a straight-line convention.

The following is a schedule, by year, of future minimum rental payments required under all leases that have remaining non-cancelable lease terms in excess of one year as of December 31, 2006 (in thousands):


2007	$	991
2008		1,035
2009		1,059
2010		763
2011		334
Thereafter		357

Total	$	4,539

F-24

EVERGREEN SOLAR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Occupancy expense, which includes rent, property taxes, and other operating expenses associated with all of our Marlboro locations, was $874,000, $969,000 and $1.3 million for the years ended December 31, 2004, 2005, and 2006, respectively.

OTHER COMMITMENTS

As of December 31, 2006, the Company had outstanding commitments for capital expenditures of approximately $6.3 million, primarily for equipment purchases needed for its Marlboro facility, including the build-out of its research and development facility. Additionally, the Company had $4.1 million in raw material purchases commitments as of December 31, 2006.


12.	SEGMENT INFORMATION

The Company has two reportable operating segments for the year ended December 31, 2006: Evergreen Solar, Inc. and EverQ GmbH. The Company operated as one segment for the years ended December 31, 2004 and 2005. The chief operating decision maker evaluates performance based on a number of factors, the primary measure being product revenue, gross profit, operating profit, and net income. Information on segment assets is not disclosed as it is not reviewed by the chief operating decision maker. The purpose of EverQ is to 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 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 for consolidation.

Segment Revenue and Gross Profit

Reportable segment information for the years ended December 31, 2004, 2005 and 2006, were as follows (in thousands):


	Evergreen			EverQ
	Solar, Inc.			GmbH			Eliminations			Total

Revenue	$	101,303			54,535			(52,692	)	$	103,146
Gross profit		2,681			9,261			—			11,942
Operating loss		(29,443	)		(422	)		—			(29,865	)
Net loss		(25,160	)		(2,358	)		849			(26,669	)
Other supplemental information
Interest Income		5,659			291			(1,337	)		4,613
Interest expense		4,032			3,389			(1,337	)		6,084
Depreciation expense		5,136			4,175			—			9,311
Amortization of deferred grant credits		—			2,004			—			2,004

F-25

EVERGREEN SOLAR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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 revenue:


	2004			2005			2006

% of revenue
By geography:
United States		25	%		28	%		37	%
Germany		69	%		63	%		48	%
Spain		—			—			13	%
All other		6	%		9	%		2	%

		100	%		100	%		100	%

By customer:
Krannich Solartechnik		44	%		20	%		3	%
Donauer Solartechnik		19	%		19	%		13	%
PowerLight Corporation		0	%		0	%		10	%
All other		37	%		61	%		74	%

		100	%		100	%		100	%


13.	INVESTMENT IN EVERQ

The Company accounts for its investment in EverQ under the equity method of accounting in accordance with APB 18 “Equity Method of Accounting for Investments in Common Stock.” The following presents the summarized financial information of EverQ (in thousands):


	For the Year Ended December 31,
	2004		2005			2006

Revenue	$	—	$	—		$	59,295
Cost of goods sold		—		—			51,160
Other expenses		—		4,458			9,006
Net loss		—		(4,458	)		(871	)


	As of December 31,
	2005		2006

Current assets	$	19,669	$	125,232
Non-current assets		51,294		144,279
Current liabilities		16,397		100,471
Non — current liabilities		23,390		80,763


14.	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

F-26

EVERGREEN SOLAR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(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 ended 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 seven year term of the notes. For the year-to-date period ended December 31, 2006, the Company recorded $3.9 million in interest expense associated with the Notes, and approximately $2.0 million for the year ended December 31, 2005.

Conversion Option

The Notes are convertible at any time into shares of the Company’s common stock at an initial conversion rate of 135.3180 shares per $1,000 principal amount of Notes, which is equal to a conversion price of approximately $7.39 per share. This conversion rate can be adjusted upon certain events with a “make whole” premium feature.

