UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

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

OR

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

COMMISSION FILE NUMBER 000-31687

EVERGREEN SOLAR, INC.

138 Bartlett Street
Marlboro, Massachusetts 01752
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)

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

259 Cedar Hill Street
Marlboro, Massachusetts 01752
(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED SINCE LAST REPORT)

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

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

     Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: As of April 19, 2005 there were 60,957,679 shares of common stock outstanding.

EVERGREEN SOLAR, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED APRIL 2, 2005

TABLE OF CONTENTS

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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Evergreen Solar, Inc.

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

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Evergreen Solar, Inc.

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

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Evergreen Solar, Inc.

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

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Notes to Condensed Consolidated Financial Statements

1. Basis of Presentation

The accompanying condensed consolidated interim financial statements of Evergreen Solar, Inc. (“Evergreen Solar” or the “Company”) are unaudited and have been prepared on a basis substantially consistent with the Company’s audited financial statements for the year ended December 31, 2004. The condensed consolidated interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information. Consequently, these statements do not include all disclosures normally required by generally accepted accounting principles for annual financial statements. These condensed consolidated interim financial statements should be read in conjunction with the Company’s audited financial statements for the year ended December 31, 2004, which are contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2004, which was filed with the Securities and Exchange Commission on March 10, 2005 and as subsequently amended. The unaudited condensed consolidated interim financial statements, in the opinion of management, reflect all adjustments necessary for a fair presentation of the financial position at April 2, 2005, the results of operations for the quarters ended April 2, 2005 and March 31, 2004, and the cash flows for the quarters ended April 2, 2005 and March 31, 2004. The balance sheet at December 31, 2004 has been derived from audited financial statements as of that date. The results of operations for the interim periods are not necessarily indicative of the results of operations to be expected for any other interim period or for the full fiscal year ending December 31, 2004. Beginning with the first quarter of 2005, the Company adjusted its fiscal reporting period to better align with its internal manufacturing schedule. Our adjusted quarterly fiscal reporting periods will end upon the conclusion of thirteen consecutive weeks, rather than upon the conclusion of three consecutive calendar months. Such an adjustment may result in interim periods ending on days that differ slightly from the calendar month-end. For example, our first fiscal quarter of 2005 ended on April 2, 2005, our second fiscal quarter of 2005 ends on July 2, 2005, and our third fiscal quarter of 2005 will end on October 1, 2005. In 2005, the adjustment to our interim reporting periods will have no effect on our fiscal year end, which remains December 31. The change of the interim periods was not material for the quarter.

The condensed consolidated interim financial statements include the accounts of the Company’s wholly owned subsidiaries, Evergreen Solar Securities, Inc. and Evergreen Solar GmbH. All material intercompany accounts and transactions have been eliminated. The functional currency for Evergreen Solar GmbH is Euros. Revenues and expenses of Evergreen Solar GmbH are translated into U.S. dollars at the average rates of exchange during the quarter, and assets and liabilities are translated into U.S. dollars at quarter-end rates of exchange. In January 2005, the Company entered into a strategic partnership agreement with Q-Cells AG to form a separate company called EverQ GmbH (“EverQ”). EverQ will be governed by a three-member advisory board consisting of two representatives of the Company and one Q-Cells representative. Under the strategic partnership agreement, the Company and Q-Cells have made a total equity commitment of 46 million euro (approximately $60 million at the April 2, 2005 exchange rate) to finance a significant part of the construction of this facility and initial working capital requirements, of which the Company will contribute 75.1% and Q-Cells will contribute 24.9%. The functional currency of EverQ GmbH is Euros. Therefore, revenues and expenses are translated into U.S. dollars at the average rates of exchange during the quarter, and assets and liabilities are translated into U.S. dollars at quarter-end rates of exchange. The Company consolidates the financial statements of EverQ in accordance with the provisions of Financial Accounting Standards Board (FASB) FIN 46(R), “Consolidation of Variable Interest Entities, an interpretation of ARB No. 51.”