Put Option

Upon the occurrence of a designated event (defined as a change in control or termination in trading), the holders of the debt will have the ability to require the Company to repurchase the Notes. If the designated event is for termination of trading, the Company will repurchase the debt at an amount equal to the convertible debt instrument’s accreted value plus any accrued but unpaid interest; however, if the designated event is for the change in control at its option, the Company may pay the repurchase price in cash (at accreted value plus accrued but unpaid interest) or shares of their common stock valued at a discount of 5% from the market price.

Call Options

The Company has the option to repurchase the Notes, at any time in whole or in part, on or after July 6, 2008 through July 1, 2010 at a price of 100% of the principal amount, plus accrued and unpaid interest to the redemption date if the common stock price exceeds 130% of the then current conversion price for at least 20 days in a 30 day trading period.

F-27

EVERGREEN SOLAR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

EverQ Debt Guarantee

EverQ entered into a 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 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 Euro 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 December 31, 2006, the total amount of debt outstanding relating to the Credit Agreement was 7.0 million Euro (approximately $9.2 million at December 31, 2006 exchange rates).

Evergreen Solar Loans 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. Additionally, during 2006 the Company provided EverQ with additional loans to help fund the initial financing requirement of the first two factories of which one has been completed and one is currently under construction, as of December 31, 2006. The table below summarizes the principal and terms of all outstanding loans provided by the Company:


			Principal		Interest
Date of Loan	Principal		(USD)		Rate			Date Due

November 23, 2005	€	4,000,000	$	5,278,800		5.40	%		June 30, 2010
February 2, 2006	€	4,000,000	$	5,278,800		5.40	%		June 30, 2010
April 18, 2006	€	850,000	$	1,121,745		5.86	%		January 31, 2007
April 27, 2006	$	4,343,500	$	4,343,500		8.02	%		January 31, 2007
June 8, 2006	€	3,825,000	$	5,047,853		5.72	%		January 31, 2007
June 30, 2006	€	1,700,000	$	2,243,490		5.81	%		January 31, 2007
August 28, 2006	$	9,800,000	$	9,800,000		8.00	%		January 31, 2007
November 21, 2006	$	6,350,000	$	6,350,000		5.75	%		January 31, 2007

			$	39,464,188


15.	RELATED PARTY TRANSACTIONS

Beginning in 2006, in the normal course of business, the Company and EverQ purchase silicon from REC or its affiliates under existing supply agreements. For the year ended December 31, 2006, the Company and EverQ purchased approximately $8.0 million REC, respectively. As of December 31, 2006, the Company had $474,000 outstanding due to REC. For the period January 1, 2006 through December 20, 2006, the Company sold approximately $57.3 million of product manufactured by EverQ and charged EverQ approximately $2.0 million in support fees. As of December 31, 2006, approximately $15.3 million of accounts receivable were included in the Company’s balance sheet relating to the EverQ product sales and support fees. Additionally, the Company owes EverQ approximately $12.9 million associated with the sale of EverQ product prior to December 20, 2006.

F-28

EVERGREEN SOLAR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


16.	SUBSEQUENT EVENTS

In January 2007, the Company, REC and Q-Cells entered into a new shareholder loan agreement with EverQ. Under the terms of the shareholder loan agreement, EverQ repaid all outstanding shareholder loans, plus accrued interest, in exchange for a new shareholder loan of 30 million Euros from each shareholder. The new shareholder loan bears an interest rate of 5.43% for a term of 3 years.

On February 12, 2007, the Compensation Committee (the “Committee”) of the Board of Directors (the “Board”) of Evergreen Solar, Inc. (the “Company”) authorized the grant of the following long-term equity incentive awards for the Company’s chief executive officer, chief financial officer and other named executive officers.

The Committee authorized:


	Time-Based			Performance-Based
Name	Restricted Stock(1)			Restricted Stock(2)

Richard M. Feldt		50,000			300,000
Michael El-Hillow		200,000	(3)		100,000
Dr. Brown F. Williams		25,000			100,000
Richard G. Chleboski		20,000			100,000
Dr. Terry Bailey		20,000			100,000
Gary T. Pollard		20,000			100,000


(1)	The time based restricted stock is subject to a four year vesting schedule.

(2)	The vesting of the performance-based restricted stock will only occur upon the achievement of all of the following accomplishments within a calendar year: (a) $400 million in revenue, (b) certain specified gross margin objectives and (c) certain specified net income objectives. All performance based restricted stock awards will expire after five years if they have not vested.

(3)	These shares were granted pursuant to the terms of Mr. El-Hillow’s offer letter with the Company.

F-29

EVERGREEN SOLAR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

17. UNAUDITED QUARTERLY RESULTS

The following tables set forth unaudited selected financial information for the periods indicated. This information has been derived from unaudited consolidated condensed financial statements, which, in the opinion of management, include all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of such information. The Company’s independent auditors have not audited this information. The results of operations for any quarter are not necessarily indicative of the results to be expected for any future period.

QUARTERLY STATEMENT OF OPERATIONS


	Apr 2,			Jul 2,			Oct 1,			Dec 31,			Apr 1,			Jul 1,			Sept 30,			Dec 31,
	2005			2005			2005			2005			2006			2006			2006			2006
	(In thousands, except per share data)
	Unaudited

Revenues:
Product revenues	$	10,287		$	10,679		$	11,092		$	11,569		$	11,566		$	22,048		$	36,231		$	32,407
Research revenues		235			—			94			76			325			354			215			—

Total revenues		10,522			10,679			11,186			11,645			11,891			22,402			36,446			32,407
Cost of revenue:
Product revenue costs		9,936			10,018			9,934			10,066			13,016			21,121			30,525			25,656
Research revenue costs		235			—			94			76			325			354			215			—

Total cost of revenue		10,171			10,018			10,028			10,142			13,341			21,475			30,740			25,656

Gross profit		351			661			1,158			1,503			(1,450	)		927			5,706			6,751
Operating expenses:
Research and development		2,090			2,647			2,971			3,348			4,193			3,958			4,661			6,252
Selling, general and administrative		1,960			2,992			3,115			4,207			4,399			6,396			5,122			5,298
Loss on disposal of fixed assets		—			—			—			—			—			—			—			1,526

Total operating expenses		4,050			5,639			6,086			7,555			8,592			10,354			9,783			13,076
Operating loss		(3,699	)		(4,978	)		(4,928	)		(6,052	)		(10,042	)		(9,427	)		(4,077	)		(6,325	)
Other income (loss), net
Foreign exchange gains (losses), net		280			(194	)		48			(129	)		540			1,419			148			1,215
Gain on sale of EverQ interest in REC		—			—			—			527			—			—			—			—
Interest income (expense), net		158			397			7			52			(122	)		(386	)		(846	)		(117	)

Loss from operations before minority interest		(3,261	)		(4,775	)		(4,873	)		(5,602	)		(9,624	)		(8,394	)		(4,775	)		(5,227	)
Minority interest in EverQ		41			282			310			562			1,484			929			(828	)		(734	)
Equity income from interest in EverQ		—			—			—			—			—			—			—			495

Net loss		(3,220	)		(4,493	)		(4,563	)		(5,040	)		(8,140	)		(7,465	)		(5,603	)		(5,466	)

Net loss per share (basic and diluted)	$	(0.06	)	$	(0.07	)	$	(0.07	)	$	(0.08	)	$	(0.13	)	$	(0.11	)	$	(0.08	)	$	(0.08	)
Weighted average shares used in computing net loss per share (basic and diluted)		54,914			60,973			61,178			61,510			63,771			65,789			66,127			66,880

F-30

EVERGREEN SOLAR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

18. VALUATION AND QUALIFYING ACCOUNTS

The following table sets forth activity in the Company’s valuation and qualifying accounts (in thousands):


	Balance at
	Beginning		Charged to						Balance at
Description	of Period		Operations			Deductions			End of Period