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

The Company is subject to risks common to companies in the high technology and energy industries including, but not limited to, development by the Company or its competitors of new technological innovations, dependence on key personnel, protection of proprietary technology and compliance with government regulations. Any delay in the Company’s plan to scale its capacity may result in increased costs and could impair business operations.

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

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model in accordance with SFAS No. 123, as amended by SFAS No. 148, “Accounting for Stock-Based Compensation-Transition and Disclosure.”

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

2. Net Loss per Common Share

The Company computes net loss per common share in accordance with SFAS No. 128, “Earnings Per Share” (“SFAS 128”), and SEC Staff Accounting Bulletin No. 98 (“SAB 98”). Under the provisions of SFAS 128 and SAB 98, basic net loss per common share is computed by dividing net loss attributable to common stockholders by the weighted average number of common shares outstanding during the period. The calculation of diluted net loss per common share for the quarters ended March 31, 2004 and April 2, 2005 does not include 31,489,151 and 11,377,498 potential shares of common stock equivalents outstanding at March 31, 2004 and April 2, 2005, respectively, as their inclusion would be anti-dilutive.

3. Inventory

Inventory consisted of the following at December 31, 2004 and April 2, 2005 (in thousands):

4. Fixed Assets

Fixed assets consisted of the following at December 31, 2004 and April 2, 2005 (in thousands):

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5. Guarantor Arrangements

The following is a summary of the Company’s agreements that are within the scope of FASB Interpretation No. 45 “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others” (“FIN 45”).

Product Warranty

The Company’s current standard product warranty includes a one or two-year warranty period for defects in material and workmanship and a 25-year warranty period for declines in power performance. The Company has provided for estimated future warranty costs of $705,000, representing its best estimate of the likely expense associated with fulfilling its obligations under such warranties. The actual warranty experience in future periods may result in higher costs being incurred. 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:

Indemnification Agreements

The Company enters into standard indemnification agreements in its ordinary course of business. Pursuant to these agreements, the Company indemnifies, holds harmless, and agrees to reimburse the indemnified party for losses suffered or incurred by the indemnified party, generally our business partners, customers, directors and officers. The term of these indemnification agreements is generally perpetual any time after execution of the agreement. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is unlimited. However, the Company has never incurred costs to defend lawsuits or settle claims related to these indemnification agreements. The Company believes the estimated fair value of such agreements is minimal. The Company agreed to indemnify, defend and hold harmless each of the purchasers participating in the Company’s Series A convertible preferred stock financing transaction, their affiliates and their respective officers, directors, agents, employees, subsidiaries, partners, members and controlling persons to the fullest extent permitted by law from and against any and all losses, claims or written threats thereof, damages, expenses (including reasonable fees, disbursements and other charges of counsel) resulting from or arising out of the Company’s breach of any representation or warranty, covenant or agreement in the purchase agreement. The Company believes the estimated fair value of this indemnification agreement is minimal.

6. Deferred Compensation

Prior to December 31, 2000, the Company recorded total cumulative deferred compensation of approximately $1.3 million, representing the difference between the fair market value of the Company’s common stock and the exercise price on the option grant date. These amounts were presented as a reduction of stockholders’ equity and are being amortized ratably over the vesting period of the options, which is generally four years. The amortization resulted in charges to operations of $31,000 and $0 for the quarters ended March 31, 2004 and April 2, 2005, respectively.

7. Segment Information

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

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8. Stockholders’ Equity

The Company has two classes of capital stock: common and preferred. At April 2, 2005, 7,650,000 shares of common stock were authorized for issuance under the Company’s 2000 Stock Option Plan and 4,913,806 shares were reserved for issuance upon conversion of outstanding warrants issued in the Series A Private Placement and the Common Stock Private Placement and to Silicon Valley Bank in connection with the Company securing its line of credit in August 2004.

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 facility and the expenditures necessary for the build-out and initial operation of the strategic partnership with Q-Cells. A portion of the proceeds from the financing will also be 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 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.