Year ended December 31, 2004
Reserves and allowances deducted from assets accounts:
Valuation allowance for deferred tax assets		22,908		8,225			(8,596	)		22,537
Allowance for doubtful accounts & sales discounts		227		28			(171	)		84
Year ended December 31, 2005
Reserves and allowances deducted from assets accounts:
Valuation allowance for deferred tax assets		22,537		7,550			(1,141	)		28,946
Allowance for doubtful accounts & sales discounts		84		(19	)		—			65
Year ended December 31, 2006
Reserves and allowances deducted from assets accounts:
Valuation allowance for deferred tax assets		28,946		10,227			(3,621	)		42,794
Allowance for doubtful accounts & sales discounts		65		85			—			150

F-31

EVERGREEN SOLAR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Schedule 1 — Condensed Financial Information of the Registrant
Condensed Balance sheets


	December 31,			December 31,
	2005			2006

ASSETS
Total current assets	$	126,999		$	81,994
Restricted cash		414			414
Investment in and advances to EverQ		24,617			70,460
Loans to EverQ		4,765			—
Deferred financing costs		2,877			2,434
Deposits on fixed assets		599			1,433
Fixed assets, net		28,923			50,516

Total assets		189,194			207,251


LIABILITIES, CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY
Total current liabilities		7,079			24,404
Subordinated convertible notes		90,000			90,000
Stockholders’ equity
Common stock, $0.01 par value, 100,000,000 shares authorized 61,965,231 and 68,066,204 issued and outstanding at December 31, 2005 and December 31, 2006, respectively		620			681
Additional paid-in capital		182,345			211,053
Deferred compensation		(1,036	)		—
Accumulated deficit		(89,745	)		(119,678	)
Accumulated other comprehensive loss		(69	)		791

Total stockholders’ equity		92,115			92,847

Total liabilities, convertible preferred stock and stockholders’ equity	$	189,194			207,251

F-32

EVERGREEN SOLAR, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Schedule 1 — Condensed Financial Information of the Registrant
Condensed Statements of Operations


	For the Years Ended December 31,
	2004			2005			2006

Revenues:
Product revenues	$	22,240		$	43,627		$	44,866
Research revenues		1,296			405			894

Total revenues		23,536			44,032			45,760

Cost of revenue:
Product revenue costs		29,717			39,954			42,184
Research revenue costs		1,296			405			894

Total cost of revenue		31,013			40,359			43,078

Gross profit (loss)		(7,477	)		3,673			2,682
Operating expenses:
Research and development		3,635			9,348			17,109
Selling, general and administrative		7,797			9,678			16,339
Loss on disposal of fixed assets		—			—			1,526

Total operating expenses		11,432			19,026			34,974

Operating loss		(18,909	)		(15,353	)		(32,292	)
Other income (loss), net		(454	)		1,298			3,787
Equity income from interest in EverQ		—			—			495
Accretion, dividends and conversion premiums on Series A convertible preferred stock		(2,904	)		—			—

Net loss attributable to common stockholders	$	(22,267	)	$	(14,055	)	$	(28,010	)

Net loss per share attributable to common stockholders (basic and diluted)	$	(0.67	)	$	(0.24	)	$	(0.43	)
Weighted average shares used in computing basic and diluted net loss per share attributable to common stockholders		33,204			59,631			65,662

F-33

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned on this 27th day of February, 2007, thereunto duly authorized.

EVERGREEN SOLAR, INC.


	By:	/s/ Richard M. Feldt

Richard M. Feldt

Chief Executive Officer,

President and Chairman of the Board

POWER OF ATTORNEY

KNOW ALL PERSONS BY THERE PRESENTS, that each person whose signature appears below constitutes and appoints Richard M. Feldt and Michael El-Hillow, and each of them his attorneys-in-fact, each with the power of substitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K with all exhibits thereto and all documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that such attorneys-in-fact and agents or any of them, or his or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.