9. EverQ GmbH

As of April 2, 2005, EverQ had assets consisting mainly of cash totaling $2.5 million, accounts payable and accrued expenses of $87,000 and losses from operations of $165,000, all of which are consolidated in the Company’s financial statements. Although the expenditures related to EverQ are not significant to the Company’s overall financial position as of April 2, 2005, the company expects such amounts to become material in future periods as EverQ increases its factory construction activities.

10. Short-term Borrowings

On August 26, 2004, the Company entered into a one-year revolving credit facility in the amount of $5.0 million with Silicon Valley Bank pursuant to a Loan and Security Agreement dated August 26, 2004 (the “Loan Agreement”). The credit facility is collateralized by a first-priority security interest granted to Silicon Valley Bank by the Company in substantially all of the Company’s assets.

The Company issued a warrant to purchase 89,955 shares of common stock to Silicon Valley Bank, as compensation for establishing the revolving credit facility. The warrant entitles Silicon Valley Bank to shares of the Company’s common stock at an exercise price of $3.34. The warrants are exercisable at any time on or prior to August 25, 2009. The fair value of the warrant (approximately $187,000) has been recorded as a deferred financing charge, along with $100,000 of other direct expenses associated with the revolving credit facility, and will be charged to interest expense ratably over the term of the facility, which is twelve months.

The Loan Agreement contains certain financial and other covenants that restrict the Company’s ability to, among other things, dispose of property, incur indebtedness, make certain acquisitions, merge into another entity, declare or pay dividends above an aggregate threshold of $500,000 and redeem, retire, repurchase or otherwise acquire shares of capital stock of the Company in excess of $500,000 in the aggregate. In addition, the Company must comply with certain financial thresholds including minimum tangible net worth and minimum cash or excess availability.

As of April 2, 2005, the Company had drawn $1.5 million under the revolving line of credit.

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11. Other Comprehensive Loss

Other comprehensive loss consists of unrealized gains and losses on available-for-sale securities as well as accumulated currency translation adjustments associated with the consolidation of the Company’s foreign subsidiaries, which is reflected in stockholder’s equity section of the Company’s balance sheet. As of March 31, 2004 accumulated other comprehensive loss was $26,000, which consisted entirely of net unrealized losses on available-for-sale securities. As of April 2, 2005 accumulated other comprehensive loss was $42,000 which consisted of cumulative translation adjustment (loss) of $29,000 and net unrealized losses on available-for-sale securities of $13,000.

12. Foreign Currency Derivative Transactions

In 2004, the Company began to manage its foreign exchange risk through the use of derivative financial instruments. These financial instruments serve to protect cash flow against the impact of the translation into U.S. dollars of foreign exchange denominated transactions. As of April 2, 2005, the Company had forward currency contracts denominated in foreign currencies totaling €4.0 million. At April 2, 2005, the fair market value of outstanding forward exchange contracts was $5.2 million. The difference between the fair market value and the book value of the contracts as of April 2, 2005 was $29,000, which is recorded as a current liability in the Company’s balance sheet.

13. Recent Accounting Pronouncements

On April 14, 2005, the Securities and Exchange Commission (SEC) approved a new rule that for public companies that delays the effective date of FASB Statement No. 123 (revised 2004), giving a number of those companies more time to develop their implementation strategies. Except for this deferral of the effective date, the guidance in FAS 123(R) is unchanged. Under the SEC’s rule, FAS 123(R) is now effective for public companies for annual, rather than interim, periods that begin after June 15, 2005. The Company will adopt this for the year ended December 31, 2006.

14. Subsequent Event

On April 25, 2005, the Company’s strategic partnership, EverQ, received notification that, subject to certain conditions, it will receive approximately 28 million euros, or $35 million at April 2, 2005 exchange rates, in German government grants for the manufacturing facility to be built in Thalheim, Germany.