Name	Title	Date

/s/ Richard M. Feldt Richard M. Feldt	Chief Executive Officer, President and Chairman of the Board(Principal Executive Officer)	February 27, 2007

/s/ Michael El-Hillow Michael El-Hillow	Chief Financial Officer and Secretary (Principal Financial and Accounting Officer)	February 27, 2007

/s/ Allan H. Cohen Allan H. Cohen	Director	February 27, 2007

/s/ Edward C. Grady Edward C. Grady	Director	February 27, 2007

/s/ Dr. Gerald L. Wilson Dr. Gerald L. Wilson	Director	February 27, 2007

/s/ Dr. Peter W. Cowden Dr. Peter W. Cowden	Director	February 27, 2007

II-1


		Page

DOCUMENTS INCORPORATED BY REFERENCE
Item 1.	Business		3
Item 1A.	Risk Factors		15
Item 1B.	Unresolved Staff Comments		28
Item 2.	Properties		28
Item 3.	Legal Proceedings		28
Item 4.	Submission of Matters to a Vote of Security Holders		28
PART II
Item 5.	Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		29
Item 6.	Selected Financial Data		31
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		32
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk		44
Item 8.	Financial Statements and Supplementary Data		45
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		45
Item 9A.	Controls and Procedures		45
Item 9B.	Other Information		46
PART III
Item 10.	Directors and Executive Officers of the Registrant		46
Item 11.	Executive Compensation		46
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		46
Item 13.	Certain Relationships and Related Transactions		46
Item 14.	Principal Accountant Fees and Services		47
PART IV
Item 15.	Exhibits and Financial Statement Schedules		47
Consolidated Balance Sheets as of December 31, 2005 and 2006			F-4
Consolidated Statements of Operations			F-5
Consolidated Statements of Stockholders’ Equity			F-6
Consolidated Statements of Cash Flows			F-7
Notes to Consolidated Financial Statements			F-8
Signatures			II-1
EX-23.1 Consent of PricewaterhouseCoopers, LLP
Consent of Leipzig, Germany PricewaterhouseCoopers AG
EX-31.1 Section 302 Certification of C.E.O.
EX-31.2 Section 302 Certification of C.F.O.
EX-32.1 Section 906 Certification of C.E.O.
EX-32.2 Section 906 Certification of C.F.O.
EX-99.1 EverQ GmbH balance sheet for the period ended December 31, 2006
EX-99.2 EverQ GmbH income statement for the period December 20 to December 31, 2006
EX-99.3 EverQ GmbH cash flow for the period December 20 to December 31, 2006
EX-99.4 EverQ GmbH notes to the financial statements for the period December 20 to December 31, 2006


Report of Independent Registered Public Accounting Firm			F-2
Consolidated Balance Sheets as of December 31, 2005 and 2006			F-4
Consolidated Statements of Operations for the years ended December 31, 2004, 2005 and 2006			F-5
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2004, 2005 and 2006			F-6
Consolidated Statements of Cash Flows for the years ended December 31, 2004, 2005 and 2006			F-7
Notes to Consolidated Financial Statements			F-8
Schedule I — Condensed Financial Information of the Registrant			F-34

2.		Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.		Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.		The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:


/s/ Richard M. Feldt

Richard M. Feldt
Chief Executive Officer
February 27, 2007

1.		I have reviewed this Annual Report on Form 10-K of Evergreen Solar, Inc;

2.		Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.		Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.		The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:


/s/ Michael El-Hillow

Michael El-Hillow
Chief Financial Officer
February 27, 2007


	December 31,
	2006
	€
A. Fixed assets
I. Intangible assets
1. Software		285,382.40
2. Prepayments		362,899.57

		648,281.97


II. Property, Plant and Equipment
1. Land and buildings		15,200,429.79
2. Technical equipment and machinery		44,030,694.51
3. Other plant, factory and office equipment		1,419,818.78
4. Assets under construction and prepayments		42,854,549.89

		103,505,492.97

		104,153,774.94


B. Current assets
I. Inventories
1. Raw materials and supplies		7,119,988.13
2. Unfinished goods		2,383,743.81
3. Finished goods		519,901.27