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

CONCERNS REGARDING FORWARD-LOOKING STATEMENTS

This quarterly report contains forward-looking statements within the meaning of the federal securities laws, including, without limitation, statements concerning Evergreen Solar’s expectations, beliefs and/or intentions regarding the following: trends in revenues; future warranty expenses; benefits and expenses resulting from our strategic partnership with Q-Cells; our future equity ownership position in our strategic partnership with Q-Cells; 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; payments of cash dividends; use of derivative financial instruments to manage foreign currency exchange risks; and the potential impact of our critical accounting policies and changes in financial accounting standards or practices. Actual results and events could differ materially from those contemplated by these forward-looking statements due to various risks and uncertainties, including those discussed in the “Certain Factors Which May Affect Future Results” section and elsewhere in this quarterly report. Evergreen Solar undertakes no obligation to update forward-looking statements to reflect events or circumstances occurring after the date of this report.

EXECUTIVE OVERVIEW

We develop, manufacture and market solar power products enabled by our String Ribbon technology that provide reliable and environmentally clean electric power throughout the world. Solar power products use interconnected photovoltaic cells to generate electricity from sunlight. To date, our product sales have been primarily solar modules, which are used to generate electricity for on-grid and off-grid applications. 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 powering highway call boxes, microwave stations, portable highway road signs, remote-street or billboard lights, vacation homes, rural homes in developed and developing countries, water pumps and battery chargers for recreational vehicles and other consumer applications. More recently, the substantial majority of our products have been used by on-grid customers as a clean, renewable source of alternative or supplemental electricity.

We have essentially completed our capital program aimed at increasing our production capacity in our Marlboro factory to a nameplate capacity of approximately 15 megawatts (MW). We will however continue capital programs to increase the capabilities and improve the operational efficiency of this factory throughout 2005 and beyond. While these expenditures may add incremental capacity, they are primarily intended to improve the efficiency, capabilities and product attributes of our Marlboro factory.

To date, our product sales have been constrained by our manufacturing capacity, despite the fact that (as compared to 2004) by April 2005, we had approximately quadrupled our plant’s annualized production rate to approximately 12 MW. Since product revenue has been limited by capacity, the expansion in Marlboro should enable revenue growth and improvement in product gross margins as compared to 2004. Specifically, our product revenues for the first quarter 2005 represent a 263% increase over our product revenues for the first quarter of 2004. Furthermore, we had positive product gross margin for the second consecutive quarter of 3.4%.

On January 14, 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 solar cells are among the highest efficiency solar cells commercially available. The agreement provides for the organization and capitalization of EverQ GmbH, or EverQ, which is a limited liability company incorporated under the laws of Germany. The purpose of the strategic partnership is to develop and operate a facility in Germany to manufacture, market and sell solar products based on our proprietary String Ribbon technology using fabrication processes that combine our and Q-Cells’s manufacturing technologies.

The manufacturing facility contemplated by the strategic partnership agreement is expected to be located in Thalheim, Germany and have an initial capacity of 30 MW. Based upon the success of the initial

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operations of this facility, we and Q-Cells intend over the long term, if economically viable, to expand the capacity of this facility up to approximately 120 MW. As part of the strategic partnership, subject to certain conditions under the strategic partnership agreement, we and Q-Cells have agreed to finance a majority of the expenditures necessary for the establishment and initial operation of EverQ through cash contributions in amounts payable over time that total to 46 million euros (approximately $60 million at the April 2, 2005 exchange rate), of which we would be responsible for 75.1%. The financing of this 46 million euros may take the form of equity, debt, or a continuation of the two. After reduction of the 46 million euro commitment for any debt incurred by EverQ, including loans from the parents, we will be responsible for 75.1% of the remaining equity contributions. In addition to these amounts, it is our intention, and the financing plans currently require, that we finance approximately 28 million euros of such expenditures through public grants under a German government grant program. We believe this strategic partnership 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.

Financing Transactions

In February 2005, we completed a common stock offering with gross proceeds of $66.7 million. We received proceeds of $62.3 million, net of offering costs of approximately $4.4 million, which are available to satisfy existing capital requirements, to fund the continuing development of our Marlboro, Massachusetts manufacturing facility and the expenditures necessary for the initial build-out and initial operation of the strategic partnership with Q-Cells. A portion of the proceeds from the financing will also be used to increase research and development spending on promising next generation technologies and to explore further expansion opportunities. In 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 National Market as of the close of business on February 3, 2005.

We believe that our current cash, cash equivalents, marketable securities and borrowings available under our revolving credit facility will be sufficient to fund our currently planned capital programs aimed at increasing the capabilities of our Marlboro, Massachusetts manufacturing facility, fund our expected commitments with our strategic partnership with Q-Cells for its initial 30 megawatts of capacity and to fund our operating expenditures over the next twelve months. We will need to raise significant additional capital in order to further enhance our operating infrastructure and to further increase capacity. We may also require significant additional capital to respond to competitive pressures and acquire complementary businesses or necessary technologies. We do not know whether we will be able to raise additional financing or financing on terms favorable to us. If adequate funds are not available or are not available on acceptable terms, our ability to fund our operations, develop and expand our manufacturing operations and distribution network, or otherwise respond to competitive pressures would be significantly limited.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The preparation of consolidated financial statements in accordance with generally accepted accounting principals requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities, if applicable. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. In addition to the critical accounting policies disclosed in our Annual Report on Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 2004, we believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements.

Warranty

Our current standard product warranty includes a one or two-year warranty period for defects in material and workmanship and a 25-year warranty period for declines in power performance. We have provided for estimated future warranty costs of $705,000, representing our best estimate of the likely expense associated with fulfilling our obligations under such warranties. The actual warranty experience in future periods may result in higher costs being incurred. 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 affected 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.

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Sales Discount Allowance

During the first quarter of 2005, we began offering certain customers early payment discounts as an incentive aimed at improving our short-term cash flow. We estimate the allowance for sales discounts based on actual and historical payment practices of customers, and record provisions at the time when revenue is recognized. While our methodology takes into account these uncertainties, adjustments in future periods may be required as our customers change their payment practices. During the first quarter of 2005, total sales discounts taken and accrued for was $130,000.

RESULTS OF OPERATION

Revenues. Total revenues for the Company consist of revenues from the sale of products and research revenues. Product revenues consist of revenues from the sale of solar cells, panels and systems. Research revenues consist of revenues from various state and federal government agencies to fund our ongoing research, development, testing and enhancement of our products and manufacturing technology. Our current intention is not to pursue contracts that are not part of our ongoing research activities. We recognize research revenues as services are rendered.

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

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

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

Other income. Other income, net consists of net interest income primarily from interest earned on the holding of short-term, high-quality commercial paper, corporate bonds and United States government-backed securities, (less any bond premium amortization), interest on any outstanding debt, and net foreign exchange gains.

Minority interest. As of April 2, 2005, EverQ incurred losses from continuing operations of $165,000, all of which are consolidated in the Company’s financial statements. However, $41,000 represents the portion of EverQ losses attributed to minority interest.

Dividends on 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 $0.7 million, which the Company elected to add to the liquidation preference of the Series A convertible preferred stock.

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 Quarters Ended April 2, 2005 and March 31, 2004

Revenues. Our product revenues for the quarter ended April 2, 2005 were $10.3 million, an increase of $7.5 million, or 263%, from $2.8 million for the quarter ended March 31, 2004. The increase in product revenues was due to the increased production capacity of our manufacturing facility in Marlboro, Massachusetts, our increased marketing and sales activities, and favorable foreign exchange rates. Research revenues for the quarter ended April 2, 2005 were $235,000, a decrease of $27,000, or 10%, from $262,000 for the quarter ended March 31, 2004.

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Research revenue decreased because our last active research contract with the National Renewable Energy Laboratory expired during the first quarter of 2005.

Product revenues represented 98% of