		10,023,633.21


II. Receivables and other assets
1. Trade receivables		180,041.95
2. Receivables due from shareholders		14,263,872.65
3. Other assets		25,691,311.13

		40,135,225.73

III. Cash on banks		44,503,228.48
		94,662,087.42

C. Prepaid expenses		161,201.86

		198,977,064.22


	December 31,
	2006
	€
A. Equity
I. Subscribed capital		480,000.00
II. Additional paid in capital		71,057,768.05
III. Accumulated losses brought forward		-6,259,611.88
IV. Net income		1,190,337.21

		66,468,493.38

B. Special line item for investment subsidies
1. Special line item for federal investment grants		18,230,674.39
2. Special line item for state investment grants		18,030,605.74

		36,261,280.13


B. Accruals
Other accruals		6,728,951.27


C. Liabilities
1. Liabilities to banks (thereof due up to one year €2,000,000.00)		7,000,000.00
2. Trade payables (thereof due up to one year €6,147,102.30)		6,147,102.30
3. Liabilities due to shareholders (thereof due up to one year €66,898,228.82)		75,898,228.82
4. Other liabilities (thereof due up to one year €473,008.32) (thereof tax liabilities €449,990.25) (thereof liabilities regarding social security €21,349.95)		473,008.32

		89,518,339.44

		198,977,064.22


	December 20 to
	December 31,
	2006
	€
1. Revenues		3,676,877.80
2. Inventory change in unfinished and finished goods		-288,881.97
3. Capitalized own work		1,928.40
4. Other operating income		170,874.75

5. Expenditure for materials
a) Expenditure for raw materials, consumables and supplies		1,332,487.34
b) Expenditure for purchased services		184,749.62

		1,517,236.96


6. Payroll expenses
a) Salaries and wages		351,341.85
b) Social security		67,805.77

		419,147.62

7. Depreciation and amortization of intangible fixed assets and property, plant and equipment		231,764.35
8. Other operating expenses		172,391.04
9. Other interest and similiar income		85,962.64
10. Interest and similiar expenses		115,884.44
(thereof due to shareholder € 81,156.47)

11. Net income		1,190,337.21


	Up to Dec. 19, 2006			from Dec. 20, 2006
Evergreen		64	%		33.33	%
Q-Cells		21	%		33.33	%
REC		15	%		33.33	%


Liabilities	= < 1 year		> 1 year =		Total
			< 5 years
	k€		k€		k€
to banks		2,000		5,000		7,000
trade payables		6,147		0		6,147
to shareholders		66,898		9,000		75,898
others		473		0		473

		75,518		14,000		89,518


	= < 1 year		> 1 year =		> 5 years		Total
			< 5 years
	k€		k€		k€		k€
Long-term material purchases		96,065		148,731		123,666		368,462
Short-term purchases of raw materials		21,834		0		0		21.834
Fixed assets		66,674		0		0		66.674
Services		79		33		0		112
Rental and leasing agreements		16		16		0		32

		184,668		148,780		123,666		457,114

thereof due to shareholders								346,628


Richard Feldt	engineer	CEO, Evergreen
Eric Sauer	engineer	CTO, REC
Anton Milner	engineer	CEO, Q-Cells


			k€

Net income in accordance with German GAAP				1,190


Reconciling entries	Note


Increase in depreciation due to reversal of impairment loss on property, plant and equipment		N 1		-113
Government grants related to the impaired assets		N 2		51


Net income in accordance with U.S. GAAP				1,128


			k€

Equity in accordance with German GAAP				66,468


Reconciling entries	Note


Reversal of impairment loss on property, plant and equipment		N 1		680
Government grants related to the impaired assets		N 2		-303
Deferred bank charges		N 3		46


Equity in accordance with U.S. GAAP				66,891

	I.		Reversal of impairment loss on property, plant and equipment (see N 1 above) of k€ 680,

	II.		Government grants related to the impaired assets (see N 2 above) of k€ -303, and

	III.		Deferred bank charges (see N 3 above) of k€ 46.